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socialist paradise
Venezuela’s Economy Spirals

U.S. company PBF is buying the Chalmette oil refinery, a “joint venture” between Exxon Mobil and Petroleos de Venezuela SA (PDVSA), Venezuela’s state-owned oil company. The sale appears to be, at least in part, an attempt by Venezuela to round up some cash quickly, after the country spent large amounts of its reserves in recent months.

As the FT puts it, “The deal, while modest in size, should offer some minor reprieve to Venezuela’s battered coffers.” But a sale like this doesn’t paint a pretty picture for the country’s future, no matter what short-term relief it might bring. As we saw with Greece a few months ago, selling off fixed assets is a one-off move that indicates a country is in long-term trouble. Venezula’s economy has been in a downward spiral for a while now. This exchange indicates that its chances of pulling out of that spiral are getting increasingly slim. That’s a tragic prospect for a country that should be much richer than it is, as we’ve noted before:

In reality, Argentina and Venezuela should, based on their natural resource endowments, be among the most prosperous countries in the world. Toxic political cultures are making these countries poorer every day, and as their economies deteriorate their authoritarian populist leaders turn to ever more ugly and less effective policies. Capitalists around the world should thank heaven for both countries. By demonstrating the costs of economic quackery, Argentina and Venezuela do more for the cause of global capitalism than the Koch brothers could ever dream of. Who knew that President Kirchner would be so effective at making the world a safer place for Scrooge McDuck and friends?

Indeed.

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  • Gene

    I’m not sure I’d want to own stock in PBF. In that country, a company’s property rights, especially in part of the oil infrastructure, are likely to be shaky.

    • Andrew Allison

      Likely? There’s no question about it! Is this perchance part of the flight-to-risk engendered by the crazy Fed policy which is encouraging risk and destroying savings?

  • Fat_Man

    The difference between Venezuela and Argentina is that the US will eventually be forced to fix Venezuela. Although that won’t happen until the Fair Play for Cuba Committee is turfed out of the State Department.

    Argentina, OTOH, is in the least strategic position in the world. They are on their own.

    • Andrew Allison

      I’d be interested in knowing why you think that the US will eventually be forced to fix Venezuela. Impressive as they are, it’s oil and gas reserves have been made irrelevant to the US thanks to fracking. How else is it geopolitically important? Perhaps rater than try and fix South America, we should wait until it self-destructs and pick up the pieces.

      • Fat_Man

        Look at a globe. The Caribean is our back door and we need to make sure that its nations are free and prosperous. Venezuela is the anchor of the Antilles. Social chaos and bad economic conditions there will show up in our streets and cities. The health and well being of the entire Caribbean basin should be the first object of our foreign policy. We can no longer tolerate enemy states in the area. We cannot tolerate anti-liberalism, socialism, and anti-Americanism. Call it Imperialism if you wish. Imperialism is not the name of a sin.

        I have consistently advocated staying out of the Black, Aegean, and Baltic Seas. The Caribbean is our house and we need to tend to it.

        • Andrew Allison

          Thank you. Might I gently suggest that our attempts to make nations around the world free and prosperous have been uniformly disastrous, and that Venezuela is as irrelevant to US interests as Greece. The major countries of South America are self-destructing. If there’s a “Caribbean” country which we should be worried about it’s Mexico, IMO.

          • Fat_Man

            Mexico is Number 1. Cuba is Number 2. Venezuela is on the list. They are not Muslims so there is hope for them.

          • Andrew Allison

            I beg to differ: they’re socialist, and there is no hope for them

          • Ofer Imanuel

            Socialism can be replaced; Islam is much harder …

          • Fat_Man

            I should add. Germany, Japan,, and South Korea. Germany had been socialist.

          • fastrackn1

            ” Might I gently suggest that our attempts to make nations around the world free and prosperous have been uniformly disastrous”

            No words are truer.

