The Chavez premium

To look at the soft—focus propaganda pictures of Venezuela's Castroite Chavez government, you'd think Venezuela's state oil company was not about producing oil, but rather rehabilitating life's down—and—outers. The Venezuela Information Office's Web site shows smiling, supposedly contented beneficiaries of the bountiful, beneficent state oil company, which is somehow turning singers into systems engineers, and you're supposed to feel good.

But that's not what's going on for workers inside the huge Venezuelan state oil company. The remnants of the once—mighty PdVSA are battling the Chavez government in a contract dispute over three miserable dollars a day in wages.  Inflation from government mismanagement has trashed the purchasing power of oil workers. With oil prices setting historic highs and money rolling in, they want relief, because domestic prices within Venezuela are skyrocketing, penalizing poor and kiddle class alike. Food and transport costs, the bulk of workers' expenses, rose about 26% in 2004.   It also doesn't help that the Chavez government recently threatened to devalue the money again. Chavez has looked upon the oil workers' request for an inflation—alleviating raise with the same pompous disdain as General Jaruzelski against Solidarnosc's fearless union leader Lech Walesa.

It may be swell to be on the receiving end of Chavez's "free" welfare programs financed by oil earnings as the Chavez propaganda site above shows, but it's no treat for those on the producing end. Half the Venezuelan oil workers' colleagues were fired in a 2002—2003 strike, leaving the company understaffed and deprived of some of its most talented, independent—thinking workers. Now, over three dollars and the right to approve who gets hired (read: veto Cuban overseers), the remaining workers are beginning to think they have no alternative but another strike. A second oil strike of this magnitude, in less than two years, is quite a different kind of advertisement for social progress. And the result for us in the U.S. is oil prices that have rocketed higher, rising $2 a barrel in one day's trading to $45 a barrel. 

Those extra two dollars are the Chavez premium. Just as oil prices have finally dropped to the $40 a barrel range, up comes Hugo Chavez to drive our oil prices once again higher. As he has always said he wanted, even though a potential production stoppage could mean he won't see a penny of it. And how is he doing it? By abusing the oil workers. This isn't the first time he's done it — he has almost a compulsion to repress oil workers, that, as the president of Brazil pointed out, are one of the few remaining groups that can challenge him. As we reported earlier,  he's made a spectacle of his vengeful effort to arrest and imprison as many oil workers who've crossed him in the past as he can.

Every time Chavez rattles the oil market around, he gets rewarded with higher oil prices that directly benefit his revenue bottom line and increase his political power. By the perverse logic of it, it's almost an incentive. Don't be surprised if oil prices continue to rise under such circumstances, based on what he does. The price hikes are a perfect reflection of Chavez's record of mismanagement, which is draining the oil company's coffers to pay for welfare handouts to non—workers, and stiffing productive workers with wages eroded by high inflation. Who pays this Chavez premium? We do.

To look at the soft—focus propaganda pictures of Venezuela's Castroite Chavez government, you'd think Venezuela's state oil company was not about producing oil, but rather rehabilitating life's down—and—outers. The Venezuela Information Office's Web site shows smiling, supposedly contented beneficiaries of the bountiful, beneficent state oil company, which is somehow turning singers into systems engineers, and you're supposed to feel good.

But that's not what's going on for workers inside the huge Venezuelan state oil company. The remnants of the once—mighty PdVSA are battling the Chavez government in a contract dispute over three miserable dollars a day in wages.  Inflation from government mismanagement has trashed the purchasing power of oil workers. With oil prices setting historic highs and money rolling in, they want relief, because domestic prices within Venezuela are skyrocketing, penalizing poor and kiddle class alike. Food and transport costs, the bulk of workers' expenses, rose about 26% in 2004.   It also doesn't help that the Chavez government recently threatened to devalue the money again. Chavez has looked upon the oil workers' request for an inflation—alleviating raise with the same pompous disdain as General Jaruzelski against Solidarnosc's fearless union leader Lech Walesa.

It may be swell to be on the receiving end of Chavez's "free" welfare programs financed by oil earnings as the Chavez propaganda site above shows, but it's no treat for those on the producing end. Half the Venezuelan oil workers' colleagues were fired in a 2002—2003 strike, leaving the company understaffed and deprived of some of its most talented, independent—thinking workers. Now, over three dollars and the right to approve who gets hired (read: veto Cuban overseers), the remaining workers are beginning to think they have no alternative but another strike. A second oil strike of this magnitude, in less than two years, is quite a different kind of advertisement for social progress. And the result for us in the U.S. is oil prices that have rocketed higher, rising $2 a barrel in one day's trading to $45 a barrel. 

Those extra two dollars are the Chavez premium. Just as oil prices have finally dropped to the $40 a barrel range, up comes Hugo Chavez to drive our oil prices once again higher. As he has always said he wanted, even though a potential production stoppage could mean he won't see a penny of it. And how is he doing it? By abusing the oil workers. This isn't the first time he's done it — he has almost a compulsion to repress oil workers, that, as the president of Brazil pointed out, are one of the few remaining groups that can challenge him. As we reported earlier,  he's made a spectacle of his vengeful effort to arrest and imprison as many oil workers who've crossed him in the past as he can.

Every time Chavez rattles the oil market around, he gets rewarded with higher oil prices that directly benefit his revenue bottom line and increase his political power. By the perverse logic of it, it's almost an incentive. Don't be surprised if oil prices continue to rise under such circumstances, based on what he does. The price hikes are a perfect reflection of Chavez's record of mismanagement, which is draining the oil company's coffers to pay for welfare handouts to non—workers, and stiffing productive workers with wages eroded by high inflation. Who pays this Chavez premium? We do.