Introduction
Venezuela is a country whose economy is anchored on energy resources. Oil accounts for approximately 95 percent of the exports of the country. The importance of the commodity is evident in the fact that it makes up 45 percent of the federal budget. It is responsible for 12 percent of the country’s gross domestic product (Golinger, 2005). Figure 1 below shows a detailed analysis of the performance of the economy in relation to oil production. During the initial part of the 20th century, mining of oil influenced the cultural, economic, and foreign relationships of Venezuela. The development in the resource-fueled the interest of other states. Activities within and outside the country have greatly been centered on oil since 1912 (Corrales & Romero, 2012). The government has spearheaded associations across national borders, with other importers and exporters of the resource. The country has a long period of relationship with the United States founded on colonialism and plantation-centered economy. The interest of the United States in Venezuela, in the 20th century, was pronounced during a time of crisis in the Latin American region. The two countries have continued to relate around economic and diplomatic spheres.
(Source: EIA, 2017)
History of US Involvement in Venezuela
Venezuela is one of the main suppliers of oil in the United States (see figure 2). Companies in the United States took an active part in the Venezuelan civil war, which happened in the wake of the 20th century. The firms that had an interest in the affairs of the country were those that had stakes in oil production such as The Orinoco Steamship Company New York and Bermudez Company. The organizations were implicated with financing the war which led to the Venezuela Crisis of 1902–1903 (Bakke, 2014). The government of the country had suffered debts owed to European people as a result of the war which they refused to pay. When it became clear that some European states like Germany were concerned about intervening in the country, the then president of the United States Theodore Roosevelt became concerned (Corrales & Romero, 2012). The Monroe Doctrine was in place to hinder the imminent actions of Europe in the region, which were considered European annexation. Washington Protocols were used by the European powers during the negotiations to discuss the debts that Venezuela had. The United States government was to keep the European powers away from the country.
(Source: S&P Global, 2017)
Cipriano Castro did not support the efforts of the United States. However, the latter did not back out of the efforts to keep the European countries away from the region. The Roosevelt Corollary was among the policies that ensued as a result. The United States also came up with the U.S. Big Stick policy. Later, the Dollar Diplomacy was designed to protect Latin America. In January 1904, Venezuelan government led by Castro made a promise to the United States that there was peace in the country, but it took time to comply with the agreement that brought the Venezuelan crisis of 1902–1903 to an end (Joseph, LeGrand & Salvatore, 1998). When the government went back on the agreement, the relations with the United States were broken. The reality laid the foundation for the Dutch–Venezuelan crisis of 1908. After the successful overthrowing of Castro, Gómez made efforts to restore the diplomatic relations (Corrales & Romero, 2012). The United States investors and bankers increased their financial support to the country, and hence increasing its economic leverage.
Oil was later discovered in the country, a situation that changed the direction of the relationship between the two countries. Oil companies from the United States increased their involvement and investment in the economy of Venezuela. The role played by the former was important in stabilizing the economy of the latter (Bakke, 2014). The domestic oil sector grew considerably, a factor that led to the increased association between the United States and Venezuela. Nonetheless, the relationship was not founded on power relations that were unequal. The companies based in the United States had the greatest role and the largest part within the oil economy in Venezuela. When Franklin Roosevelt assumed power in the United States, he led the development of the Good Neighbor policy in 1929 (Corrales & Romero, 2012). Through Pan-Americanism, the United States assumed the means of maintaining influence in the region which were not military in nature. Some of the strategies that were used included development of stronger leaders, cultural and economic penetration, national guards’ training, political subversion, bank loans to support importation and exportation, and financial supervision.
The Impact on the Venezuela Economy
The economic reality and relationships between Venezuela and other global players took an interesting turn following its oil boom of 1912. The development also took place during a time when the country and its neighbor, the United States, was developing refined technologies for the exploration and drilling of the product (Golinger, 2005). Oil grew to become the leading commodity in the country, in terms of value, all because of the high level of production and the growing demand at the time. Before the production of the commodity, agriculture was the chief economic activity, but did not give the country the kind of interest it received because of oil production. There was a speedy change in power relations within and outside the country because the product was greatly sought after (Joseph, LeGrand & Salvatore, 1998). The production led to the development of novel networks between sectors that were dependent on oil, both inside and outside Venezuela. Evidently, there was a new dawn for the foreign relations of involving Venezuela.
