Should we abandon OPEC?

Alternative 1: Continue in OPEC, produce little oil and sell it at reasonably high prices. Alternative 2: Abandon OPEC, expand production capacity and sell oil at relatively low prices, while conquering new markets in the process.

Venezuela’s future oil policy should lie somewhere on the axis formed by these extremes. We, as citizens, should supposedly form our own opinion as to where this ideal point should lie.

Over the last 20 years, I have consistently questioned the logic of a policy under which the members of a cartel have turned a blind eye to the diminishing strength of the latter, almost as if on purpose. This is the case of OPEC, which has, year after year, lost market share. In this sense, the only plausible response to the proposal of going out and aggressively conquering new markets should be “let’s go for it”.

Unfortunately, it is not quite like that. Even though I support this proposal on technical terms, I can’t quite seem to drum up enthusiasm. Neither because of the possibility of revindicating myself with an egoistic but savory “I told you so”, nor because of the possible inherent promise of the plan itself. The cause of my indifference is none other than my conviction that such a decision is in itself of little importance for the future of the country.

It does not suffice to follow a coherent oil sector policy. What really matters to the country is its final result. A decision that is technically wrong but produces satisfactory results is clearly better than the opposite. As far as the future of my country is concerned, I am not interested in applying the medical phrase that certifies that “the operation was a success, but the patient unfortunately has died”. 

In its initial phases, OPEC generated large volumes of resources for Venezuela; more than sufficient to set the country on the road to development. This did not occur and there is no reason to believe that the country will manage to reap the non-perishable fruits of this development even if the next oil policy is successful.

Even though I realize that it is not popular today, and feeling a bit like a prehistoric hippie predicating “Love is all we need”, I will risk whispering the statement “oil is a valuable natural, non-renewable resource”.

Since oil is indeed valuable and because it is not renewable, prices have once upon a time been pushed up to nearly $ 40 per barrel and projected prices should probably be around $300 today. Since oil is valuable and non-renewable, it was also said that before liquidating it at low prices it would be better to leave it in the ground (for the benefit of our grandchildren).

If we were not all, myself included, simple egoists itching to get our hands on resources that would allow us to once again live an easy and happy life, we should really be leaving the oil in the ground today, thereby insuring the future of our country and our children. Not until the price is right (the current market price of US$ 12 may indeed be the right price), but until we can find prudent, reasonable and responsible destinies for the income our oil sales generate.

When oil prices skyrocketed in the 1970’s, the country went the route of mega-projects; duties to protect against imports, subsidies and all of the other ingredients which eventually proved to be wrong. At least, however, these were the result of a plan and a vision. Today, there isn’t one coherent statement, not even an incoherent one, with respect to a development model applicable to Venezuela.

These comments are not aimed at paralyzing the oil industry’s current plans. On the contrary. We have read in this week’s press about the need to isolate the country’s fiscal accounts from the ups and downs of oil prices. In my humble and probably validated opinion, we should probably be doing just the opposite in order to give our industry an even chance to fight for its markets. We should be isolating our oil industry from our fiscal appetite.

The previous strategy of reducing production and selling at lower prices represents, in addition to minimizing investment requirements, the milking of our cash cow, PDVSA. Today’s strategy implies that we must cover increasing needs for investment in the face of falling prices with drastic reductions in fiscal spending. We still have a long way to go before we can be convinced that the political will to reduce spending is really out there. To begin with, the US$ 2 billion the country reaped from the oil opening, which should have been earmarked for PDVSA’s own investments and expansion, have already been spent. As usual, there is nothing left!