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How did the crisis in Venezuela start?Is inflation in Venezuela really going to reach 1 million percent?What will people do?Why is Venezuela suffering from high inflation?Venezuela started and got into troubles in 1973 with the first OPEC US -Middle East oil embargo of 1973,after oil prices on October 17 -1973 over the OLP and the Palestinian War and Israel, Syria and, along with it, increasing prices by 130% to the USA, UE; Henry Kissinger Secretary Of State in March 1974 negociated a agreement with Syria, OLP and Israel to stop the war, regain territory allowing a accord with OPEP ; The Embargo lasted (4) months.the price of oil had risen from US$3 per barrel to nearly $12 globally; US prices were significantly higher. The embargo caused an oil crisis, or "shock", with many short- and long-term effects on global politics and the global economy.It was later called the "first oil shock", followed by the 1979 oil crisis, termed the "second oil shock."On October 6, 1973, Syria and Egypt, with support from other Arab nations, launched a surprise attack against Israel on Yom Kippur.On October 12, 1973, US president Richard Nixon authorized Operation Nickel Grass, a strategic airlift to deliver weapons and supplies to Israel in order to replace its materiel losses, after the Soviet Union began sending arms to Syria and Egypt.In response to this, the Organization of Arab Petroleum Exporting Countries (OAPEC, consisting of the Arabmembers of OPEC plus Egypt and Syria) announced an oil embargo against Canada, Japan, the Netherlands, the United Kingdom and the United States.Saudi Arabia only consented to the embargo after Nixon's promise of $2.2billion in military aid to Israel.The embargo was accompanied by gradual monthly production cuts—by December, production had been cut to 25% of September levels.This contributed to a global recession and increased tension between the United States and European allies who faulted the US for provoking an embargo by providing assistance to Israel.OAPEC demanded a complete Israeli withdrawal from all territories beyond the 1949 Armistice border.The Organisation of Oil Producing Countries' - OPEC.However, protection within the market and the promise of unfettered wealth arising from Venezuela’s immense oil reserves were undone by what economists came to term the 'natural resource curse'; the sudden influx of money would cause the national currency to dramatically appreciate, wages are driven up, prices inflate, manufacturing, imports and exports all slump. Though this was yet to occur for Venezuela during the early OPEC years, Alfonzo saw it all coming. In a prophetic 1975 speech he uttered the infamous lines: "ten years from now, twenty years from now, you will see; oil will bring us ruin. Oil is the Devil's excrement".Venezuelan government revenues, quadrupled from 1972 to 1974. The story of the “oil shock” is normally linked to that of the Arab-Israeli conflict in October 1973.The purpose was the ongoing common struggle by developing countries to gain control over natural resources, develop their national economy and reform the international economic institutions created . It also included forms of confrontation and acts of sabotage in the Middle East that made it possible to transform the networks that transported oil supplies into a political instrument. This instrument served a dual purpose: redirecting the flow of profits from oil, and attempting to the settle the 1974 Palestine question. Parties to the crisis used market devices in an attempt to frame its causes and possible solutions.However, the events of 1973–1974 exceeded the attempts to contain them as a matter of market forces. The question of supply opened up new fields of doubt about the possible limits to reserves of oil; the increasing difficulty of forecasting future demand and prices opened up new ways of mapping the future; and the inability to prevent catastrophic oil spills helped trigger the emergence of new matters of concern, in particular the preservation of the environment. Yet the events of 1973–1974 also triggered the unraveling of Keynesian economics, attacked by market technologies developed from the mid-1970s.This sudden and sizable increase in government income was historically unique in Venezuela . It allowed the newly elected president, Carlos Andrés Perez, to promise Venezuelans that Venezuela would become a developed country within a few years. His project was known as “La Gran Venezuela” ; from that point until 1996 corruption he was removed, impeached from power and the only way of business lead in 1998 to the great President Hugo Chavez …..!After years of economic crisis and corruption scandals, as well as the impeachment of Carlos Andrés Pérez, Venezuelans were becoming disenchanted with the traditional parties and Chavez the unique Populist became the new hero after Simon Bolivar the liberator of The Grand Colombia that lead the creation of Venezuela[ The Economics, Culture, and Politics of Oil in Venezuela][ Venezuela because it has shaped practically every aspect of the country, its history, its economy, its politics, and its culture. In what follows I will provide a brief history of Venezuela’s oil industry. Next, I discuss how the oil industry has shaped the economy, polity, and culture. Then, I examine the criticisms leveled against the oil industry and how the Chávez government has proposed to address these. Finally, I present what the opposition has done to prevent the reform of the oil industry and how the government has reacted towards this opposition.]Oil industry history[ Venezuela’s oil industry history can be roughly divided into four periods: the discovery and initial production of oil (1912-1943), Venezuela’s assertion of control over the oil industry (1943-1974), the oil boom and nationalization of the oil industry (1974-1998), and the government’s attempt to regain control over an increasingly independent oil industry (1999-2003).]Birth of the Petro-State (1912-1943)[ That Venezuela had abundant supplies of oil was already known since the earliest pre-colombian times, when the indigenous peoples of Venezuela made use of oil and asphalt, which seeped to the surface, for medicinal and other practical purposes. However, it was not until 1912 that the first oil well was drilled. Shortly thereafter, first Royal Dutch Shell and then Rockefeller’s Standard Oil became major producers of oil in Venezuela. Within a few years, by 1929, Venezuela was the world’s second largest oil producer, after the U.S., and the world’s largest oil exporter. Between 1920 and 1935 oil’s share of exports went from 1.9% to 91.2%.[1] This, of course, had an immediate and dramatic impact on the country’s economy, known among economists as “The Dutch Disease,” which will be explored in greater detail shortly. The most important consequence of the “Dutch Disease,” was that agricultural production declined to almost nothing and the country fell behind in industrializing, relative to other Latin American countries.]Strengthening of the Petro-State (1943-1973)[ In 1943 Venezuela passed a vast reform of its oil policy with the Hydrocarbons Act, which tied the Venezuelan state’s income even more tightly to the extraction of oil. While previously oil income was mostly based on concessions and customs, the new hydrocarbons act tied oil revenues to taxes based on income from mining. The law established that the foreign companies could not make greater profits from oil than they paid to the Venezuelan state. The continually increasing oil income led to an ever increasing reliance of the state on this source of income in lieu of individual income taxes.[2] By the 1950’s, however, the world oil industry began to feel the effects of the over-supply of oil, especially following the increased production of oil in the Middle East and the imposition of import quotas in the U.S. The consequence was a chronically low price of oil. So as to combat this problem, in 1960, the world’s main oil exporting countries, largely due to the prodding of the Venezuelan government, decided to form the Organization of Petroleum Exporting Countries (OPEC). Also in 1960, Venezuela created the Venezuelan Oil Corporation, which later formed the basis for the nationalization of Venezuela’s oil industry.]Oil Boom and Nationalization of oil Industry (1973-1998)Juan Pérez Alfonso, Venezuelan, Regarded as Founder of OPECA sharp drop in prices posted by oil companies in August 1960 provided the catalyst to rally other nations to the cause he shared with the oil minister of Saudi Arabia. At a meeting in Baghdad, Iraq, the following month, their nations were joined by Iran, Iraq and Kuwait in forming the oil cartel. Eight more countries have since joined.“I may be the father of OPEC, but now sometimes I feel like renouncing my off. spring,” he said wistfully in an interview in 1976.Juan Perez expressed great concern that the flood of money entering Venezuela after oil prices quadrupled in 1974 had undermined the population's commitment to hard work and made the nation dependent on foreign imports.With the Middle East oil embargo of 1973, world oil prices and, along with it, Venezuelan government revenues, quadrupled from 1972 to 1974. This sudden and sizable increase in government income was historically unique in Venezuela (and would be to most other countries in the world). It allowed the newly elected president, Carlos Andrés Perez, to promise Venezuelans that Venezuela would become a developed country within a few years. His project was known as “La Gran Venezuela” and was supposed to “sow the oil” though a combination of fighting poverty, via price controls and income increases, and the diversification of the country’s economy, via import substitution. Part of this plan was also the nationalization of Venezuela’s oil industry, which became fully nationalized in 1976, with the creation of Petroleos de Venezuela (PDVSA). While the oil boom appeared to be a tremendous blessing to Venezuela, it did have some negative consequences, such as chronic inflation and, paradoxically, an increasing indebtedness.These problems were exacerbated when, in the mid-80’s the price of oil began to plummet, due to OPEC members’ breaking of their production quotas. By 1998, the price of oil had reached a new historical low of $3.19 per barrel (in 1973 prices).[3] This decline in oil prices had a significant impact on Venezuela’s economy, particularly on per capita income, which had been in a steady decline between the mid-80’s and the present. Venezuela was in a mongus economic cricis…waiting for President Hugo Chavez.Re-Founding of OPEC and Re-Nationalization of the Oil Industry? (1999-2003)CHÁVEZ AND CLASS VOTING To test for class voting in Chávez’s Venezuela, I examine the effect of household income on vote choice in fi ve surveys conducted around the time of the elections in 1993, 1998, 2000, and 2006, as well as the recall referendum of 2004.8 One could certainly imagine alternative indicators— or dimensions—of class, but I choose to use household income for three reasons. First, household income is commonly used as an indicator of class both broadly in studies of voting behavior (see Manza, Hout, and Brooks 1995) and more specifi cally in the previous studies of Venezuela cited here.9 Second, alternative measures such as occupation are inconsistent across the surveys, and as Portes and Hoffman (2003, table 4) show, occupational and income categories are correlated.10 Finally, the conventional wisdom of a class vote in Venezuela specifi cally refers to income differences rather than, say, market status or relations to the means of production. That is, scholars suggest that it is the poorrather than, say, unskilled workers—who disproportionately support Chávez.I begin with an examination of class voting in the 1993 election, the one prior to Chávez’s fi rst election.15 Until 1993, the Venezuelan party system was considered one of the region’s most highly institutionalized (Mainwaring and Scully 1995). But this changed when Venezuelans elected Rafael Caldera under the heading of a new party. After years of economic crisis and corruption scandals, as well as the impeachment of Carlos Andrés Pérez, Venezuelans were becoming disenchanted with the traditional parties (Molina and Pérez Baralt 1994; Morgan 2007; Rey 1998). In some ways, however, the 1993 election was consistent with the prior two-party system. An examination of survey data collected just prior to that election reveals no clear division of the vote along class lines. The results of a multinomial probit model are reported in table 1 and show that household income did not signifi cantly affect voter decisions (see also Molina and Pérez Baralt 1994).16 This is consistent with evidence from prior Venezuelan elections as well (Baloyra and Martz 1979; Coppedge 1994; Levine 1973; Molina and Pérez Baralt 1998).In other words, there was little class voting in Venezuela prior to the breakdown of the Punto Fijo two-party system, and the 1993 election, for all its novelty, was not exceptional in this regard. This suggests that if Chávez’s candidacy did generate a class vote, as is often claimed, it would indeed be a new phenomenon in Venezuelan politics. Figure 1 illustrates the proportion of respondents in each income category who voted for Chávez, voted for the opposition candidates, or abstained in each of the four elections.These proportions suggest monotonic class voting only in the case of the watershed election of 1998. Only in that year does it seem that poor voters were more likely to vote for Chávez than rich voters, and rich voters conversely were more likely to vote for the opposition than were the poor. Class voting appears nonmonotonic in the cases of the other three elections. In particular, the fi gures suggest that the rich were more likely to vote for the opposition, although these differences do not always appear particularly stark. The regression estimates reported in table 2 bear out some of these class effects.17 In 1998, even after including controls for gender, age, education, and state, income continues to have a signifi cant monotonic effect on voting for Chávez.18 In other words, the 1998 election does seem to have represented a break with Venezuela’s democratic past, witnessing the emergence of some form of class voting. But as already mentioned, what this analysis omits is the high rate of abstention in the 1998 election: 36 percent of eligible voters failed to turn out.If the Venezuelan electorate were indeed polarized along class lines, then we would expect poor voters to choose voting for Chávez both over voting for the opposition and over not voting at all. Put differently, if poor voters are just as likely to stay home on Election Day as they are to cast a ballot for Chávez, we would need to limit our