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BAILEY: Terror funding is risky move

U.S. pullout from oil market would cripple Chavez regime

- The Washington Times - Friday, November 19, 2010

On Sept. 26, a majority of the Venezuelan people voted against the candidates of dictator Hugo Chavez, although because of blatant gerrymandering, his party will still have a majority in the new National Assembly when it convenes in January. There is little or no likelihood that there will be any change in Mr. Chavez's policies or practices as a result of his electoral setback. Indeed, since the election, he has more aggressively than ever pursued his goals of concentrating power in his government and in the state, confiscating dozens of additional private companies and much agricultural land. He already for some time has controlled all the instruments of state power and the great majority of the media.

In the face of all this, as well as the incredible total waste of a trillion dollars of oil income over the past 10 years of Chavez misgovernment, virtually none of which was spent on improving or even maintaining the Venezuelan infrastructure, physical or social, or even in maintaining the mainstay of the Venezuelan economy and budget, the state oil company Petroleos de Venezuela SA (PDVSA), Venezuela is faced with shortages of all kinds, including basic foodstuffs, water and energy, and is suffering the highest rate of inflation and the highest rate of common crime in the Western Hemisphere.

All of this is borne by the Venezuelan people, and it explains the government's poor showing in the congressional election of September, despite almost complete government dominance of the preceding campaign. However, from the international standpoint, Chavista funding of election candidates favorable to his regime in other countries and his courting of international pariahs such as Iran's Mahmoud Ahmadinejad and the leaders of countries such as Belarus, Zimbabwe, Sudan and Syria are of greater significance. Especially troubling is his facilitation of Iranian penetration into the Western Hemisphere by enabling use of the Venezuelan financial system for the purpose of avoiding financial sanctions applied to Iran by the United States, the European Union and the United Nations and the provision of Venezuelan passports and identification documents to Iranian agents.

Nevertheless, the most significant challenge his regime represents to the regional security of the hemisphere and the national security of the United States lies in Venezuelan support for the activities and funding of terrorist organizations, often through the facilitation of drug trafficking and other activities of criminal syndicates. Revolutionary organizations in Colombia such as FARC and ELN, as well as Middle Eastern terrorist organizations such as Hezbollah, Hamas and Islamic Jihad, are all recipients of Chavista support. Venezuela has been cited by the United Nations, among others, as the principal route for cocaine exports to Europe through West African countries.

Despite all this being amply, indeed overwhelmingly, documented through the seizure of FARC documents, among other sources, the Organization of American States (OAS) has done nothing, and, even more surprising, the United States government has done very little beyond sanctioning some Iranian banks operating in Venezuela and individuals (one of whom, Gen. Henry Rangel, was just promoted to commander of the Venezuelan armed forces) by the Treasury.

That Venezuela is a state sponsor of terrorism is beyond question, but neither the Bush nor the Obama administration has seen fit to declare it so. The obvious question of why that should be the case is always answered by asserting that we need Venezuela's oil. That assertion is simply not true. Venezuelan crude is heavy and sulfurous. Outside Venezuela, it can be refined in only a few refineries, most belonging to the PDVSA subsidiary CITGO in the United States, which is why, despite threatening for years, Mr. Chavez has never cut off oil exports to the United States.

Although banning oil exports from Venezuela probably would cause a temporary spike in international oil prices, it would be very short-lived when the United States demonstrated that there are plenty of substitutes available, including, if necessary, from its own Strategic Petroleum Reserve (SPRO), which was established precisely to confront such special situations. There is plenty of oil in the SPRO, and it is better-quality oil than the Venezuelan mix.

For Venezuela, however, the result would be disastrous. Its exports are almost entirely limited to crude oil and derivatives. It would immediately have to reduce expenditures drastically because it has practically no free reserves and imports most of what it consumes, after years of profligacy, incompetence and massive corruption. Regime change would suddenly become much more likely.

Wouldn't that be nice?

Norman A. Bailey is adjunct professor of economic statecraft for the Institute of World Politics and president of the Institute for Global Economic Growth in Washington.

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