The View from Europe
By David Jessop
 
Energy Dependency and President Chávez
 
For years, many in the US and Europe have been wishing
that Venezuela’s mercurial President, Hugo Chávez, would depart and a more pro-western
leader take his place. But now, paradoxically, some of his harshest critics appear
to be having second thoughts as the possible regional implications of his
illness become apparent. 
 
The Venezuelan President’s confirmation on television on 30
June that he has been diagnosed with cancer has focussed minds on just what it
would mean should the special arrangements for energy supply that he personally
has championed across the Caribbean Basin should for any reason have to be
modified or come to an end.
 
Although the prognosis for President Chávez’s cancer remains
unclear following his recent extended stay in Cuba where he underwent surgery
and other forms of treatment, there are persistent but impossible to confirm reports
that that his medical problem may be subject to metastasis.
 
Irrespective, what is not in doubt is that during President
Chávez’s tenure in office, Venezuela has become of huge economic and social significance
to almost all of the nations of the Caribbean, where the PetroCaribe
arrangement underwrites the stability of most economies.
 
Created in 2005, the PetroCaribe arrangement has as its
members,  Antigua, the, Bahamas, Belize,
Cuba, Dominica, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica,
Nicaragua, Dominican Republic, St Kitts, St Vincent and, St Lucia, Suriname and
Venezuela .
 
The scheme works on the basis that nations receive
Venezuelan oil on concessionary terms on a scale that adjusts depending on the world
market price of oil. This means that now that oil is above US$100 per barrel, PetroCaribe
member nations pay just 60 per cent of the cost over a period of 25 years at an
interest rate of 1 per cent on deferred terms. The arrangement operates in such
a way that member countries are allowed to retain a part of their payment so
governments can use the programme for balance of payment purposes and budgetary
support or to deliver an agreed range of development programmes. 
 
The scheme has been extended to incorporate oil exploration,
distribution and storage. More recently, in mid June in Venezuela’s Isla
Margarita, discussions took place on the creation of a development fund, the establishment
of joint ventures between members, creating a trade in agrochemicals and petrochemicals,
and developing regional gas supply.
 
Under the PetroCaribe arrangement PetroCaribe members have
received in total, oil on preferential terms at the rate of between 120,000 and
140,000 barrels per day (bpd) over the past three years. The largest share of
this has been allocated to Jamaica (21,000 bpd) and the Dominican Republic (50,000
bpd) while Cuba receives somewhere between 64,000 and around 100,000 bpd under
a more complex arrangement. According to the Vice President of Refining, Trade
and Supply of Petroleos de Venezuela (PDVSA ), Asdrubal Chávez, the overall arrangement
this year will involve the supply of 200,000 bpd. 
 
Less positively, the programme has increased the region’s
long-term indebtedness; with Caracas projecting that over one third of the
Caribbean’s external debt by 2015 will be owed to Venezuela. 
 
The country potentially most at risk from any change in
the arrangement is Cuba, where Venezuela supplies more than two thirds of the country’s
oil needs, and has a trade relationship that results in a net gain to Cuba, some
published figures suggest, of around US$ 3,500m in 2010. So seriously is this taken in Havana and despite the special
relationship that exists between Cuba and Venezuela, Cuba has been working for
some time now to diversify its energy relationships. Despite this it is believed
that it will still be another five years before this can be achieved. 
 
Haiti too is critically reliant on PetroCaribe despite US
attempts to undermine the arrangement. Venezuela has pledged to provide for the
fuel needs of the Haitian people without cost and has allocated US$120m to aid
the reconstruction of industry, agriculture and social services. President
Chávez also forgave Haiti’s debt, estimated by the IMF to be US$295m. 

In the case of the Dominican
Republic’s its debt with Venezuela totals US$2.02 billion which it is repaying
through the provision of  commodities and
tourism services, while other reports suggest that Jamaica too is
carrying high levels of debt that it will service through trade in cement as
well as by making cash payments. 
 
Despite criticism from those outside the Caribbean who do
not like the implied political leverage the programme gives to Caracas, no
other nation at this time has the political will to provide this level of
support to Caribbean states. So much so that the US in particular is now faced
with the paradox of needing Caracas’ continuing commitment to maintaining
PetroCaribe’s programmes in the region if it is to have any guarantee of
economic and social stability in the region.

Having said this, there is a need for much greater realism about the arrangement.
Nations within the region and beyond are only now asking themselves serious
questions about what happens if Venezuela finds itself having to increase
prices, reduce supply or at worst change or even end the arrangement. 
 
The strong probability is that whatever happens in forthcoming
Presidential elections the National Assembly will remain under the control of Venezuela’s
governing PSUV, which will continue to pursue President Chávez’s populist
domestic policies. However, some independent analysts suggest that PetroCaribe could
still under certain circumstances be subject to change as it has limited
support within the governing party, the National Assembly, PDVSA and the
military. 
 
No one should be in any doubt about the critical
importance of Venezuela’s PetroCaribe programme. If it were not for the energy
lifeline that it has provided to every Caribbean nation other than Trinidad and
Barbados, much of the region would by now be in economic free fall.
 
The debt the region owes to President Chávez is enormous
and was recognised at both a personal and economic level in discussions at the
recently held Caricom Heads of Government meeting in St Kitts.

Much of the region’s economic stability especially at a time of austerity and
IMF programmes depends on the continuation of the PetroCaribe arrangement and
its pricing structure: factors which should give belated pause for thought not
only in the region but also amongst those in Washington and Europe not well
disposed to Venezuela’s regional role.
 
All of which suggests that those who decry President
Chavez even as he undergoes further treatment, should be careful what they wish
for. 
 
David Jessop is the Director of the Caribbean Council and
can be contacted at [log in to unmask]
Previous columns can be found at www.caribbean-council.org
July 18th, 2011