            …however I will not state “gently”…it is not my nature…I will state that countries need to fix their own problems, and those that don’t can just self-exterminate until there is no one left in them, (unless we need them for something, of course)…that would leave more for those of us who deserve it by trying to make the planet more livable and prosperous….

          • CapitalHawk

            No, this is incorrect. Our attempts to make Germany and Japan free and prosperous were wildly successful. So, NOT uniformly disastrous. Other attempts have failed, that is correct. Whether it will work in the absence of a long-term occupation is the real question. So far, the answer is no.

          • fastrackn1

            You are right about those 2 countries. But they were already advanced civilizations before we got involved rebuilding them…after we destroyed them of course. So they deserved our efforts.
            OTOH, all/almost all, attempts at trying to improve 3rd world countries have been a disaster. There is no hope for 3rd world countries. They are a mess because their populations are inferior and will never change.

            We have enough to take care of here at home.
            Unless they are of a strategic interest to us, we should not waste our young peoples lives, and our resources, trying to fix the problems of 3rd world countries, because it is a complete waste of time….just like throwing vast amounts of money and resources at our ghettos has always been a complete waste of time…..

    • Bystander

      As Kissinger said, it is a dagger pointed at the heart of Antarctica.

  • fastrackn1

    All this thanks to old Hugo….

    • rheddles

      No, the Venezuelan people. they elected him, just like the argies elected Kirchner, just as we elected 0.

      • fastrackn1

        That is true, I agree…and I am not too sympathetic with the Venezuelans.
        However, I doubt the voters knew that Hugo was going to completely take over as he did, nationalize companies, and also change the constitution. Yes he got re-elected a few times, but I wonder just how legit those elections really were…once those types get in, they never get out…like a bad stain….

        …and you can’t compare “O” with the likes of Hugo…O is much worse….

        • Ofer Imanuel

          I think this is unfair to O. His absolute scope of damage may be higher, since he manages a much larger country, but Hugo did much more damage to Venezuela, than O to U.S.A..

          • fastrackn1

            There was a bit of facetiousness in my remark there….

          • CapitalHawk

            Your statement is true. But I think the reason is that O has a true opposition that actually wields power in the USA. Hugo did not.

  • JR

    I read an article (don’t remember where) that said that the real beneficiaries of Hugo’s reign of incompetence were Canadian companies that hired world-class engineers with unique competence in getting heavy crude out. So Canada benefited and so did US, although not as directly. Also, there has been a lot of oil development in Columbia driven by Venezuelan oilmen. One country’s loss is other countries’ gain.
    Same way when Zimbabwe’s Mugabe drove white farmers out of Zimbabwe and into welcoming hands of Namibia and especially Zambia. So when Zimbabwe turned from a food exporter to a food importer, they already had the farmers all set up with farms to develop.

    There is a lesson here.

    • Andrew Allison

      Is the lesson that there’s always somebody ready to take advantage of incompetence, in so-called “socialist” countries and elsewhere? But isn’t the point of this and similar posts that, as you suggest, the outcome is inevitable? The question is why do people vote such governments into power and the answer, pace Greece, is unfulfillable promises.

      • JR

        To me a lesson to be learned here is that while bad actions and decisions by governments can, and do, harm the poor populations that voted for these idiots, good actions and decisions by governments, can, and do, improve the economic prospects of their citizens. Those who put ideology before sound economic decisions will always win short term (or during a commodity cycle upswing), but can never win long-term.

        • Andrew Allison

          No argument. My point was that those who make unfulfillable promises are either stupid or, more usually, charlatans and it’s the government and its friends wot gets the pleasure and the poor wot gets the pain, c.f. Greece

      • CapitalHawk

        I don’t think the answer is unfulfillable promises, I think the answer is that most people believe that there IS such a thing as a free lunch. Of course it is not true and never has been. Nonetheless, a solid majority of people still believe it. Snake oil salesmen always manage to find buyers for their products, at least for a while, and once they are found out they change the name of the product, change their claims as to what it does a bit and get a new salesman. Lather, rinse, repeat. Forever.