claims about class polarization to those citizens who vote rather than the entire voting-eligible population. Adding abstainers to the analysis of the 1998 election, I find that income does not have a signifi cant effect on a Venezuelan voters’ choice between voting for Chávez and either staying home or casting a ballot for the opposition. Thus, while there was a class-based disparity among voters, there was no class-based distinction between those who voted for Chávez and all those who did not.Later elections, however, do not reveal even this pattern of class voting: for the 2000, 2004, and 2006 elections, I find no evidence of a monotonic class vote. Nor does the inclusion of abstainers affect these findings. One should be somewhat reluctant to draw stark inferences from the 2004 survey because the interviews were conducted almost a year before the recall referendum took place (see Appendix).19 To the extent that Chávez may have targeted policies at the poor and thereby persuaded them to vote against the recall (see Penfold-Becerra 2007), we might expect a class effect to have emerged in the year between the survey and the election. The 2004 results can therefore be only suggestive. But given their consistency with the findings for the other election years, they should not be dismissed altogether. These results are illustrated in fi gure 2, which shows the predicted probability of an individual from each income group (who turned out to vote) casting a ballot for Chávez in each of the elections examined here. In the interest of greater accuracy, and to impose the least structure on the data, the predicted probabilities are based on probit regressions using dummy variables for as many income categories as are available for each survey rather than the results reported in table 2.The latter results used the four-category income variable for the sake of comparability.20 If monotonic class voting appears absent after 1998, fi gure 2 nevertheless suggests sharp drops in the probability of voting for Chávez at the top of the income distribution in all four elections. This suggests that a focus on monotonic class voting would miss a potentially important feature of class voting in Venezuela. Let us therefore turn to tests of nonmonotonic class voting. Table 3 reports the results of analyses that replace the categorical income variable with a dummy variable for only the very wealthiest 10–15 percent of respondents (labeled “Wealthiest”).21 For the 1998 election, the coefficient is negative and signifi cant, which suggests that the very rich were highly unlikely to vote for Chávez.22 Indeed, this result is consistent with figure 2.For the 2000 election, the analyses are somewhat more complex. Recall that the raw association between class and vote choice illustrated in fi gure 1 suggested no signifi cant relationship between income and voting. Regression results for the 2000 survey indeed bore this out in table 2. As already mentioned, however, previous authors found a signifi cant (though substantively minor) negative relationship between income and voting for Chávez while controlling for other determinants of vote choice (Molina 2002; Molina and Pérez Baralt 2004).But my analysis suggests that even this weakly signifi cant fi nding is an artifact of measurement and sampling. First, these authors use a dichotomous measure of income coded 1 for the top 12 percent of income earners and 0 for the rest of the sample.23 Second, they do not weight their survey sample, which underrepresents voters with less than primary education and overrepresents those with secondary education, both by roughly 10 percent. Thus, previous authors simply isolated the very wealthiest respondents, as in my Wealthiest variable. Replacing the categorical income variable with this dummy variable and removing the education survey weight, my results are consistent with those of previous authors (table 3, column 3).24 Hence the effect on vote choice of being in the top 12 percent of income earners appears to show up exclusively among voters with only a high school diploma.Among voters with other levels of educational achievement, income appears to have no effect on voting for Chávez, even among the very rich. To confirm this, I split the sample by education and reran the regressions for the 2000 election. The results are reported in table 4.25 These analyses confirm that the reported class vote in 2000 is the result of overrepresentation of respondents with only a high school degree. This could be because high-income respondents who had completed only high school also disproportionately tended to be in the age group of eighteen to twenty-four years old—that is, they were most likely college students. And the university student movement has grown increasingly opposed to the Chávez government (The Economist 2007). For the 2004 recall referendum, there is no evidence of even this nonmonotonic class voting. In turn, the results for the 2006 election are similar to those for 2000: only the wealthiest seem to disproportionately vote against Chávez.26 Figure 1, however, appeared to show a different nonmonotonic class vote in 2006. There, both the rich and the poor appear less likely than the middle class to vote for Chávez.27 To test this, I recoded the categorical income variable dichotomously, coded 1 for individuals in either the poor or the rich categories and 0 for those in the two middle-income categories (labeled “Poor-Wealthy”).The results reported in table 3 using this variable show a signifi cant, negative relationship. It seems that class voting took place in 2006, but in a different manner from that which is conventionally assumed. Rather than a monotonic class vote in which Chávez attracts a disproportionate number of poor voters, or a nonmonotonic class vote in which only the wealthiest oppose him, in 2006 it seems that Chávez drew support disproportionately from the middle of the income distribution. This finding certainly merits further research.Insummary, I find evidence of a monotonic class vote only in 1998 and only among voters. Only then were the poor more likely than other income groups to vote for Chávez. But this class difference does not extend to the entire voting-eligible population, which suggests that one must make cautious inferences about class polarization in Venezuela at this time. In later elections, class voting took on a nonmonotonic quality, where it existed at all. Specifi cally, the very wealthy were less likely to vote for Chávez than all the other income groups in 2000, and in 2006, the middle classes seemed most supportive of Chávez.Thus, class voting has indeed emerged in Venezuela with the rise of Chávez, but it is nonmonotonic, contrary to conventional expectations If Chávez is indeed successfully targeting the poor for mobilization, then the change in reported abstention rates from one survey to the next should be more attenuated for the poor than for other income groups. That is, if reported abstention among the rich decreased between 1993 and 1998 by 32 percent we would expect reported abstention among the poor to have decreased by signifi cantly more than 32 percent. This does not appear to be the case. Across the four election intervals (1993–1998, 1998–2000, 2000–2004, 2004–2006), the change in reported abstention rates for the poor does not seem to be signifi cantly distinguishable from the change in reported abstention rates for any other income group.29 Obviously, one would prefer to examine fi ner-grained data that could identify individuals targeted for mobilization by the Chávez campaign, their level of income, and whether mobilization efforts increased their probability of voting. Still, given the available data, there is at least suggestive evidence that there was no particularly pronounced mobilization of the poor during these elections.CONCLUSIONS The conventional wisdom about leaders like Chávez is that their electoral successes depend on class voting, particularly the support of poor voters disenchanted with the old political establishment, corruption within traditional parties, and the neoliberal policies of the Washington Consensus. There are, however, intuitive reasons to doubt this interpretation, including Chávez’s confl icts with organized labor, potential middleclass benefi ts from some of his economic policies and redistributive programs, and the scholarly contention that Latin American populist leaders generally rely on multiclass bases of support. My results show that this intuitive skepticism is indeed warranted; Chávez’s electoral base is not, in fact, disproportionately poor. Chávez’s multiclass base is similar to that of previous populist leaders in the region. He has maintained a nationalist, antioligarchic rhetoric perhaps aimed at the lower classes, along with propoor redistribution and, at least since the failed 2002 coup against him, a certain amount of clientelism (Penfold-Becerra 2007). At the same time, he has attracted middle-class voters, perhaps by pursuing some broader redistributive and statist developmental policies that benefi ted these sectors. Chávez’s 2006 campaign promise to nationalize utilities, for example, likely attracted middle-class voters who stood to gain from lower utility bills. My fi ndings further suggest that some changes may have begun taking place in 2006. I fi nd that both the poor and the rich were less likely than the middle sectors of the income distribution to vote for Chávez in that election. This result surely merits further inquiry. One possible explanation is that Chávez has found it diffi cult to target social benefi ts at Venezuela’s very poor, which may have alienated those who expected a much more radical form of redistribution. Another explanation might stress the increasing levels of crime in the country’s slums and the failure of the Chávez government to ensure citizens’ security. Finally, opposition parties may have made inroads among the poor by building local party organizations. Indeed, scattered opposition parties took over several mayoralties and governorships in the 2008 regional elections. If these parties successfully targeted poorer voters, this may explain Chávez’s growing reliance on middle-income sectors. It may also explain the increasing radicalization of his recent economic policies as an attempt to regain ground among poor voters. Indeed, since losing the 2007 referendum, Chávez has nationalized major companies in a variety of sectors. And given his success in the more recent referendum in 2009, these policies may well have paid off.When Hugo Chávez first was elected in December 1998, it did not look like he had any particular plans for PDVSA. He did, however, have very clear plans for OPEC, which, under the leadership of Alí Rodríguez, was to be turned into a strong cartel once again. Until Chávez came to power, OPEC had turned into a shadow f its former self, with member states regularly ignoring their quotas. Venezuela, especially, had turned into one of the member states’ most unreliable partners. Production over allotted quotas, combined with the expansion of oil production in non-OPEC countries, such as Russia and Mexico, led to a steep decline in the price of oil. Chávez promised to put an end to this, by organizing OPEC’s second-ever meeting of heads of state in Caracas, in the year 2000. Also, Chávez spent the first years of his presidency visiting the leaders of OPEC and non-OPEC countries to convince them to adhere to production quotas, so as to maintain an oil price of between $22 and $28 per barrel.[4]Chávez’ efforts bore nearly immediate results, when the price of oil rose for the first time, since 1985, to over $27 per barrel (in nominal prices).Very soon, however, Chávez ran into conflict with the management of PDVSA, which, for the past fifteen years, had been focusing on producing as much oil as possible, regardless of OPEC quotas. The result was, first, a steady rotation of PDVSA presidents and, later, an all-out confrontation between the Chávez government and the oil industry. Chávez used this conflict to argue that what the oil industry needed was a complete re-nationalization because it had become too independent of the state and had turned into a “state within a state.” I will examine the details of this conflict in greater detail below.How Oil Shaped Venezuelan SocietyEconomicallyPerhaps the most evident effect oil has had on Venezuela’s economy is the appearance of the “Dutch Disease.” This economic disease is caught whenever a commodity brings a sudden increase of income in one sector of the economy, which is not matched by increased income in other sectors of the economy.[5]What happens is that this sudden sectoral increase causes severe problems in the other sectors. The increased sectoral income causes a distorted growth in services and other non-tradables, which cannot be imported, while discouraging the production of tradables, which are imported. The reason for this disparity is that the greater income rapidly raises the demand for imports, since domestic production cannot meet demand quickly enough, and also raises the demand for services, which the domestic market has to supply because services cannot be imported as easily as tradables can. The increased demand for imported goods and domestic services, in turn, causes an increase in prices, which ought to cause domestic production to increase, but doesn’t because the flow of foreign exchange into the economy has caused a general inflation of wages and prices.One can observe the symptoms of the Dutch disease in the Venezuelan economy quite clearly, when one looks at the extent to which the increase in oil production and income was followed by a corresponding decrease in agricultural production delaying industrialization. While agricultural production made up about one third ofVenezuela’s GDP in the 1920’s, it shrank to less than one tenth by the 1950’s. Currently agriculture makes up about 6% of GDP. Also, industrial production declined between 1990 and 1999 from 50% of GDP to 24% (compared to the all of Latin America, which declined from 36% to 29% in the same period).[6] The other Dutch disease symptoms are evident in the constant devaluations of the currency and subsequent inflation which have existed in Venezuela’s economy ever since the oil booms of the late 70’s and early 80’s.