The relationship between the United States and Venezuela continued in 1939 under Lopez Contreras’ administration. The latter considered the benefits that the relationship between two would have on the local economy. By the time the Hydrocarbons Law of 1943 was signed affecting the country, the greatest percentage of oil sector was under the control of companies based in the United States and United Kingdom. The involvement of the United States in the Venezuelan oil sector allowed for the increased exploration of more fields. The move was instigated by the need to increase the supply to cater for the rising demand of the Second World War (Bakke, 2014). By 1945, the country had increased the production of oil to almost 160,000 m3 (1 million barrels) per day. The increase in the production had an economic impact on the country because it suggested that the nation was exporting a lot of the product, primarily for the use by the United States.
The country that led to the growth in the demand for the commodity was the United States. Venezuela was the leading country in the supply of oil to the Allies. The demand went on long after the war because of the growth in industrialization and transportation. The “mutual security agreements” was the driver of the relationship with the United States during the Cold War period (Corrales & Romero, 2012). All the time, the United States was focused on ensuring that no other power had held over the oil in the region. Pérez Jiménez was interested in establishing strong links with the United States. However, the efforts had major effects on the country, mostly focused on infrastructure projects (Avilés, 2005). The government gained the economic might to establish such as development of buildings, public housing structures, roads, and bridges. The oil industry contributed a great deal to the development of the economy of the country. The United States continued to play a part in the development of the economy.
The relationship between the United States and Venezuela has not always been smooth. During the Chávez’s socialist ideological regime, the relationship was marked by tension. Despite the prevailing reality, the economic relationship was not affected. The supply of oil to the United States continued because of the hold of the country’s major oil companies on the commodity in Venezuela (Sullivan, 2016). The firms made sure that most of the oil produced in the country went to the US. The contribution of the exports to the local economy continued long after the close of the 19th century. However, things have not been smooth in terms of the oil that entered the United States. Since 2000, the supply of the Venezuelan oil to the country went down. The situation became even worse during the 2002–2003 oil stoppage (Golinger, 2005). The demand for Chavez to resign had a serious impact on the level of oil production, affecting the exports that went into the US.
The political instability within the country at the time affected the production of the commodity which drove economic development. The government of the country at the time was described as being failed because of violating such agreements as international counternarcotics agreements. Regardless of the violations and the opposition from the United States, the latter did not cease its links (Avilés, 2005). The United States did not apply the economic sanctions that would be used in such situations. The country did not stop its contribution to the economy of Venezuela even though there were justifications. Up to 2006, the US was still the most significant business partner of Venezuela. Oil remained the most important commodity in the trading partnership between these two countries. Although some governments such as that of Chavez were trying to look elsewhere in terms of economic relations, the US did not lack its importance in the country.
Discovery of Oil Wells in Maracaibo Basin
Every discovery of oil in Venezuela led to a new dawn in terms of the relationship with other countries, including the United States. Among the most important developments was the unearthing of the new wells in the Maracaibo basin. The fields are among the most critical oil generating basins globally (Sullivan, 2016). The production of the commodity in the region transformed the links the country had with its most important neighbor. The United States saw a chance to increase the production of oil under the control of its companies (Rabe, 2011). The recent discoveries have indicated that the interest in the country and the region is not yet over. When oil was discovered in the region, there were chances of new investment and the United States would not be left behind in the economic benefits. There has not been much exploration taking place in the basin, indicating the potential for the future direction of the links between the two states.
Major oil companies were competing for the chance to explore the important commodity in the wake of the Second World War. The country which would gain ground in producing of the resource would have an impact on its economic strength, an important factor during the war period. The United States played a critical role in the discovery of the oil in the region. General Asphalt Co., which is an American company, carried out the initial geological investigation although later, in 1912, traded it concession with Shell. The firm was also US-based which meant that the country continued to have an important presence in the oil-producing region. The first drilling of oil by Shell took place in 1914 in Mene Grande. In 1922, the company also extracted oil from the well-known Los Barrosos 2 gusher at Cabimas (Avilés, 2005). The richness of the basic made the company’s producing capacity to increase. Globally, the region became the leading source of oil for Shell.
The high stakes in the region made it a battlefield for oil companies, mostly American, seeking to gain control. Pan American Oil of Edward Doheny made a bold move to obtain concession within the lake itself. In 1925, Indiana Standard (present Amoco) bought the rights to extract oil from the basin. However, the company did not extract optimally until the decision was made to sell the concessions to New Jersey’s Standard Oil of (now Exxon). The decision to purchase the rights in 1931 was a positive one for the company and the United States because of the growth in the production capacity that resulted. There was rapid development in Lake Maracaibo following the termination of the World War II. Just like it was the case with Shell, the region became the greatest producing region for Exxon all through the 1950s and 1960s (Rabe, 2011). The United States remained an important player in the production of the commodity in the region during the time because most of the oil produced was exported to the country.