    • Josephbleau

      I would not say you are wrong but there is a big difference between pumping heavy oil with steam injection ,Venezuela, and digging it out of surface mines with heavy equipment, Canada. Don’t think Canada needs much help with mining. Heavy oil processing is already a big Louisiana thing.

      • JR

        I know next to nothing about petro-engineering so I defer to those who do. But I do remember reading about a very successful Venezuelan oil engineer expat community and Alberta was named there. Either way, Chavez’s loss is out gain.

  • Pete

    Both Venezuela and Argentina are Catholic socialistic countries and they’re in a mess. You’d think the pope would take notice and instead of brainlessly knocking free markets and capitalism, forces which have lifted billions out of poverty, he’d praise them.

    • Andrew Allison

      Pope Francis is demonstrably not infallible, but let’s be clear that what’s wrong with South America is socialism, not Catholicism. At the most basic level, the former is about obedience to the state, the latter to God.

      • Pete

        As a life-long Catholic, I can tell you that socialism is closely linked to Catholicism.

        To be sure, socialism and Catholicism are not the same thing. But the overlap between the two is significant. That is why Catholic countries are so vulnerable to the seductive allure of socialism.

        Theology aside, I’ve often said that America is fortunate to have been founded by Protestants rather than my coreligionists.

        • ljgude

          I would go so far as to say that socialism is largely a secularized form of Christianity. But it denies the Christian roots of its values and remains unconscious of them. So it throws up its iconic image of Che everywhere and fails to notice the striking physical resemblance to the Carpenter not to mention the moral disconnect.
          I agree that America was lucky in its protestant founders. England got off on the right foot when Henry VIII confiscated the church’s property and inadvertently kick started the English economy.

  • tarentius

    There is a lot of nonsense and ignorance being spouted on this subject both in the article itself and in the comments section. First of all, the Chalmette refinery is located in Louisiana not Venezuela. It is under-performing and not competitive in today’s market. It is a joint venture between ExxonMobil and Venezuela and processes heavy Venezuelan crude. ExxonMobil and Venezuela are currently in an increasingly bitter dispute over a nationalized Venezuelan oilfield that went to arbitration and are at loggerheads over the operation of this refinery. The sale is making the best out of a bad situation and has almost nothing to do with Venezuela’s admittedly poor finances.
    Venezuela provides about one-third of the crude for this refinery whose production has been hampered by a dispute between ExxonMobil and Venezuela over a hydrocracker idled since 2010.
    PBF made an excellent purchase since they are equipped to solve the equipment, operational and management problems. PBF plans to take advantage of the nearby shale oil fields resulting in a higher yield of refined products.
    This is what happened and too much nonsense is being read into it.

    • Bystander

      I appreciate this information. May I ask if PBF will need to reconfigure the Chalmette refinery to process shale oil rather than heavy Venezuelan crude and will this change significantly reduce refinery capacity to process such heavy crude? Should Venezuela ever recover from the blessings of their socialist experiment it might hamper their economic recovery to confront a shortage of suitable refining capacity.

      • tarentius

        Chalmette can process both heavy and light crude and there is very little PBF has to do to process shale oil. It can, with minimal effort, switch back to heavy crude if it so desired. In fact, Chalmette has tre3mendous hardware and can run rude from around the world. Without going into technical details, it is more profitable and “easier to process light crude and I doubt that PBF would go back to importing heavier Venezuelan crude (which, by the way, Venezuela is making immense efforts to obtain light crude from other countries to “sweeten it) when the plant s so close to Eagle Ford. PBF also purchased 80% of a pipeline with this deal an I can’t see any reason economic or political (who in their right mind wants to deal with a Maduro run Venezuela) for them to go back to processing Venezuelan crude.
        PS. PBF shares jumped 17% after this sale was announced.

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