[7]In addition to the typical Dutch Disease problem, the sudden increase of oil revenues in Venezuela caused a serious problem in the government’s fiscal policies. That is, the new revenues caused the illusion that the oil income could be used to industrialize the country via massive infrastructure projects, to “sow the oil,” as the president at the time of the oil boom, Carlos Andres Perez, used to say. What happened was that the quadrupled government income caused government spending to quickly increase and even surpass the newfound revenues. When the oil income began to decline again, it was not as easy to reduce government spending as it had been to increase it. The result was that the government gradually went deeper and deeper into debt. Between 1970 and 1994, foreign debt rose from 9% to 53% of GNP. So, as was already stated earlier, while oil prices and revenues declined, so did per capita income and the Venezuelan economy as a whole, and poverty increased. In 1996 Venezuela was one of the very few countries in the world where per capita income was lower than it was in 1960.[8]CulturallyPerhaps the most visible consequence of Venezuela’s reliance on oil is that it has fostered a rentier and clientelistic mentality among Venezuelans. That is, the oil wealth has promoted the idea that one can do well in Venezuela, as long as one has access to the country’s oil wealth. The consequence was that rather than engaging in creative entrepreneurial activity, Venezuelans were encouraged to ally themselves with the state, seeking either employment or contracts from the state, which had a monopoly on Venezuela’s oil income. Political analyst Terry Lynn Karl describes the consequences of oil as follows:In the manner of a petro-state, rent seeking had become the central organizing principle of [Venezuela’s] political and economic life, and the ossified political institutions in existence operated primarily to perpetuate an entrenched spoils system. Both state agencies and political parties had given up their programmatic roles to become machines for extracting rents from the public arena.[9]Another observer of Venezuela, the cultural anthropologist Fernando Coronil, argues that Venezuela’s oil wealth, which is concentrated in the state, has caused the state to appear to have magical powers, to be able to accomplish just about any feat at no cost to the population.Citgo Petroleum Corp [PDVSAC.UL], the U.S. subsidiary of Venezuelan state-run oil company PDVSA [PDVSA.UL], said on Wednesday that theUnited States had revoked the visa of its president and chief executive Asdrubal Chavez, cousin of Venezuela’s late president Hugo Chavez,ASDRUBAL CHAVEZ COUSIN OF HUGO CHAVEZ PRESIDENT CITGO USAThus transformed into a petrostate, the Venezuelan state came to hold the monopoly not only of violence, but of the nation’s natural wealth. The state has exercised this monopoly dramaturgically, seeking compliance through the spectacular display of its imperious presence—it seeks to conquer rather than persuade. … By manufacturing dazzling development projects that engender collective fantasies of progress, it casts its spell over audiences and performers alike. As a “magnanimous sorcerer,” the state seizes its subjects by inducing a condition or state of being receptive to its illusions—a magical state.[10]PoliticallyVenezuela’s oil economy and culture of course also left a mark on its politics. As a natural consequence of the clientelistic and magical nature of the state was that the state would become very bureaucratic. It is estimated that of the people employed in the formal economy (about 50% of the total working population), approximately 45% are employed through the government.[11]Another consequence that Venezuela’s oil wealth has had for its political system is that it turned it into what political scientist Terry Lynn Karl calls a “pacted democracy.” The term pacted democracy describes a democracy which is held together via an agreement among different elite groups. It is a kind of truce among opposing powerful interest groups in the society, so as to maintain their privileges. In Venezuela this truce took the form of the pact of “Punto Fijo,” where all major parties were guaranteed access to power in proportion to the voting results. In other words, even if one party won the presidential and legislative elections, it would still be obliged to share the spoils of Venezuela’s oil economy among the other parties, more or less according to the vote results. This way each of the main parties (primarily Acción Democratica and Copei) was guaranteed access to jobs, contracts, ministries, etc. To further minimize conflict, the main union federation, CTV, was similarly divided among the parties, although Acción Democratica, as its founder, always was in control of it. Radical socialist and communist parties were completely excluded from this pact. The pact of Punto Fijo, however, began falling apart once oil rents began to decline in the mid 80’s. It then received its deathblow when Hugo Chávez was elected president in 1998.In terms of Venezuela’s level of bureaucratization, the “pacted” nature of its democracy, and the degree of clientelism, Venezuela in many ways resembled one-party state socialist regimes, except that it was governed by an alternating two-party system. Oddly enough, the system neared its end in the same year Eastern Europe’s did, in 1989, with the “Caracazo,” when there was a general uprising and riots against IMF-mandated economic reforms.PDVSA and the Chávez GovernmentAll of the foregoing sets the stage for showing just how extremely important the country’s conflict over oil is. At the most overt level, the conflict between the Chávez government and the oil industry is one about who controls PDVSA. Beyond that, the specific issues that control is being fought over have to do with the company’s efficiency, its internationalization program, its outsourcing and subcontracting practices, OPEC membership, and special oil contracts.ControlControl over the state-owned oil company, PDVSA, has been in dispute in Venezuela, perhaps ever since the company was first nationalized in 1976. When PDVSA was first nationalized, the transnational corporations’ dependencies were turned into fourteen Venezuelan companies, which corresponded with the fourteen main transnational oil companies that did business in Venezuela.[12]The entire management had years earlier already been Venezuelan and this management did not change with nationalization. For example, the former president of Shell Venezuela was the same as the new president of Maraven, the newly nationalized Shell Venezuela. Critics of the nationalization process, such as Carlos Mendoza,[13] say that the newly nationalized oil industry was nothing more than a Trojan Horse. Venezuela’s oil industry maintained an anti-statist and transnational corporatist management culture throughout its existence. The ties to the former owners of the nationalized Venezuelan companies were maintained primarily through technical assistance contracts with the former owners and through commercialization contracts, which heavily discounted the price of oil to their former owners.The government’s lack of control over the oil industry was further institutionalized in PDVSA’s board of directors. While normally a board of directors is supposed to represent the interests of the owners vis-á-vis the management, in the case of PDVSA the board of directors, almost in their entirety, was appointed from PDVSA management, who, due to their backgrounds, tended to represent management. This is why, when Chávez appointed a board of directors who were oil experts and who did not come from PDVSA, the PDVSA management protested and joined the April 2002 work stoppage against the government. Chávez was breaking a decades-old tradition that regarded board membership as the highest promotion a PDVSA manager could receive.EfficiencyPerhaps the first and foremost issue on the Chávez’ government’s mind with regard to reforming PDVSA has to do with the company’s efficiency. PDVSA critics point out that the company has become increasingly inefficient over the past twenty five years. From 1976 to 1992 the average percentage of PDVSA’s income that went towards the company’s costs was approximately 29% and the percentage that went towards the government was 71%. For 1993 to 2000, that relationship had practically reversed, so that 64% were kept by PDVSA and only 36% went towards the government.[14] Also, according to rankings of the business magazine, América Economía,[15]PDVSA was the largest Latin American company in 2000, but in terms of efficiency it ranked among the lowest of the fifty most efficient companies, far below any of its state-owned competitors, such as Petrobras of Brazil, Pemex of Mexico, or Petroecuador of Ecuador.[16] Other measures of profitability show similar results. For example, in terms of the Dollar revenues provided to the government per barrel of oil produced, PDVSA paid only about a quarter ($8.34) of what Mexico’s PEMEX paid out to the government ($24.66) in 2001.[17]Ironically, PDVSA has a fraction of the number of employees that PEMEX does, something that might be traced to PDVSA’s more extensive use of outsourcing and sub-contracting. Still, it is well known within PDVSA that it has nearly twice the number of administrative workers that it needs. In 1997 PDVSA merged three of its holdings, Corpoven, Lagoven, and Maraven) into PDVSA proper. Carlos Rossi, a former PDVSA economist, says that the Caracas headquarters of PDVSA acquired the nickname “Hollywood” because, “everyone there [in PDVSA Caracas] seemed to have a double.”[18]InternationalizationA large part of the reason for PDVSA’s drop in efficiency from the mid 1990’s on has to do with its internationalization policy and a change in its accounting methods. In 1989 PDVSA adopted a worldwide combined accounting method, so that costs and losses outside of Venezuela would be balanced against the revenues and profits within Venezuela. Previously the accounting for transactions within Venezuela and for those abroad was done separately. The result of the account consolidation was a large-scale import of costs that were incurred abroad. Since PDVSA’s tax rate within Venezuela is about twice that in the U.S., for example, the company had to transfer a much smaller proportion of its revenues to the government.From the early 1980’s to late 1990’s, PDVSA engaged in a program to vertically integrate the company on a global level. What this meant, in essence, was the purchase of refineries and of the U.S. gas station network Citgo. In all, in the period between 1983 and 1998, PDVSA purchased 23 refineries in Europe and the U.S. While other state-owned oil companies initiated vertical integration projects, Venezuela’s was the most ambitious. One of the official reasons for this was that Venezuelan oil is mostly of a very heavy crude variety, with many components that are undesirable for finished oil products, such as sulfur, nitrogen, and several metal elements. In other words, Venezuelan crude requires a fairly sophisticated refining process, which not all refineries can handle. The logic of acquiring foreign refineries was that such refineries could be retrofitted to process Venezuelan crude and to then provide finished oil products to the market closest to the refinery. The idea thus was to guarantee a market for Venezuelan heavy crude oil.However, many, if not most, of the refineries that were acquired were purchased at a bargain, mainly because the vendor could not find a way to make it profitable. As a result, PDVSA tried to avoid losses in these refineries either by providing Venezuelan crude at below market rates or by avoiding the costly retrofitting process altogether and providing the refinery with lighter crude from other countries, such as Russia.[19] The net result of the internationalization process and of the new accounting procedure was that tremendous PDVSA costs that were incurred outside of Venezuela were “imported” to the national branch of PDVSA, thus lowering overall profits and transfers to the government.OutsourcingAnother source of increased costs developed as a result of outsourcing, whereby PDVSA opened up marginal oil fields to private investors. So as to attract private investors, PDVSA negotiated lower taxes and royalties on the oil production, since the early 90’s. While on the surface this makes sense because marginal fields are much more costly to operate, the result was the production of much more costly oil, which counts against OPEC quotas, displacing oil production that might be more profitable. Of the 3.2 million barrels per day that Venezuela currently produces, about 500,000 barrels per day come from costly outsourced oil fields.[20]INTESAAnother whole dimension of outsourcing is related to contracts involving the general operations of PDVSA. Perhaps the most important instance of outsourcing, in terms of the management of PDVSA, is the joint venture it engaged in with the U.S.-based company SAIC (Science Applications International Corporation) to create INTESA (Informática, Negocios, y Tecnología, S.A.) in 1996. INTESA was to manage all of PDVSA’s data processing needs. After four years of outsourcing this important task to INTESA, it became increasingly clear that INTESA was not saving PDVSA any money, but that it was costing PDVSA much more than it expected.[21]Following the April 2002 Coup attempt, Alí Rodríguez, the new PDVSA president assigned Juan Fernandez, who was later to be the leader of the December 2002 PDVSA strike, to cancel the contract with INTESA. Fernandez negotiated that the contract would end, perhaps not so coincidentally, by the end of December 2002. INTESA joined the strike, however, and shut down all of its services to PDVSA, well before the contract expired. The result was that PDVSA could not transfer its data processing to new systems, nor could it process its orders and bills for oil shipments. PDVSA ended up having to process such things manually, since passwords and the general computing infrastructure were unavailable, causing the strike to be much more damaging to the company than it would have been, if the data processing had been in PDVSA’s hands.A recent investigation into INTESA, and especially into its majority owner SAIC (60%), revealed some information that ought to be quite disturbing to the government of Hugo Chávez.[22] That is, INTESA, which controlled all of PDVSA’s information, is in turn controlled by SAIC, a Fortune 500 company (revenues in 2002: $6.1 billion) that is deeply involved in the U.S. defense industry, particularly as it relates to nuclear technology, defense intelligence, and computing technology. Its managers included two former U.S. Secretaries of Defense (William Perry and Melvin Laird) and two former CIA directors (John Deutch and Robert Gates). Its current Board of Directors includes the former commander of the U.S. Special Forces (Wayne Downing), a former coordinator of the National Security Council (Jasper Welch), and the former director of the National Security Agency (Bobby Ray Inman). Whether or not SAIC was actively involved in the PDVSA strike and whether it passes crucial company information on to other oil companies is unknown. However, the very fact that these connections exist ought to be a cause of great concern to PDVSA and the Venezuelan government.Oil Industry Reform under ChávezVenezuela’s oil industry reform encompasses four main areas: solidification of state ownership of the oil industry, tax reform, subordination of the oil industry to national interests, and the strengthening of OPEC.