Extra oil revenues may save Chavez from strife, at least until elections

By backing Col Qaddafi, Hugo Chavez is losing support even on the radical left. Already there are those who foresee 'days of rage' in Caracas.

Turmoil in the Middle East has often been a blessing to Venezuela, bringing economic stimulus in the form of higher oil prices.

The crises that followed the 1973 Yom Kippur war and the 1979 Iranian revolution turned the western hemisphere's only major Opec member into "Saudi Venezuela", although they also helped to pave the way for stagnation and decline in subsequent decades.

But with a barrel of oil once again fetching triple-digit prices, partly due to the uprising in Libya, there is reason to think this time around the story may be a little different.

For one thing, Venezuela is not merely standing back and reaping the benefits but actively seeking to take sides in the conflict. For another, its president Hugo Chavez's 21st century socialism has left the country ill-equipped to benefit from a cash windfall.

Mr Chavez, who faces a tough re-election battle next year, is undoubtedly grateful for the hundreds of millions of dollars in extra earnings that will ease Venezuela's fiscal woes and replenish his war chest.

But such is the scale of his regime's economic mismanagement that the value of Venezuelan bonds is falling despite the rising oil price.

The reasons are complex and have as much to do with an over-complicated system of exchange controls as the economic fundamentals.

The fact that the market rates Venezuelan debt on a par with that of likely defaulters, however, offers a hint that the old approach may no longer work.

The country remained in recession last year even though the price of oil recovered.

Oil represents more than 90 per cent of foreign earnings but with Mr Chavez forcing the state oil corporation Petroleos de Venezuela to run and bankroll many of his populist social programmes, investment has slumped and production, even according to government figures, has declined.

That leaves less money to import the basic goods of which the country needs steadily more, due partly to an accelerating programme of expropriations in manufacturing and agriculture.

Productivity in most state-run companies is poor and declining. Shortages mean that, despite widespread and stringent price controls, inflation last year was among the world's highest at 27.2 per cent.

Although the central bank produced massaged figures recently to "prove" the recession ended in the final quarter of last year, and the government confidently talks of growth between 2 and 4 per cent this year, there is little to indicate the latest oil boom will do much more than stimulate the rapid rise of inflation.

Meanwhile, on the diplomatic front, Mr Chavez appears to be in over his head. In the Middle East, as elsewhere, his foreign policy has been based on adopting whatever stance most irritated Washington.

That has included "unconditional" support for Iran, severing relations with Israel and espousing a vision of the Libyan leader Col Muammar Qaddafi as an anti-imperialist champion of the masses.

Mr Chavez's claim that the crisis in Libya stems from a desire by the US to seize its oilfields is curiously at odds with the dictator's own version, that al Qa'eda is behind it.

So isolated is the Venezuelan leader in his solidarity with the Libyan leader that even his close ally Mahmoud Ahmadinejad, the president of Iran, has failed to close ranks.

Only Alba, the nine-member bloc Mr Chavez created, has echoed his position and Alba's offer of mediation seems unlikely to prosper.

Many commentators have noted the similarities between Col Qaddafi and Mr Chavez. Both former military men who led coups (although Mr Chavez's failed), they have built regimes based solely on their personal leadership.

With a 30-year head start, the Libyan strongman long ago eliminated all legal forms of opposition. Mr Chavez still teeters on the edge of outright dictatorship.

There are eerie parallels between Col Qaddafi's people's committees and the developing communes of Venezuela. In both cases, an apparent devolution of power to the community disguises its concentration in the hands of the leader.

Mr Chavez has twice presented Col Qaddafi with a replica of the sword of the liberator Simon Bolivar. The Libyan leader has given Mr Chavez his "human rights prize" in 2009 and named a football stadium after him.

There may be practical, as well as sentimental reasons why Mr Chavez is reluctant to abandon his Arab "brother". Persistent, although uncorroborated reports speak of Venezuelan money in Libyan banks.

But by backing Col Qaddafi, Mr Chavez is losing support even on the radical left. Already there are those who foresee "days of rage" in Caracas.

A dollop of petrodollars should at least postpone the reckoning.