Exit Stage Left

 We’ll get started with this week’s Venezuela : Down The Rabbit Hole segment shortly but first…We’ve talked quite a bit about how Chevron is the last US oil major that still has a presence in Venezuela and possible sanctions relief, etc. but what about other countries and companies?

 Reuters had a piece titled “Venezuela’s Oil Partners Head For The Exit Foregoing Unpaid Debt”. That says a lot about how bad the oil business situation must be in the land of 21st Century Bolivarian Socialism. Having to take a loss or relinquish unpaid debt hasn’t stopped Total (France) , Equinor Norway), Inpex (Japan), and others from leaving Venezuela…”operating in the country with the most crude reserves, untenable, leading to idle oilfields.”

 Since 2018, 8 foreign companies among PDVSA’s (Venezuela government-owned oil company) 44 joint ventures have transferred or given up stakes, 7 smaller firms no longer have a presence in Venezuela, and 15 projects are inactive according to PDVSA documents. “None of those stakes are recoverable at book value…Few hope to ever recoup pending dividends or commercial debts from PDVSA” according to an oil executive whose firm left Venezuela.

 Some companies (of the few remaining) include Venezuela oil firm Suetopetrol and GDB Global Resources, stakeholders in the Petrozamora Joint Venture with PDVSA, discovered in September that they have lost operational control even though they had not been informed on a takeover nor received any compensation from PDVSA. (Is it any wonder the courts of the world are littered with cases against PDVSA seeking compensation?) President of the Venezuela Petroleum Chamber, Enrique Novoa, said that to further increase production, over 725,000 bpd (barrels per day) would require PDVSA to honor past debts.

 As we’ve detailed before, after providing oil shipments to Cuba and China (obligatory) and allowing for domestic consumption, Venezuela has almost no oil to sell, hence no oil revenue and creditors and bondholders of Venezuela defaulted debt are positioning to carve up CITGO, PDVSA’s only asset that’s really worth anything (outside Venezuela and their assets inside Venezuela are untouchable although it will take an average of $10 billion a year for 10 years to recover lost production under Chavismo). It may take a while but PDVSA, once the envy of the entire oil producing world, is in a death spiral.

 Then we have Oilprice.com reporting that Venezuela oil production averaged 512,000 bpd in 2020, down from 3.5 million bpd in 1998 when Hugo Chavez took power. “The most spectacular economic collapse to have ever occurred outside of war.” With the Venezuela economy showing actual growth, approximately 5% for the last 4 quarters, Maduro is looking for sanctions relief to allow the growth to continue and Joe Biden is looking to show he’s doing something on oil prices and supply, especially with the US now facing an acute diesel shortage.

 The Biden administration says Maduro must give “cast iron commitment to restoring democracy” (whatever that means). With support from Russia, China, and Iran Maduro has no pressing need to comply with US requests and Biden faces political opposition at home to a deal with Maduro (no matter how much Biden wants it). This makes it unlikely Venezuela will return to being a major oil producer for some time yet.

 And in another matter we have The Olympian telling us that the recent indictment in New York Federal Court charging 7 individuals with conspiracy to purchase US military technology and smuggle oil and launder money exposes how circumventing US sanctions is done by Venezuela and Russia including Hong Kong shell companies, phantom oil tankers, and use of cryptocurrency. One interesting name that surfaced was Venezuela media magnate, Raul Gorrin, currently in Venezuela and on the US Immigration and Customs Enforcement’s most wanted list for allegedly masterminding a scheme to siphon $1.2 billion from PDVSA.

 Then we have Tehran Times telling us that Iran and Venezuela signed an MOU (memorandum of understanding) to accelerate development of the auto industry in Venezuela and joint venture Veniran. (Remember, foreign auto makers used to produce about 250,000 cars a year in Venezuela and now produce basically none) Venezuela Transport Minister, Ramon Velasquez, suggested each Iran auto maker send 1,000 vehicles to Venezuela to test the market. Iran auto maker SAIPA will send 2,000 of it’s products to Venezuela by year end….Good luck with that.

 Now lets head Down The Rabbit Hole for the start of this week’s segment “Control Freaks”….

 Chapter 5/ Control Freaks….

 If there is anything that can match the failure rate of socialism (100% failure rate) it’s price controls. They simply never work…anywhere. I don’t know about you but every time I hear “this time will be different” I know failure is assured. It’s never different. When the housing bubble was questioned in 2007 we heard it as well as when we questioned the tech bubble in 1999 and in many other instances. I believe “this time will be different” about as much as I believe, as Ronald Reagan said, “I’m from the government and I’m here to help”.

 A few years ago when Venezuela was going through yet another bout of food shortages, one of the things that were abundantly available were eggs. Cholesterol concerns aside, it’s hard to worry too much about cholesterol when you’re starving, eggs are an excellent source of protein. It’s not like people were clamoring for the government to do something about egg prices. While they weren’t particularly cheap they weren’t prohibitively expensive either and they were plentiful. Seems like a good balance of relevant factors. Well, we can’t have that now, can we?

 At that time, Maduro, who has never had anything close to a positive approval rating (remember, current approval rating is 5%) felt he needed to do something to boost his popularity. Since he ruled by decree due to the emergency powers he granted to himself he needed no approval and could impose any conditions he wanted. If you were looking for an example of the ideas you get when there is no one in the cabinet with an understanding of economics and the president has no experience in business or economics this is a good one.

 When Maduro went to bed the price for a flat of 30 eggs was 1,200 bolivares and the cost was 800. In the morning he announced he was going to lower the price of eggs and stressed that he came up with the idea himself and no greedy capitalist could influence him. He was doing this for the people of Venezuela! Effective immediately the price of a flat of eggs, including those already in stores, would be 400 bolivares. Viva la Revolucion!

 I’m sure you already know what’s coming. The retailers, with no other choice, sold off what they had in stock, took the hit, and didn’t order any more eggs. The wholesalers and producers weren’t interested in doing business at a loss either since no subsidies were announced. Overnight eggs disappeared from stores. It did, however, add another product to the inventory of the “bachaqueros” as the black marketeers were called.

 The producers produced less but commanded a higher price. Those that could afford it paid the higher price charged by the bachaqueros so they were OK. The wholesalers and retailers redirected their efforts so, after taking the initial financial hit they were OK. As is so often the case with “Socialismo”those hurt most are those it’s supposed to be trying to help.

 More tomorrow….

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