[23]State ownershipThe 1999 Constitution, which was written by Chávez’s supporters, anchors state ownership of Venezuela’s oil industry in the constitution. It is well known that the government of Rafael Caldera, Chávez’ immediate predecessor in the presidency, wanted to privatize PDVSA. The new constitution, however, clearly states that “for reasons of economic and political sovereignty and of national strategy, the state will maintain the totality of the shares of PDVSA or of the entity created to manage the oil industry…”[24] In some ways, this article of the constitution was supposed to mark a definitive break from neo-liberal economic policies that PDVSA had been pursuing prior to Chávez’s election.However, some critics say that a backdoor to privatization remains open because the constitution also says that the state shall own all shares of PDVSA, “except those of subsidiaries, strategic associations, businesses, and whatever other that has constituted or constitutes PDVSA as a result of the development of its business.”[25] In other words, in theory, PDVSA could turn its various activities into subsidiaries and then sell them off, one by one. Following the December ’02 to January ’03 oil industry strike, this is what PDVSA’s directors have been considering, mostly in order to rid itself of unprofitable subsidiaries or activities.Related to state ownership is a provision in the hydrocarbons law which specifies that all state activity related to oil exploration and production are to be dedicated to the “pubic interest.”[26] More specifically, it states that all oil related activity must be oriented to support “the organic, integrated, and sustainable development of the country, paying attention to the rational use of resources and the preservation of the environment.” Income derived from oil “for the most part” must be used to finance health care, education, and the FIEM (the fund for macro-economic stabilization, a governmental savings fund).Tax reformThe next major target for reform is the way that the Venezuelan government extracts revenue from the oil industry. Here the government introduced a change in the taxation of the oil industry. Since 1943 the government required a royalty payment of 16.6% for every barrel of oil that either PDVSA or a foreign company extracted. In many cases this royalty had even been negotiated to drop to 1% of some foreign investors. A new oil reform that PDVSA was working on in 1998 even suggested eliminating royalty payments entirely. With the new oil reform law of 2001, however, royalty payments were nearly doubled to 30% of the price at which every barrel is sold. At the same time, the government lowered the income tax levied on oil extraction from 67.6% to 50%.When the government introduced this change, the opposition cried out that the doubling of royalty payments would ruin Venezuela’s cooperation with foreign investors and would practically eliminate foreign direct investment in Venezuela. The government’s main argument for increasing the royalty payments is based on the fact that it is much easier for the government to collect royalty payments than it is to collect taxes on oil income. That is, the government can track very easily how much oil is being extracted and what the royalty payments should be based on the current price of oil. However, taxes based on oil income are much more difficult to control because PDVSA or other oil companies deduct their expenses from the income on which they have to pay the taxes. Since expenses are not that easily identifiable for an outside auditor, the tax payer can attempt to inflate expenses, in order to lower their tax payments. By shifting government revenues from taxes to royalties, the government is basically closing loopholes in the tax collection process.A second and closely related reason for the change in the oil revenue collection process has to do with PDVSA. Chávez and his supporters have long claimed that PDVSA is providing too little of its revenues to the central government, the company’s only shareholder. One way to make the company more efficient would thus be to increase its contribution to the government, regardless of its expenses. That is, by making fewer expenses tax deductible, which is what the shift from income tax to royalties does, the company is faces a strong incentive to make its operations more efficient. In other words, a tax which allows the deduction of expenses penalizes the oil producer if production is made more efficient. If, on the other hand, the producer has to contribute just as much to the government, regardless of costs or expenses, the “royalty makes the interests of the natural resource owner [the state] and of the investor coincide.”[27]“Re-nationalization”As mentioned earlier, some critics of PDVSA, such as Carlos Mendoza, have called PDVSA’s 1976 privatization “phony.” Chávez, in his speeches following the collapse of the December 2002 to January 2003 oil-industry shut-down, has thus referred to the regaining of control over PDVSA as a “re-nationalization.” What this regaining of control involves is first and foremost increasing PDVSA’s efficiency and profitability, so that the company can transfer a greater share of its revenues to the government treasury. The government plans to increase the company’s efficiency through the aforementioned changes in taxation, by selling off unprofitable subsidiaries, and by reorganizing the company into two major geographic subdivisions, PDVSA East and PDVSA West. The details of which subsidiaries will be sold and exactly how the company is to be reorganized are still largely unknown as of this writing.OPECWhen Chávez first came to power, in February 1999, among his highest priorities was to strengthen OPEC and raise the international price of oil. Oil had dropped to less than $10 per barrel, to a large extent because Venezuela was ignoring its OPEC oil production quotas during the previous government of Rafael Caldera. Also, non-OPEC members such as Mexico and Russia, were increasing their production considerably, further driving down the price of oil. Chávez immediately put Alí Rodríguez in charge of the Ministry of Energy and Mines (MEM), which oversees PDVSA and oil policy. Within the new government’s first 100 days, Rodriguez visited most OPEC and non-OPEC oil producing countries and returned with a commitment from most these countries to reduce production or abide by their OPEC quotas. The price of oil immediately went up, from an average price of $12.28/barrel for 1998 to $17.47/barrel for 1999, one of the largest non-war related increases of the past decade. Later, Chávez and Rodriguez managed to convince OPEC to introduce a price band system, of $22 to $28 per barrel, which OPEC would try to maintain.The following year, 2000, President Chávez spent much time traveling to both OPEC and non-OPEC countries, to consolidate their commitment to restrained oil production and to convince them to attend the second-ever gathering of OPEC heads of state, to be held in Caracas.[28] On September 27 of 2000, Chávez opened and hosted this second OPEC summit. For the Chávez government, the summit had the following six objectives:Reestablish a dialogue between Venezuela and its partners in OPECRecuperate the credibility of Venezuela in OPECStrengthen OPECDefend oil pricesReassume a leadership position within OPECConsolidate relations between Venezuela and the Arab/Islamic worldGiven the strengthened position of OPEC in the world today, it is safe to say that the summit’s objectives were largely achieved.[Ultimately, the renaissance of OPEC could be a large part of what motivated the U.S. to attack Iraq. That is, if OPEC had remained as defunct as it was when Chávez came to power, it is quite possible that the Bush administration would never have considered controlling Iraq’s oil reserves much of an issue. But with the return of OPEC, the consequent rise in oil prices, and the general lack of control the U.S. government felt in the face of an energy crisis and the attack on the World Trade Center, “breaking OPEC’s back” became a top priority.]Opposition to Oil Industry ReformAs has been noted elsewhere, opposition to the Chávez government did not really gain much momentum until Chávez proposed the 49 “enabling laws” (“leyes habilitante”), among the most important of which was the “Organic Law of Hydrocarbons,” which specified the institutional and legal changes for governing Venezuela’s oil industry. When the law was made public, the outcry, especially among oil industry executives was immediate.The opposition declared that the new law would doom Venezuela’s oil industry because the higher royalties and the limitations placed on joint ventures would make foreign direct investment completely unattractive. One of the main arguments here is that Venezuela’s crude oil is mostly heavy and extra heavy, a type of crude that is quite expensive to extract from oil fields. The shift from taxes to royalties would mean that companies could deduct substantially fewer expenses from the transfers they are required to make to the government. As a result, the extraction of oil from “marginal fields” (fields which yield less oil) and heavy and extra heavy crude become much less attractive to foreign investors. To support their argument, the opposition points to the fact that Venezuela’s royalties are among the highest in the world.Another element of critique of the government’s oil policy has always been that the constitution prohibits the privatization of PDVSA. While few in Venezuela openly favor privatization, due to the strong nationalist sentiment in the country, many have suggested that Venezuelans would be better off if PDVSA were privatized to the general public, in the sense that all citizens would receive shares of PDVSA that they would then be free to buy and sell on the stock market.While the opposition roundly criticized the new law when it was first introduced in October 2001, the real problems within PDVSA did not begin until Chávez decided to fire his appointment to the presidency of PDVSA, General Guaicaipuro Lameda, in February 2002. Lameda had has said that he was surprised about his appointment because he never considered himself a supporter of Chávez. But he took the post anyway and for 15 months he ran PDVSA mostly from the perspective of a businessman, mostly adhering to the concerns of the upper management, instead of the Chávez government. One of the reasons the government gave for firing Lameda was independent audit of PDVSA that had been initiated in January of that year, which indicated that numerous dubious contracts had been entered under Lameda’s watch, which appeared to personally benefit managers of PDVSA, leading to serious losses for the company.Chávez replaced Lameda with Gaston Parra, a leftist economist and former president of the Central Bank of Venezuela. Also, he appointed five new members to PDVSA’s board of directors. Lameda, together with members of PDVSA’s upper management charged that Chávez was politicizing PDVSA by appointing individuals to the board on the basis of political loyalty, rather than merit. Ever since PDVSA’s founding, the board of directors was regarded as the culmination of a long management career at PDVSA. Upper management generally filled most of the positions of the board. PDVSA managers regarded this policy as the foundation for the company’s meritocracy.By appointing a board that did not come from within PDVSA, Chávez broke with that tradition for the first time, thus earning him the charge of breaking with meritocracy in the company and replacing it with politicization. Forgotten, however, was that previous presidents had also appointed individuals to the PDVSA board who did come from within PDVSA.[29] Also, as the representative of the owners, the board of directors, in theory, should be appointed by the owner (the state) and represent the owner’s interests. Appointing a board from within the company, as had largely been the tradition, actually represents a conflict of interest because the managers appointed to the board are more likely to represent the interests of the management, rather than the state.Another, though largely unarticulated, reason for why PDVSA’s management and most of its administrative employees opposed Chávez following the introduction of the new oil law and the appointment of a new board had to do with the overstaffing mentioned earlier. That is, with the change in taxation PDVSA had to drastically cut its overhead. Since it was already quite overstaffed in the administrative offices in Caracas, due to the recent merger of three of PDVSA’s subsidiaries, the staff reductions were going to be even more severe.[30]Already, PDVSA had reduced its payroll by 26%, between 1995 and 2000. Still, the overstaffing remained a problem, which became more severe with the new oil law, which forced even greater cutbacks in overhead. Ultimately, the upper management issued an ultimatum to Chávez to dismiss the newly appointed directors, or it would join the strike called by Fedecamaras and the CTV for April 9. 2002Venezuela is still a polarized country. While there are millions who want the government out now, there are also millions (including the military) who fear a right-wing coup. There must be a negotiated solution.[1] Tugwell, Franklin (1975) The Politics of Oil in Venezuela. Stanford University Press, p.182[2] For example, while Venezuelan individual income taxes during the 70’s made up only 4.1% of total tax income and corporate taxes made up 70.3%, in neighboring Colombia, the tax burden is distributed much more evenly among different sources, so that individual income tax makes up 11% and corporate tax 12.8% of total tax income. (Source: Terry Lynn Karl, 1997, The Paradox of Plenty: Oil Booms and Petro States, University of California Press, p.89)[3] Source: OPEC Annual Statistical Bulletin, 2001[4] Chávez’ visits to Saddam Hussein and Muammar Qaddafi would come to haunt him over and over again, as his opponents would site these visits as reasons for their dislike of Chávez.[5] As was the case of Dutch gas, which is where the name for the problem comes from.[6] World Development Report 2000/2001, p.297[7] Average annual inflation was over 50% between 1988 and 1998.[8] Terry Lynn Karl, p.235. This was a fate suffered by only 19 countries in the world in 1996.[9] Terry Lynn Karl (1997), p.184[10] Fernando Coronil (1997) The Magical State: Nature, Money, and Modernity in Venezuela. University of Chicago Press. p.4[11] [Source?][12] To list a few name changes: Shell became Maraven, Exxon became Lagoven, Mobil became Corpoven , Gulf became Menoven (sp?).