Nonetheless, things did not remain positive for the United States and its leading oil companies. It is plausible to note that the interest of the United States in the region has not always received a positive reaction. The lack of exploration mainly in the southern and the southwest of Lake Maracaibo had revealed the reality. Among the reasons for the delayed exploration and drilling of the oil is the growth in nationalism in Venezuela, which led to the denial of new exploration concessions (Avilés, 2005). Since 1958, the efforts to allow the drilling of the oil have been met with major barriers. At the same time, the government had concentrated the efforts to extract oil from the producing regions that had already been established. As 1975 came to the end, there was another extreme decision to nationalize the oil industry. Such decisions had not always gone down well with the US because of the high stakes involved in the large-scale production of oil.
While the US companies continued to have an impact on oil production in Venezuela, the nationalized entity assumed a very important position. Petroleos de Venezuela SA had grown to become one of the leading integrated firms globally. Nevertheless, in 1994, Occidental and Shell were awarded the peripheral field reactivation blocks in the wake of a new model of global engagement in the region (Rabe, 2011). A group of Nomeco, Tecpetrol, and Wascana received one of the other blocks. Chevron also came into an agreement with Maraven, the Petroleos de Venezuela’s subsidiary. The venture agreed upon would comprise the huge Boscan weighty field. It would also comprise the asphalt division of Chevron in the United States. The decisions are not the end of the efforts by the US to explore and gain more parts of the oil fields in the country, and as a result, continue having the control (Hakim, 2006). Additionally, given the dynamic nature of foreign relationships, there is no telling what form the oil-related links will take in the near future.
The oil fields in the Maracaibo basin were critical to the development of the local economy and made a contribution to the United States. Particularly, the impact was because of the position that the three globally leading oil companies assumed. Petroleos de Venezuela, Exxon, and the Royal Dutch/Shell group remained the main beneficiaries of the discovery of the oil fields. The region also became the basis for the initial use of the steam injection and offshore production technologies used in the extraction of the resource. Major companies continue to compete for the stakes in the region because of the potential that lies in the production of the most demanded commodity globally (Avilés, 2005). For instance, the successful acquisition of the region controlled by General Asphalt by Shell was considered a strategic decision because of the opportunity to explore the most resourceful part of Venezuela in relation to oil production. Hence, any efforts by the United States to gain control over this region is a strategic one. In essence, the move will be the basis for the future relations between the two countries.
The Formation of OPEC
When the Organization of the Petroleum Exporting Countries (OPEC) was formed, there was another dynamic change in the relations founded on oil production. The body brought together 13 governments to coordinate the policies that guided oil production and trade. OPEC was established in 1960 in Baghdad with the involvement of the first five countries. Venezuela was among the initial founders of the body, and was working with Iraq, Kuwait, Iran, and Saudi Arabia (Hakim, 2006). All the members of this establishment were the countries leading in the production and export of the commodity globally. The member countries, together, were approximated to contribute to 42% of the oil production in the world. All the data were considered for the period leading to 2015. Because of this major contribution of generation of the commodity, it became evident that the body would play a crucial role in determining the oil prices in the international market. Before the establishment of the organization, the role of influencing the global price for the commodity belonged to multinational oil companies that were mostly based in the United States (Hakim, 2006). The change of power indicates the impact that OPEC had on the relationship between Venezuela and the US.
References
Avilés, W. (2005). The democratic-peace thesis and US relations with Colombia and Venezuela. Latin American Perspectives, 32(3), 33-59.
Bakke, E. (2014). US-Venezuelan Relations, Harvard Model Congress.
Corrales, J., & Romero, C. A. (2012). US-Venezuela relations since the 1990s: coping with midlevel security threats. Routledge.
EIA (2017). History of Venezuela’s inflation compared to oil revenue.
Golinger, E. (2005). The Chávez Code: Cracking US Intervention in Venezuela. Editorial Jose Marti.
Hakim, P. (2006). Is Washington Losing Latin America? Foreign Affairs, 39-53.
Joseph, G. M., LeGrand, C., & Salvatore, R. D. (Eds.). (1998). Close encounters of empire: writing the cultural history of US-Latin American relations. Duke University Press.
Rabe, S. G. (2011). The road to OPEC: United States relations with Venezuela, 1919-1976. University of Texas Press.
S&P Global (2017). Saudi-US relations reset along familiar lines: Fuel for Thought
Sullivan, M. P. (2016). Venezuela: Background and US Relations. Congressional Research Service Washington United States.
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