Venezuelan President Hugo Chavez took it on the chin over the weekend in congressional elections. His PSUV party lost its two-thirds majority in the National Assembly. As a result, Chavez lost his power to rule by decree and now will be forced to negotiate with the Democratic Unity coalition to pass legislation.
Opposition candidates claim to have secured 52% of the popular vote. Therefore, it appears that Venezuelans are growing wary of Chavez’s Bolivarian Revolution. It is not hard to understand why.
Since Chavez came to power he has nationalized major industries, intimidated his neighbors, antagonized his largest trading partner, the U.S., has used PdVSA as his own personal piggy bank to fund his political ideology and has scared away foreign investment, with little to show in return.
Crude oil prices are up 400% (!) since his first year in office, 1998, and yet Venezuela’s economy is flailing. The economy shrank 3.3% in 2009 and is down another 3.5% through the first half of 2010. Inflation is running at 30.5%.
And, since his coming to office, homicides have reportedly jumped 250% to 44 per day.
Oil revenues account for 90% of export earnings, 50% of federal budget revenues and 30% of GDP. On his first day as president, February 03rd, 1998, crude oil prices on the Nymex closed at $16.50. Last night the market settled at $76.52.
According to estimates from Bloomberg, Venezuelan crude oil production continues to lag as Hugo presses on with his march down the road to serfdom. In the 12 years since Chavez came to power monthly output from the state-owned oil company, PdVSA, has declined steadily, from a 3.4 MMbbl/d peak in January 1998, the month before Chavez entered office, to 2.2 MMbbl/d today.
However, that is not the only thing that is declining in Venezuela. According to the 2009 Yearbook of Immigration Statistics from the U.S. Department of Homeland Security, Venezuelan emigration to the United States has soared since the start of the decade; from 2,991 a year in the 1990s to 8,331 a year.
What’s more, since 2004 — i.e., since Chavez purged private industry following a failed coup the year before — 6,505 Venezuelans, escaping political persecution, were granted asylum by the United States. Thus, Venezuelans were the fourth largest group of asylees in the U.S.; trailing only Communist China, Colombia and Haiti. In 2000, only 23 Venezuelans received asylum in the United States.
As analyzed in today’s issue of , as Chavez has butchered his oil cow he has ceded an even more valuable commodity, intellectual capital, in return. A commodity that will continue to pay dividends long after Venezuela’s oil has run dry.
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Stephen Schork is the Editor of and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.