[13] An oil industry expert, who briefly served on the PDVSA board of directors in the days leading to the April 11, 2002 coup attempt.[14] Bernard Mommer (2001) “Venezuelan Oil Politics at the Crossroads.” Oxford Institute for Energy Studies, Monthly Commentary.[15] www.americaeconomia.com[16] PDVSA ranks #24 in terms of return on assets, #49 in terms of return on sales, and #50 in terms of return on fixed assets.[17] Source: Mark Weisbrot and Simone Baribeau (2003), “What happened to Profits?: The Record of Venezuela’s Oil Industry,” Center for Economic Policy Research paper: www.cepr.net/what_happened_to_profits.htm (their figures are based on SEC filings).[18] Carlos Rossi, “PDVSA’s Labor Problems,” The Daily Journal, April 18, 2002.[19] See: El Nacional, “Cuentas Crudas, Precios Refinados”, November 17, 1998[20] For 2001 outsourced oil fields cost $10.94 per barrel of oil equivalent produced, while non-outsourced oil fields cost only $2.03 per barrel of oil equivalent (in 1997 dollars). Source: CEPR Research Paper, “What Happened to Profits?”[21] See: www.soberania.info/tercerizacion_portada.htm The excess costs averaged about $90 million per year for 1998 to 2000.[22] See: Alexander Foster and Tulio Monsalve, “Quien Maneja las Computadoras de PDVSA?” Venezuela Analitica, December 17, 2002 www.analitica.com/bitbiblioteca/tulio_monsalve/computadoras_pdvsa.asp[23] Alí Rodríguez, the former president of OPEC and current president of PDVSA provides a good summary of the policy in: “La Reforma Petrolera Venezolana de 2001” in Revista Venezolana de Economía y Ciencias Sociales, No. 2/2002, May/August 2002.[24] Constitution of the Bolivarian Republic of Venezuela, Article 303.[25] Ibid.[26] Article 5 of the “Ley Organica de Hidrocarburos.”[27] Alí Rodríguez (2002), p.204[28] Chávez’ visits to Iraq—the first of any head of state since the Gulf War—and to Libya, both members of OPEC, would later be used repeatedly by his opponents at home and in the U.S. as proof for his unreliability and dangerous tendencies.[29] President Caldera had named the son of his chancellor to the board and Chávez’ first appointment to the PDVSA presidency, Hector Ciavaldini came from a lower management position. No protests were voiced against these appointments at the time.[30] Carlos Rossi, “PDVSA’s Labor Problems,” The Daily Journal, April 18, 2002. According to Rossi, PDVSA employees referred to the Caracas headquarters as “Hollywood” because every employee had at least one double that performed the same functions within the company.https://www.vanderbilt.edu/lapop...https://revista.drclas.harvard.e...The Economics, Culture, and Politics of Oil in VenezuelaJuan Pérez Alfonso, Venezuelan, Regarded as Founder of OPEChttps://www.tandfonline.com/doi/...1973 oil crisis - WikipediaOil is the devil's excrement

I answered this question earlier accurately; Charles Dupre,Answered Aug 25 ;How did the crisis in Venezuela start?Venezuela started and got into troubles in 1973 with the first OPEC US -Middle East oil embargo of 1973,after oil prices on October 17 -1973 over the OLP and the Palestinian War and Israel, Syria and, along with it, increasing prices by 130% to the USA, UE; Henry Kissinger Secretary Of State in March 1974 negociated a agreement with Syria, OLP and Israel to stop the war, regain territory allowing a accord with OPEP ; The Embargo lasted (4) months.the price of oil had risen from US$3 per barrel to nearly $12 globally; US prices were significantly higher. The embargo caused an oil crisis, or "shock", with many short- and long-term effects on global politics and the global economy.It was later called the "first oil shock", followed by the 1979 oil crisis, termed the "second oil shock."On October 6, 1973, Syria and Egypt, with support from other Arab nations, launched a surprise attack against Israel on Yom Kippur.On October 12, 1973, US president Richard Nixon authorized Operation Nickel Grass a strategic airlift to deliver weapons and supplies to Israel in order to replace its materiel losses, after the Soviet Union began sending arms to Syria and Egypt.In response to this, the Organization of Arab Petroleum Exporting Countries (OAPEC, consisting of the Arab members of OPEC plus Egypt and Syria) announced an oil embargo against Canada, Japan, the Netherlands, the United Kingdom and the United States.Saudi Arabia only consented to the embargo after Nixon's promise of $2.2billion in military aid to Israel.The embargo was accompanied by gradual monthly production cuts—by December, production had been cut to 25% of September levels.This contributed to a global recession and increased tension between the United States and European allies who faulted the US for provoking an embargo by providing assistance to Israel.OAPEC demanded a complete Israeli withdrawal from all territories beyond the 1949 Armistice border.The Organisation of Oil Producing Countries' - OPEC.However, protection within the market and the promise of unfettered wealth arising from Venezuela’s immense oil reserves were undone by what economists came to term the 'natural resource curse'; the sudden influx of money would cause the national currency to dramatically appreciate, wages are driven up, prices inflate, manufacturing, imports and exports all slump. Though this was yet to occur for Venezuela during the early OPEC years, Alfonzo saw it all coming. In a prophetic 1975 speech he uttered the infamous lines: "ten years from now, twenty years from now, you will see; oil will bring us ruin. Oil is the Devil's excrement".Venezuelan government revenues, quadrupled from 1972 to 1974. The story of the “oil shock” is normally linked to that of the Arab-Israeli conflict in October 1973.The purpose was the ongoing common struggle by developing countries to gain control over natural resources, develop their national economy and reform the international economic institutions created . It also included forms of confrontation and acts of sabotage in the Middle East that made it possible to transform the networks that transported oil supplies into a political instrument. This instrument served a dual purpose: redirecting the flow of profits from oil, and attempting to the settle the 1974 Palestine question. Parties to the crisis used market devices in an attempt to frame its causes and possible solutions.However, the events of 1973–1974 exceeded the attempts to contain them as a matter of market forces. The question of supply opened up new fields of doubt about the possible limits to reserves of oil; the increasing difficulty of forecasting future demand and prices opened up new ways of mapping the future; and the inability to prevent catastrophic oil spills helped trigger the emergence of new matters of concern, in particular the preservation of the environment. Yet the events of 1973–1974 also triggered the unraveling of Keynesian economics, attacked by market technologies developed from the mid-1970s.This sudden and sizable increase in government income was historically unique in Venezuela . It allowed the newly elected president, Carlos Andrés Perez, to promise Venezuelans that Venezuela would become a developed country within a few years. His project was known as “La Gran Venezuela” ; from that point until 1996 corruption he was removed, impeached from power and the only way of business lead in 1998 to the great President Hugo Chavez …..!After years of economic crisis and corruption scandals, as well as the impeachment of Carlos Andrés Pérez, Venezuelans were becoming disenchanted with the traditional parties and Chavez the unique Populist became the new hero after Simon Bolivar the liberator of The Grand Colombia that lead the creation of Venezuela[ The Economics, Culture, and Politics of Oil in Venezuela][ Venezuela because it has shaped practically every aspect of the country, its history, its economy, its politics, and its culture. In what follows I will provide a brief history of Venezuela’s oil industry. Next, I discuss how the oil industry has shaped the economy, polity, and culture. Then, I examine the criticisms leveled against the oil industry and how the Chávez government has proposed to address these. Finally, I present what the opposition has done to prevent the reform of the oil industry and how the government has reacted towards this opposition.]Oil industry history[ Venezuela’s oil industry history can be roughly divided into four periods: the discovery and initial production of oil (1912-1943), Venezuela’s assertion of control over the oil industry (1943-1974), the oil boom and nationalization of the oil industry (1974-1998), and the government’s attempt to regain control over an increasingly independent oil industry (1999-2003).]Birth of the Petro-State (1912-1943)[ That Venezuela had abundant supplies of oil was already known since the earliest pre-colombian times, when the indigenous peoples of Venezuela made use of oil and asphalt, which seeped to the surface, for medicinal and other practical purposes. However, it was not until 1912 that the first oil well was drilled. Shortly thereafter, first Royal Dutch Shell and then Rockefeller’s Standard Oil became major producers of oil in Venezuela. Within a few years, by 1929, Venezuela was the world’s second largest oil producer, after the U.S., and the world’s largest oil exporter. Between 1920 and 1935 oil’s share of exports went from 1.9% to 91.2%.[1]This, of course, had an immediate and dramatic impact on the country’s economy, known among economists as “The Dutch Disease,” which will be explored in greater detail shortly. The most important consequence of the “Dutch Disease,” was that agricultural production declined to almost nothing and the country fell behind in industrializing, relative to other Latin American countries.]Strengthening of the Petro-State (1943-1973)[ In 1943 Venezuela passed a vast reform of its oil policy with the Hydrocarbons Act, which tied the Venezuelan state’s income even more tightly to the extraction of oil. While previously oil income was mostly based on concessions and customs, the new hydrocarbons act tied oil revenues to taxes based on income from mining. The law established that the foreign companies could not make greater profits from oil than they paid to the Venezuelan state. The continually increasing oil income led to an ever increasing reliance of the state on this source of income in lieu of individual income taxes.[2]By the 1950’s, however, the world oil industry began to feel the effects of the over-supply of oil, especially following the increased production of oil in the Middle East and the imposition of import quotas in the U.S. The consequence was a chronically low price of oil. So as to combat this problem, in 1960, the world’s main oil exporting countries, largely due to the prodding of the Venezuelan government, decided to form the Organization of Petroleum Exporting Countries (OPEC). Also in 1960, Venezuela created the Venezuelan Oil Corporation, which later formed the basis for the nationalization of Venezuela’s oil industry.]Oil Boom and Nationalization of oil Industry (1973-1998)Juan Pérez Alfonso, Venezuelan, Regarded as Founder of OPECA sharp drop in prices posted by oil companies in August 1960 provided the catalyst to rally other nations to the cause he shared with the oil minister of Saudi Arabia. At a meeting in Baghdad, Iraq, the following month, their nations were joined by Iran, Iraq and Kuwait in forming the oil cartel. Eight more countries have since joined.“I may be the father of OPEC, but now sometimes I feel like renouncing my off. spring,” he said wistfully in an interview in 1976.Juan Perez expressed great concern that the flood of money entering Venezuela after oil prices quadrupled in 1974 had undermined the population's commitment to hard work and made the nation dependent on foreign imports.With the Middle East oil embargo of 1973, world oil prices and, along with it, Venezuelan government revenues, quadrupled from 1972 to 1974. This sudden and sizable increase in government income was historically unique in Venezuela (and would be to most other countries in the world). It allowed the newly elected president, Carlos Andrés Perez, to promise Venezuelans that Venezuela would become a developed country within a few years. His project was known as “La Gran Venezuela” and was supposed to “sow the oil” though a combination of fighting poverty, via price controls and income increases, and the diversification of the country’s economy, via import substitution.Part of this plan was also the nationalization of Venezuela’s oil industry, which became fully nationalized in 1976, with the creation of Petroleos de Venezuela (PDVSA). While the oil boom appeared to be a tremendous blessing to Venezuela, it did have some negative consequences, such as chronic inflation and, paradoxically, an increasing indebtedness.These problems were exacerbated when, in the mid-80’s the price of oil began to plummet, due to OPEC members’ breaking of their production quotas. By 1998, the price of oil had reached a new historical low of $3.19 per barrel (in 1973 prices).