Venezuelan President Huge Chavez recently announced his intent to nationalize his country’s vast oil sector (as well as the nation's largest phone company and utilities). His statements made headlines across the globe, sending the Venezuelan stock exchange down 19% in a single day.
Venezuela is a key oil supplier to many industrialized nations, especially the U.S. (we get about 5% of our daily oil supply from Venezuela.) So what exactly would it mean if Chavez went ahead with his plans? As you may know--CNBC's Michelle Caruso-Cabrera traveled to Venezuela last week to find out how Venezuela is adapting to Chavez's ideas for nationalization--and she filed this final report.
She found that oil is truly Venezuela’s “lifeblood” – the country, with a population of just over 25 million, owes 25% of its roughly $110 billion GDP to its oil reserves. This makes the potential risks and advantages of Chavez’s nationalization plan even greater. Oil prices often make front-page news in the country, and the national mood can be defined by the price of oil. Venezuelans are happy when oil prices are high; and they are unhappy when they are low, says Leopoldo Lopez, the opposition mayor of Caracas.
It’s still unclear exactly how far Chavez intends to go with his nationalization plan. Analysts debate whether it merely means higher taxes on foreign oil companies who do business in the country – or a worst case scenario – kicking them out of the country completely.
But Caruso-Cabrera found that it would be difficult for Venezuela to keep up its production of nearly 2.5 million barrels of oil per day without the help of foreign oil giants like ConocoPhilips , Exxon Mobil and Chevron – all of whom have already invested a collective $17 billion in Venezuela. Not only that, but the Venezuelan state oil company has said it plans to drastically increase production in the coming years. Without the help of foreign companies? Highly unlikely, analysts say.
So Chavez must keep a balance between his expressed hatred for American capitalism and his need for America as a buyer. After all, more than half of Venezuela’s exports go directly to the U.S., so for now, as Caruso-Cabrera says, we will likely remain uneasy bedfellows.