Cheap oil puts Venezuela over a barrel
High oil prices have kept Venezuelan President Hugo Chavez popular over the years. But with oil prices falling and a stack of bills piling up, the Venezuelan economy is at risk of collapsing. Dan Grech reports.
Venezuelan President Hugo Chavez during a visit to the Abreu e Lima Oil Refinery works in Recife, Brazil. (Evaristo Sa/AFP/Getty Images)
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TEXT OF STORY
Kai Ryssdal: Crude oil closed up today. It touched $50 a barrel at one point. But that is still not good enough for Venezuelan President Hugo Chavez. Chavez is running short on cash as crude is getting cheaper. Just yesterday he ended a program that offered cheap heating oil to low-income Americans.
Oil analysts had predicted Chavez's cash crunch. They even invented a parlor game about it. They called it the "magic number," where if the price of a barrel of oil drops below it, the Venezuelan government goes into the red. From the Americas Desk at WLRN, Dan Grech reports the magic may be over.
Dan Grech: There's a new parlor game being played by Venezuelan oil economists. It's called the "magic date." That's the moment when Venezuela runs out of money.
Jorge Pinon: Just like we ask what's the break-even number, what is the magic number? The magic date is going to be the second quarter of 2009.
That's Jorge Pinon with the Center for Hemispheric Policy in Miami.
Pinon: Then I think that we are in front of a total collapse of the Venezuelan economy.
The magic date depends, of course, on the price of crude. But if oil stays cheap, experts say Venezuela will burn through its savings sometime in 2009. Chavez has promised $30 billion to his allies all across Latin America.
Pinon: This list of things that they wanted to do, both domestically and overseas, was huge. And now when they finally have to go and pay for that list to Santa Claus, the money is not there.
President Chavez recently went back on his commitment to build refineries in Nicaragua and Ecuador. That could be just the beginning. Cuba expert Brian Latell wrote the book "After Fidel." He says the last thing to go will be Venezuela's massive oil subsidy to Cuba, to the tune of 100,000 free barrels of oil a day. That's because, in return, Cuba provides President Chavez with revolutionary street cred.
Brian Latell: Hugo Chavez is the heir, the acolyte, the direct descendent of Fidel. He calls Fidel, Father Fidel. And as long as Fidel is alive, Chavez would be very, very, very reluctant to cut Cuba.
Inside Venezuela, the state oil company spends $13 billion a year on handouts like discounted food, free medical care, and subsidized gasoline. Venezuelan drivers pay just 12 cents a gallon. But don't expect that to change. Hugo Chavez's predecessor was overthrown in part because he tried to play with the price at the pump. Pinon says pricey oil and all the goodies it bought kept Chavez popular over the past decade.
Pinon: Low oil prices are going to be the catalyst that is going to bring this revolution to its knees, because it overspent.
He says cheap crude could do what U.S. foreign policy couldn't: Usher in a new president of Venezuela.
I'm Dan Grech for Marketplace.
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