[3]This decline in oil prices had a significant impact on Venezuela’s economy, particularly on per capita income, which had been in a steady decline between the mid-80’s and the present. Venezuela was in a mongus economic cricis…waiting for President Hugo Chavez.Re-Founding of OPEC and Re-Nationalization of the Oil Industry? (1999-2003)CHÁVEZ AND CLASS VOTING To test for class voting in Chávez’s Venezuela, I examine the effect of household income on vote choice in fi ve surveys conducted around the time of the elections in 1993, 1998, 2000, and 2006, as well as the recall referendum of 2004.8 One could certainly imagine alternative indicators— or dimensions—of class, but I choose to use household income for three reasons. First, household income is commonly used as an indicator of class both broadly in studies of voting behavior (see Manza, Hout, and Brooks 1995) and more specifi cally in the previous studies of Venezuela cited here.9 Second, alternative measures such as occupation are inconsistent across the surveys, and as Portes and Hoffman (2003, table 4) show, occupational and income categories are correlated.10 Finally, the conventional wisdom of a class vote in Venezuela specifi cally refers to income differences rather than, say, market status or relations to the means of production. That is, scholars suggest that it is the poorrather than, say, unskilled workers—who disproportionately support Chávez.11I begin with an examination of class voting in the 1993 election, the one prior to Chávez’s fi rst election.15 Until 1993, the Venezuelan party system was considered one of the region’s most highly institutionalized (Mainwaring and Scully 1995). But this changed when Venezuelans elected Rafael Caldera under the heading of a new party. After years of economic crisis and corruption scandals, as well as the impeachment of Carlos Andrés Pérez, Venezuelans were becoming disenchanted with the traditional parties (Molina and Pérez Baralt 1994; Morgan 2007; Rey 1998). In some ways, however, the 1993 election was consistent with the prior two-party system. An examination of survey data collected just prior to that election reveals no clear division of the vote along class lines. The results of a multinomial probit model are reported in table 1 and show that household income did not signifi cantly affect voter decisions (see also Molina and Pérez Baralt 1994).16 This is consistent with evidence from prior Venezuelan elections as well (Baloyra and Martz 1979; Coppedge 1994; Levine 1973; Molina and Pérez Baralt 1998).In other words, there was little class voting in Venezuela prior to the breakdown of the Punto Fijo two-party system, and the 1993 election, for all its novelty, was not exceptional in this regard. This suggests that if Chávez’s candidacy did generate a class vote, as is often claimed, it would indeed be a new phenomenon in Venezuelan politics. Figure 1 illustrates the proportion of respondents in each income category who voted for Chávez, voted for the opposition candidates, or abstained in each of the four elections.These proportions suggest monotonic class voting only in the case of the watershed election of 1998. Only in that year does it seem that poor voters were more likely to vote for Chávez than rich voters, and rich voters conversely were more likely to vote for the opposition than were the poor. Class voting appears nonmonotonic in the cases of the other three elections. In particular, the fi gures suggest that the rich were more likely to vote for the opposition, although these differences do not always appear particularly stark. The regression estimates reported in table 2 bear out some of these class effects.17 In 1998, even after including controls for gender, age, education, and state, income continues to have a signifi cant monotonic effect on voting for Chávez.18 In other words, the 1998 election does seem to have represented a break with Venezuela’s democratic past, witnessing the emergence of some form of class voting. But as already mentioned, what this analysis omits is the high rate of abstention in the 1998 election: 36 percent of eligible voters failed to turn out.If the Venezuelan electorate were indeed polarized along class lines, then we would expect poor voters to choose voting for Chávez both over voting for the opposition and over not voting at all. Put differently, if poor voters are just as likely to stay home on Election Day as they are to cast a ballot for Chávez, we would need to limit our claims about class polarization to those citizens who vote rather than the entire voting-eligible population. Adding abstainers to the analysis of the 1998 election, I find that income does not have a signifi cant effect on a Venezuelan voters’ choice between voting for Chávez and either staying home or casting a ballot for the opposition. Thus, while there was a class-based disparity among voters, there was no class-based distinction between those who voted for Chávez and all those who did not.Later elections, however, do not reveal even this pattern of class voting: for the 2000, 2004, and 2006 elections, I find no evidence of a monotonic class vote. Nor does the inclusion of abstainers affect these findings. One should be somewhat reluctant to draw stark inferences from the 2004 survey because the interviews were conducted almost a year before the recall referendum took place (see Appendix).19 To the extent that Chávez may have targeted policies at the poor and thereby persuaded them to vote against the recall (see Penfold-Becerra 2007), we might expect a class effect to have emerged in the year between the survey and the election. The 2004 results can therefore be only suggestive. But given their consistency with the findings for the other election years, they should not be dismissed altogether. These results are illustrated in fi gure 2, which shows the predicted probability of an individual from each income group (who turned out to vote) casting a ballot for Chávez in each of the elections examined here. In the interest of greater accuracy, and to impose the least structure on the data, the predicted probabilities are based on probit regressions using dummy variables for as many income categories as are available for each survey rather than the results reported in table 2.The latter results used the four-category income variable for the sake of comparability.20 If monotonic class voting appears absent after 1998, fi gure 2 nevertheless suggests sharp drops in the probability of voting for Chávez at the top of the income distribution in all four elections. This suggests that a focus on monotonic class voting would miss a potentially important feature of class voting in Venezuela. Let us therefore turn to tests of nonmonotonic class voting. Table 3 reports the results of analyses that replace the categorical income variable with a dummy variable for only the very wealthiest 10–15 percent of respondents (labeled “Wealthiest”).21 For the 1998 election, the coefficient is negative and signifi cant, which suggests that the very rich were highly unlikely to vote for Chávez.22 Indeed, this result is consistent with figure 2.For the 2000 election, the analyses are somewhat more complex. Recall that the raw association between class and vote choice illustrated in fi gure 1 suggested no signifi cant relationship between income and voting. Regression results for the 2000 survey indeed bore this out in table 2. As already mentioned, however, previous authors found a signifi cant (though substantively minor) negative relationship between income and voting for Chávez while controlling for other determinants of vote choice (Molina 2002; Molina and Pérez Baralt 2004).But my analysis suggests that even this weakly signifi cant fi nding is an artifact of measurement and sampling. First, these authors use a dichotomous measure of income coded 1 for the top 12 percent of income earners and 0 for the rest of the sample.23 Second, they do not weight their survey sample, which underrepresents voters with less than primary education and overrepresents those with secondary education, both by roughly 10 percent. Thus, previous authors simply isolated the very wealthiest respondents, as in my Wealthiest variable. Replacing the categorical income variable with this dummy variable and removing the education survey weight, my results are consistent with those of previous authors (table 3, column 3).24 Hence the effect on vote choice of being in the top 12 percent of income earners appears to show up exclusively among voters with only a high school diploma.Among voters with other levels of educational achievement, income appears to have no effect on voting for Chávez, even among the very rich. To confirm this, I split the sample by education and reran the regressions for the 2000 election. The results are reported in table 4.25 These analyses confirm that the reported class vote in 2000 is the result of overrepresentation of respondents with only a high school degree. This could be because high-income respondents who had completed only high school also disproportionately tended to be in the age group of eighteen to twenty-four years old—that is, they were most likely college students. And the university student movement has grown increasingly opposed to the Chávez government (The Economist 2007). For the 2004 recall referendum, there is no evidence of even this nonmonotonic class voting. In turn, the results for the 2006 election are similar to those for 2000: only the wealthiest seem to disproportionately vote against Chávez.26 Figure 1, however, appeared to show a different nonmonotonic class vote in 2006. There, both the rich and the poor appear less likely than the middle class to vote for Chávez.27 To test this, I recoded the categorical income variable dichotomously, coded 1 for individuals in either the poor or the rich categories and 0 for those in the two middle-income categories (labeled “Poor-Wealthy”).The results reported in table 3 using this variable show a signifi cant, negative relationship. It seems that class voting took place in 2006, but in a different manner from that which is conventionally assumed. Rather than a monotonic class vote in which Chávez attracts a disproportionate number of poor voters, or a nonmonotonic class vote in which only the wealthiest oppose him, in 2006 it seems that Chávez drew support disproportionately from the middle of the income distribution. This finding certainly merits further research.in -&nbspThis website is for sale! -&nbspresearch Resources and Information. summary, I find evidence of a monotonic class vote only in 1998 and only among voters. Only then were the poor more likely than other income groups to vote for Chávez. But this class difference does not extend to the entire voting-eligible population, which suggests that one must make cautious inferences about class polarization in Venezuela at this time. In later elections, class voting took on a nonmonotonic quality, where it existed at all. Specifi cally, the very wealthy were less likely to vote for Chávez than all the other income groups in 2000, and in 2006, the middle classes seemed most supportive of Chávez.Thus, class voting has indeed emerged in Venezuela with the rise of Chávez, but it is nonmonotonic, contrary to conventional expectations If Chávez is indeed successfully targeting the poor for mobilization, then the change in reported abstention rates from one survey to the next should be more attenuated for the poor than for other income groups. That is, if reported abstention among the rich decreased between 1993 and 1998 by 32 percent we would expect reported abstention among the poor to have decreased by signifi cantly more than 32 percent. This does not appear to be the case. Across the four election intervals (1993–1998, 1998–2000, 2000–2004, 2004–2006), the change in reported abstention rates for the poor does not seem to be signifi cantly distinguishable from the change in reported abstention rates for any other income group.29 Obviously, one would prefer to examine fi ner-grained data that could identify individuals targeted for mobilization by the Chávez campaign, their level of income, and whether mobilization efforts increased their probability of voting. Still, given the available data, there is at least suggestive evidence that there was no particularly pronounced mobilization of the poor during these elections.CONCLUSIONS The conventional wisdom about leaders like Chávez is that their electoral successes depend on class voting, particularly the support of poor voters disenchanted with the old political establishment, corruption within traditional parties, and the neoliberal policies of the Washington Consensus. There are, however, intuitive reasons to doubt this interpretation, including Chávez’s confl icts with organized labor, potential middleclass benefi ts from some of his economic policies and redistributive programs, and the scholarly contention that Latin American populist leaders generally rely on multiclass bases of support. My results show that this intuitive skepticism is indeed warranted; Chávez’s electoral base is not, in fact, disproportionately poor. Chávez’s multiclass base is similar to that of previous populist leaders in the region. He has maintained a nationalist, antioligarchic rhetoric perhaps aimed at the lower classes, along with propoor redistribution and, at least since the failed 2002 coup against him, a certain amount of clientelism (Penfold-Becerra 2007). At the same time, he has attracted middle-class voters, perhaps by pursuing some broader redistributive and statist developmental policies that benefi ted these sectors. Chávez’s 2006 campaign promise to nationalize utilities, for example, likely attracted middle-class voters who stood to gain from lower utility bills. My fi ndings further suggest that some changes may have begun taking place in 2006. I fi nd that both the poor and the rich were less likely than the middle sectors of the income distribution to vote for Chávez in that election. This result surely merits further inquiry. One possible explanation is that Chávez has found it diffi cult to target social benefi ts at Venezuela’s very poor, which may have alienated those who expected a much more radical form of redistribution. Another explanation might stress the increasing levels of crime in the country’s slums and the failure of the Chávez government to ensure citizens’ security. Finally, opposition parties may have made inroads among the poor by building local party organizations. Indeed, scattered opposition parties took over several mayoralties and governorships in the 2008 regional elections. If these parties successfully targeted poorer voters, this may explain Chávez’s growing reliance on middle-income sectors. It may also explain the increasing radicalization of his recent economic policies as an attempt to regain ground among poor voters. Indeed, since losing the 2007 referendum, Chávez has nationalized major companies in a variety of sectors. And given his success in the more recent referendum in 2009, these policies may well have paid off.When Hugo Chávez first was elected in December 1998, it did not look like he had any particular plans for PDVSA. He did, however, have very clear plans for OPEC, which, under the leadership of Alí Rodríguez, was to be turned into a strong cartel once again. Until Chávez came to power, OPEC had turned into a shadow f its former self, with member states regularly ignoring their quotas. Venezuela, especially, had turned into one of the member states’ most unreliable partners. Production over allotted quotas, combined with the expansion of oil production in non-OPEC countries, such as Russia and Mexico, led to a steep decline in the price of oil. Chávez promised to put an end to this, by organizing OPEC’s second-ever meeting of heads of state in Caracas, in the year 2000. Also, Chávez spent the first years of his presidency visiting the leaders of OPEC and non-OPEC countries to convince them to adhere to production quotas, so as to maintain an oil price of between $22 and $28 per barrel.