After the past few years of revolutions, it's surprising that oil markets would shrug off serious protests and violence in a major oil exporter. At least 18 people have died in widespread unrest across Venezuela, with the opposition leader Leopoldo Lopez arrested.
Venezuelans have plenty to protest about: shortages of basic goods such as toilet paper, soap and milk; power cuts; around 50 per cent inflation; and the world’s fifth highest murder rate.
But oil traders were more concerned about weakness in the US and Chinese economies, and the retreat of wintry weather. And with the crisis in Ukraine, Venezuela’s protests have received little foreign media coverage.
Amid the turmoil, Brent oil prices fell 2 per cent over last week.
Why have the protests made so little impact on energy prices? There are two explanations.
The first, and the one getting most media attention, is that the US doesn’t need Venezuelan oil any more, due to its shale boom.
Indeed, under the late president Hugo Chavez and now his successor Nicolas Maduro, Venezuela gradually rode its oil industry towards irrelevance.
In 2000, the year after Chavez was first elected, Venezuela produced almost 3.5 million barrels per day (bpd).
Officially, it now extracts 3 million bpd, and pressurises independent analysts to agree with its figures. The US Energy Information Administration estimates real production is much lower, less than 2.5 million bpd.
Whatever the true figure, 600 000 bpd is used domestically, to meet ballooning demand fuelled by absurdly low petrol prices. A tip to the attendant and a cup of coffee cost more than filling a tank at 6 US cents per litre. Another 400 000 bpd goes to regional allies – particularly ideological soul-mate Cuba – in barter or cut-price deals, and 310 000 bpd pays off loans to China.
That suggests hard-currency export volumes could be down 60 per cent since 2000. Only the soaring price over that period bailed out Chavez’s “Bolívarian Revolution”.
More recently, Venezuela has faced another problem – falling exports to the US as its expanding shale oil production has displaced imports. Back in 1998, the US bought nearly 2 million bpd of Venezuelan crude; now it imports just 750 000 bpd from the Bolivarian Republic. The only thing that has kept Venezuela from being harder hit is that American refineries still need heavy crude to blend with domestic light, low-sulphur oil.
So many US oil analysts are writing in self-congratulatory tones about how the US oil boom has made it less dependent on the unfriendly regime in Caracas. Nevertheless, the hypothetical loss from world markets of up to 2 million bpd – rather more than Libya – would inevitably send prices soaring.
So the other reason why Venezuela has not rattled oil markets is more important – serious disruptions to its production and exports appear unlikely.
After an attempted coup in 2002 and a strike by the state oil company PdVSA, half its staff were sacked and replaced by loyalists. This was disastrous for efficiency but probably insulates PdVSA against unrest. Mr Maduro still enjoys widespread support from the poor, and controls the security forces and most important political institutions, as well as semi-official militias from the slums, the motorcycle-riding “colectivos”.
Venezuela’s external debt soared over the past decade but is still manageable as long as oil prices do not drop. The government can erode its domestic obligations through devaluation and inflation. Even a modest improvement to Mr Maduro’s weak and shambolic administration could ease shortages enough to stave off collapse.
The next election is in 2018. Until then, we can expect further outbreaks of protests, a crumbling economy, and a steady erosion of the once proud Venezuelan oil industry. But widespread disruption in yet another major oil exporter does not seem on the cards.
Robin Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis
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