[4]Chávez’ efforts bore nearly immediate results, when the price of oil rose for the first time, since 1985, to over $27 per barrel (in nominal prices).Very soon, however, Chávez ran into conflict with the management of PDVSA, which, for the past fifteen years, had been focusing on producing as much oil as possible, regardless of OPEC quotas. The result was, first, a steady rotation of PDVSA presidents and, later, an all-out confrontation between the Chávez government and the oil industry. Chávez used this conflict to argue that what the oil industry needed was a complete re-nationalization because it had become too independent of the state and had turned into a “state within a state.” I will examine the details of this conflict in greater detail below.How Oil Shaped Venezuelan SocietyEconomicallyPerhaps the most evident effect oil has had on Venezuela’s economy is the appearance of the “Dutch Disease.” This economic disease is caught whenever a commodity brings a sudden increase of income in one sector of the economy, which is not matched by increased income in other sectors of the economy.[5]What happens is that this sudden sectoral increase causes severe problems in the other sectors. The increased sectoral income causes a distorted growth in services and other non-tradables, which cannot be imported, while discouraging the production of tradables, which are imported. The reason for this disparity is that the greater income rapidly raises the demand for imports, since domestic production cannot meet demand quickly enough, and also raises the demand for services, which the domestic market has to supply because services cannot be imported as easily as tradables can. The increased demand for imported goods and domestic services, in turn, causes an increase in prices, which ought to cause domestic production to increase, but doesn’t because the flow of foreign exchange into the economy has caused a general inflation of wages and prices.One can observe the symptoms of the Dutch disease in the Venezuelan economy quite clearly, when one looks at the extent to which the increase in oil production and income was followed by a corresponding decrease in agricultural production delaying industrialization. While agricultural production made up about one third ofVenezuela’s GDP in the 1920’s, it shrank to less than one tenth by the 1950’s. Currently agriculture makes up about 6% of GDP. Also, industrial production declined between 1990 and 1999 from 50% of GDP to 24% (compared to the all of Latin America, which declined from 36% to 29% in the same period).[6]The other Dutch disease symptoms are evident in the constant devaluations of the currency and subsequent inflation which have existed in Venezuela’s economy ever since the oil booms of the late 70’s and early 80’s.[7]In addition to the typical Dutch Disease problem, the sudden increase of oil revenues in Venezuela caused a serious problem in the government’s fiscal policies. That is, the new revenues caused the illusion that the oil income could be used to industrialize the country via massive infrastructure projects, to “sow the oil,” as the president at the time of the oil boom, Carlos Andres Perez, used to say. What happened was that the quadrupled government income caused government spending to quickly increase and even surpass the newfound revenues. When the oil income began to decline again, it was not as easy to reduce government spending as it had been to increase it. The result was that the government gradually went deeper and deeper into debt. Between 1970 and 1994, foreign debt rose from 9% to 53% of GNP. So, as was already stated earlier, while oil prices and revenues declined, so did per capita income and the Venezuelan economy as a whole, and poverty increased. In 1996 Venezuela was one of the very few countries in the world where per capita income was lower than it was in 1960.[8]CulturallyPerhaps the most visible consequence of Venezuela’s reliance on oil is that it has fostered a rentier and clientelistic mentality among Venezuelans. That is, the oil wealth has promoted the idea that one can do well in Venezuela, as long as one has access to the country’s oil wealth. The consequence was that rather than engaging in creative entrepreneurial activity, Venezuelans were encouraged to ally themselves with the state, seeking either employment or contracts from the state, which had a monopoly on Venezuela’s oil income. Political analyst Terry Lynn Karl describes the consequences of oil as follows:In the manner of a petro-state, rent seeking had become the central organizing principle of [Venezuela’s] political and economic life, and the ossified political institutions in existence operated primarily to perpetuate an entrenched spoils system. Both state agencies and political parties had given up their programmatic roles to become machines for extracting rents from the public arena.[9]Another observer of Venezuela, the cultural anthropologist Fernando Coronil, argues that Venezuela’s oil wealth, which is concentrated in the state, has caused the state to appear to have magical powers, to be able to accomplish just about any feat at no cost to the population.Citgo Petroleum Corp [PDVSAC.UL], the U.S. subsidiary of Venezuelan state-run oil company PDVSA [PDVSA.UL], said on Wednesday that theUnited States had revoked the visa of its president and chief executive Asdrubal Chavez, cousin of Venezuela’s late president Hugo Chavez,ASDRUBAL CHAVEZ COUSIN OF HUGO CHAVEZ PRESIDENT CITGO USAThus transformed into a petrostate, the Venezuelan state came to hold the monopoly not only of violence, but of the nation’s natural wealth. The state has exercised this monopoly dramaturgically, seeking compliance through the spectacular display of its imperious presence—it seeks to conquer rather than persuade. … By manufacturing dazzling development projects that engender collective fantasies of progress, it casts its spell over audiences and performers alike. As a “magnanimous sorcerer,” the state seizes its subjects by inducing a condition or state of being receptive to its illusions—a magical state.[10]PoliticallyVenezuela’s oil economy and culture of course also left a mark on its politics. As a natural consequence of the clientelistic and magical nature of the state was that the state would become very bureaucratic. It is estimated that of the people employed in the formal economy (about 50% of the total working population), approximately 45% are employed through the government.[11]Another consequence that Venezuela’s oil wealth has had for its political system is that it turned it into what political scientist Terry Lynn Karl calls a “pacted democracy.” The term pacted democracy describes a democracy which is held together via an agreement among different elite groups. It is a kind of truce among opposing powerful interest groups in the society, so as to maintain their privileges. In Venezuela this truce took the form of the pact of “Punto Fijo,” where all major parties were guaranteed access to power in proportion to the voting results. In other words, even if one party won the presidential and legislative elections, it would still be obliged to share the spoils of Venezuela’s oil economy among the other parties, more or less according to the vote results. This way each of the main parties (primarily Acción Democratica and Copei) was guaranteed access to jobs, contracts, ministries, etc. To further minimize conflict, the main union federation, CTV, was similarly divided among the parties, although Acción Democratica, as its founder, always was in control of it. Radical socialist and communist parties were completely excluded from this pact. The pact of Punto Fijo, however, began falling apart once oil rents began to decline in the mid 80’s. It then received its deathblow when Hugo Chávez was elected president in 1998.In terms of Venezuela’s level of bureaucratization, the “pacted” nature of its democracy, and the degree of clientelism, Venezuela in many ways resembled one-party state socialist regimes, except that it was governed by an alternating two-party system. Oddly enough, the system neared its end in the same year Eastern Europe’s did, in 1989, with the “Caracazo,” when there was a general uprising and riots against IMF-mandated economic reforms.PDVSA and the Chávez GovernmentAll of the foregoing sets the stage for showing just how extremely important the country’s conflict over oil is. At the most overt level, the conflict between the Chávez government and the oil industry is one about who controls PDVSA. Beyond that, the specific issues that control is being fought over have to do with the company’s efficiency, its internationalization program, its outsourcing and subcontracting practices, OPEC membership, and special oil contracts.ControlControl over the state-owned oil company, PDVSA, has been in dispute in Venezuela, perhaps ever since the company was first nationalized in 1976. When PDVSA was first nationalized, the transnational corporations’ dependencies were turned into fourteen Venezuelan companies, which corresponded with the fourteen main transnational oil companies that did business in Venezuela.[12]The entire management had years earlier already been Venezuelan and this management did not change with nationalization. For example, the former president of Shell Venezuela was the same as the new president of Maraven, the newly nationalized Shell Venezuela. Critics of the nationalization process, such as Carlos Mendoza,[13]say that the newly nationalized oil industry was nothing more than a Trojan Horse. Venezuela’s oil industry maintained an anti-statist and transnational corporatist management culture throughout its existence. The ties to the former owners of the nationalized Venezuelan companies were maintained primarily through technical assistance contracts with the former owners and through commercialization contracts, which heavily discounted the price of oil to their former owners.The government’s lack of control over the oil industry was further institutionalized in PDVSA’s board of directors. While normally a board of directors is supposed to represent the interests of the owners vis-á-vis the management, in the case of PDVSA the board of directors, almost in their entirety, was appointed from PDVSA management, who, due to their backgrounds, tended to represent management. This is why, when Chávez appointed a board of directors who were oil experts and who did not come from PDVSA, the PDVSA management protested and joined the April 2002 work stoppage against the government. Chávez was breaking a decades-old tradition that regarded board membership as the highest promotion a PDVSA manager could receive.EfficiencyPerhaps the first and foremost issue on the Chávez’ government’s mind with regard to reforming PDVSA has to do with the company’s efficiency. PDVSA critics point out that the company has become increasingly inefficient over the past twenty five years. From 1976 to 1992 the average percentage of PDVSA’s income that went towards the company’s costs was approximately 29% and the percentage that went towards the government was 71%. For 1993 to 2000, that relationship had practically reversed, so that 64% were kept by PDVSA and only 36% went towards the government.[14]Also, according to rankings of the business magazine, América Economía,[15]PDVSA was the largest Latin American company in 2000, but in terms of efficiency it ranked among the lowest of the fifty most efficient companies, far below any of its state-owned competitors, such as Petrobras of Brazil, Pemex of Mexico, or Petroecuador of Ecuador.[16]Other measures of profitability show similar results. For example, in terms of the Dollar revenues provided to the government per barrel of oil produced, PDVSA paid only about a quarter ($8.34) of what Mexico’s PEMEX paid out to the government ($24.66) in 2001.[17]Ironically, PDVSA has a fraction of the number of employees that PEMEX does, something that might be traced to PDVSA’s more extensive use of outsourcing and sub-contracting. Still, it is well known within PDVSA that it has nearly twice the number of administrative workers that it needs. In 1997 PDVSA merged three of its holdings, Corpoven, Lagoven, and Maraven) into PDVSA proper. Carlos Rossi, a former PDVSA economist, says that the Caracas headquarters of PDVSA acquired the nickname “Hollywood” because, “everyone there [in PDVSA Caracas] seemed to have a double.”[18]InternationalizationA large part of the reason for PDVSA’s drop in efficiency from the mid 1990’s on has to do with its internationalization policy and a change in its accounting methods. In 1989 PDVSA adopted a worldwide combined accounting method, so that costs and losses outside of Venezuela would be balanced against the revenues and profits within Venezuela. Previously the accounting for transactions within Venezuela and for those abroad was done separately. The result of the account consolidation was a large-scale import of costs that were incurred abroad. Since PDVSA’s tax rate within Venezuela is about twice that in the U.S., for example, the company had to transfer a much smaller proportion of its revenues to the government.From the early 1980’s to late 1990’s, PDVSA engaged in a program to vertically integrate the company on a global level. What this meant, in essence, was the purchase of refineries and of the U.S. gas station network Citgo. In all, in the period between 1983 and 1998, PDVSA purchased 23 refineries in Europe and the U.S. While other state-owned oil companies initiated vertical integration projects, Venezuela’s was the most ambitious. One of the official reasons for this was that Venezuelan oil is mostly of a very heavy crude variety, with many components that are undesirable for finished oil products, such as sulfur, nitrogen, and several metal elements. In other words, Venezuelan crude requires a fairly sophisticated refining process, which not all refineries can handle. The logic of acquiring foreign refineries was that such refineries could be retrofitted to process Venezuelan crude and to then provide finished oil products to the market closest to the refinery. The idea thus was to guarantee a market for Venezuelan heavy crude oil.However, many, if not most, of the refineries that were acquired were purchased at a bargain, mainly because the vendor could not find a way to make it profitable. As a result, PDVSA tried to avoid losses in these refineries either by providing Venezuelan crude at below market rates or by avoiding the costly retrofitting process altogether and providing the refinery with lighter crude from other countries, such as Russia.[19]The net result of the internationalization process and of the new accounting procedure was that tremendous PDVSA costs that were incurred outside of Venezuela were “imported” to the national branch of PDVSA, thus lowering overall profits and transfers to the government.OutsourcingAnother source of increased costs developed as a result of outsourcing, whereby PDVSA opened up marginal oil fields to private investors. So as to attract private investors, PDVSA negotiated lower taxes and royalties on the oil production, since the early 90’s. While on the surface this makes sense because marginal fields are much more costly to operate, the result was the production of much more costly oil, which counts against OPEC quotas, displacing oil production that might be more profitable. Of the 3.2 million barrels per day that Venezuela currently produces, about 500,000 barrels per day come from costly outsourced oil fields.[20]INTESAAnother whole dimension of outsourcing is related to contracts involving the general operations of PDVSA. Perhaps the most important instance of outsourcing, in terms of the management of PDVSA, is the joint venture it engaged in with the U.S.-based company SAIC (Science Applications International Corporation) to create INTESA (Informática, Negocios, y Tecnología, S.A.) in 1996. INTESA was to manage all of PDVSA’s data processing needs. After four years of outsourcing this important task to INTESA, it became increasingly clear that INTESA was not saving PDVSA any money, but that it was costing PDVSA much more than it expected.[21]Following the April 2002 Coup attempt, Alí Rodríguez, the new PDVSA president assigned Juan Fernandez, who was later to be the leader of the December 2002 PDVSA strike, to cancel the contract with INTESA. Fernandez negotiated that the contract would end, perhaps not so coincidentally, by the end of December 2002. INTESA joined the strike, however, and shut down all of its services to PDVSA, well before the contract expired. The result was that PDVSA could not transfer its data processing to new systems, nor could it process its orders and bills for oil shipments. PDVSA ended up having to process such things manually, since passwords and the general computing infrastructure were unavailable, causing the strike to be much more damaging to the company than it would have been, if the data processing had been in PDVSA’s hands.A recent investigation into INTESA, and especially into its majority owner SAIC (60%), revealed some information that ought to be quite disturbing to the government of Hugo Chávez.[22]That is, INTESA, which controlled all of PDVSA’s information, is in turn controlled by SAIC, a Fortune 500 company (revenues in 2002: $6.1 billion) that is deeply involved in the U.S. defense industry, particularly as it relates to nuclear technology, defense intelligence, and computing technology. Its managers included two former U.S. Secretaries of Defense (William Perry and Melvin Laird) and two former CIA directors (John Deutch and Robert Gates). Its current Board of Directors includes the former commander of the U.S. Special Forces (Wayne Downing), a former coordinator of the National Security Council (Jasper Welch), and the former director of the National Security Agency (Bobby Ray Inman). Whether or not SAIC was actively involved in the PDVSA strike and whether it passes crucial company information on to other oil companies is unknown. However, the very fact that these connections exist ought to be a cause of great concern to PDVSA and the Venezuelan government.Oil Industry Reform under ChávezVenezuela’s oil industry reform encompasses four main areas: solidification of state ownership of the oil industry, tax reform, subordination of the oil industry to national interests, and the strengthening of OPEC.[23]State ownershipThe 1999 Constitution, which was written by Chávez’s supporters, anchors state ownership of Venezuela’s oil industry in the constitution. It is well known that the government of Rafael Caldera, Chávez’ immediate predecessor in the presidency, wanted to privatize PDVSA. The new constitution, however, clearly states that “for reasons of economic and political sovereignty and of national strategy, the state will maintain the totality of the shares of PDVSA or of the entity created to manage the oil industry…”[24]In some ways, this article of the constitution was supposed to mark a definitive break from neo-liberal economic policies that PDVSA had been pursuing prior to Chávez’s election.However, some critics say that a backdoor to privatization remains open because the constitution also says that the state shall own all shares of PDVSA, “except those of subsidiaries, strategic associations, businesses, and whatever other that has constituted or constitutes PDVSA as a result of the development of its business.”[25]In other words, in theory, PDVSA could turn its various activities into subsidiaries and then sell them off, one by one. Following the December ’02 to January ’03 oil industry strike, this is what PDVSA’s directors have been considering, mostly in order to rid itself of unprofitable subsidiaries or activities.Related to state ownership is a provision in the hydrocarbons law which specifies that all state activity related to oil exploration and production are to be dedicated to the “pubic interest.”[26]More specifically, it states that all oil related activity must be oriented to support “the organic, integrated, and sustainable development of the country, paying attention to the rational use of resources and the preservation of the environment.” Income derived from oil “for the most part” must be used to finance health care, education, and the FIEM (the fund for macro-economic stabilization, a governmental savings fund).Tax reformThe next major target for reform is the way that the Venezuelan government extracts revenue from the oil industry. Here the government introduced a change in the taxation of the oil industry. Since 1943 the government required a royalty payment of 16.6% for every barrel of oil that either PDVSA or a foreign company extracted. In many cases this royalty had even been negotiated to drop to 1% of some foreign investors. A new oil reform that PDVSA was working on in 1998 even suggested eliminating royalty payments entirely. With the new oil reform law of 2001, however, royalty payments were nearly doubled to 30% of the price at which every barrel is sold. At the same time, the government lowered the income tax levied on oil extraction from 67.6% to 50%.When the government introduced this change, the opposition cried out that the doubling of royalty payments would ruin Venezuela’s cooperation with foreign investors and would practically eliminate foreign direct investment in Venezuela. The government’s main argument for increasing the royalty payments is based on the fact that it is much easier for the government to collect royalty payments than it is to collect taxes on oil income. That is, the government can track very easily how much oil is being extracted and what the royalty payments should be based on the current price of oil. However, taxes based on oil income are much more difficult to control because PDVSA or other oil companies deduct their expenses from the income on which they have to pay the taxes. Since expenses are not that easily identifiable for an outside auditor, the tax payer can attempt to inflate expenses, in order to lower their tax payments. By shifting government revenues from taxes to royalties, the government is basically closing loopholes in the tax collection process.A second and closely related reason for the change in the oil revenue collection process has to do with PDVSA. Chávez and his supporters have long claimed that PDVSA is providing too little of its revenues to the central government, the company’s only shareholder. One way to make the company more efficient would thus be to increase its contribution to the government, regardless of its expenses. That is, by making fewer expenses tax deductible, which is what the shift from income tax to royalties does, the company is faces a strong incentive to make its operations more efficient. In other words, a tax which allows the deduction of expenses penalizes the oil producer if production is made more efficient. If, on the other hand, the producer has to contribute just as much to the government, regardless of costs or expenses, the “royalty makes the interests of the natural resource owner [the state] and of the investor coincide.”[27]“Re-nationalization”As mentioned earlier, some critics of PDVSA, such as Carlos Mendoza, have called PDVSA’s 1976 privatization “phony.” Chávez, in his speeches following the collapse of the December 2002 to January 2003 oil-industry shut-down, has thus referred to the regaining of control over PDVSA as a “re-nationalization.” What this regaining of control involves is first and foremost increasing PDVSA’s efficiency and profitability, so that the company can transfer a greater share of its revenues to the government treasury. The government plans to increase the company’s efficiency through the aforementioned changes in taxation, by selling off unprofitable subsidiaries, and by reorganizing the company into two major geographic subdivisions, PDVSA East and PDVSA West. The details of which subsidiaries will be sold and exactly how the company is to be reorganized are still largely unknown as of this writing.OPECWhen Chávez first came to power, in February 1999, among his highest priorities was to strengthen OPEC and raise the international price of oil. Oil had dropped to less than $10 per barrel, to a large extent because Venezuela was ignoring its OPEC oil production quotas during the previous government of Rafael Caldera. Also, non-OPEC members such as Mexico and Russia, were increasing their production considerably, further driving down the price of oil. Chávez immediately put Alí Rodríguez in charge of the Ministry of Energy and Mines (MEM), which oversees PDVSA and oil policy. Within the new government’s first 100 days, Rodriguez visited most OPEC and non-OPEC oil producing countries and returned with a commitment from most these countries to reduce production or abide by their OPEC quotas. The price of oil immediately went up, from an average price of $12.28/barrel for 1998 to $17.47/barrel for 1999, one of the largest non-war related increases of the past decade. Later, Chávez and Rodriguez managed to convince OPEC to introduce a price band system, of $22 to $28 per barrel, which OPEC would try to maintain.The following year, 2000, President Chávez spent much time traveling to both OPEC and non-OPEC countries, to consolidate their commitment to restrained oil production and to convince them to attend the second-ever gathering of OPEC heads of state, to be held in Caracas.[28]On September 27 of 2000, Chávez opened and hosted this second OPEC summit. For the Chávez government, the summit had the following six objectives:Reestablish a dialogue between Venezuela and its partners in OPECRecuperate the credibility of Venezuela in OPECStrengthen OPECDefend oil pricesReassume a leadership position within OPECConsolidate relations between Venezuela and the Arab/Islamic worldGiven the strengthened position of OPEC in the world today, it is safe to say that the summit’s objectives were largely achieved.[Ultimately, the renaissance of OPEC could be a large part of what motivated the U.S. to attack Iraq. That is, if OPEC had remained as defunct as it was when Chávez came to power, it is quite possible that the Bush administration would never have considered controlling Iraq’s oil reserves much of an issue. But with the return of OPEC, the consequent rise in oil prices, and the general lack of control the U.S. government felt in the face of an energy crisis and the attack on the World Trade Center, “breaking OPEC’s back” became a top priority.]Opposition to Oil Industry ReformAs has been noted elsewhere, opposition to the Chávez government did not really gain much momentum until Chávez proposed the 49 “enabling laws” (“leyes habilitante”), among the most important of which was the “Organic Law of Hydrocarbons,” which specified the institutional and legal changes for governing Venezuela’s oil industry. When the law was made public, the outcry, especially among oil industry executives was immediate.The opposition declared that the new law would doom Venezuela’s oil industry because the higher royalties and the limitations placed on joint ventures would make foreign direct investment completely unattractive. One of the main arguments here is that Venezuela’s crude oil is mostly heavy and extra heavy, a type of crude that is quite expensive to extract from oil fields. The shift from taxes to royalties would mean that companies could deduct substantially fewer expenses from the transfers they are required to make to the government. As a result, the extraction of oil from “marginal fields” (fields which yield less oil) and heavy and extra heavy crude become much less attractive to foreign investors. To support their argument, the opposition points to the fact that Venezuela’s royalties are among the highest in the world.Another element of critique of the government’s oil policy has always been that the constitution prohibits the privatization of PDVSA. While few in Venezuela openly favor privatization, due to the strong nationalist sentiment in the country, many have suggested that Venezuelans would be better off if PDVSA were privatized to the general public, in the sense that all citizens would receive shares of PDVSA that they would then be free to buy and sell on the stock market.While the opposition roundly criticized the new law when it was first introduced in October 2001, the real problems within PDVSA did not begin until Chávez decided to fire his appointment to the presidency of PDVSA, General Guaicaipuro Lameda, in February 2002. Lameda had has said that he was surprised about his appointment because he never considered himself a supporter of Chávez. But he took the post anyway and for 15 months he ran PDVSA mostly from the perspective of a businessman, mostly adhering to the concerns of the upper management, instead of the Chávez government. One of the reasons the government gave for firing Lameda was independent audit of PDVSA that had been initiated in January of that year, which indicated that numerous dubious contracts had been entered under Lameda’s watch, which appeared to personally benefit managers of PDVSA, leading to serious losses for the company.Chávez replaced Lameda with Gaston Parra, a leftist economist and former president of the Central Bank of Venezuela. Also, he appointed five new members to PDVSA’s board of directors. Lameda, together with members of PDVSA’s upper management charged that Chávez was politicizing PDVSA by appointing individuals to the board on the basis of political loyalty, rather than merit. Ever since PDVSA’s founding, the board of directors was regarded as the culmination of a long management career at PDVSA. Upper management generally filled most of the positions of the board. PDVSA managers regarded this policy as the foundation for the company’s meritocracy.By appointing a board that did not come from within PDVSA, Chávez broke with that tradition for the first time, thus earning him the charge of breaking with meritocracy in the company and replacing it with politicization. Forgotten, however, was that previous presidents had also appointed individuals to the PDVSA board who did come from within PDVSA.[29]Also, as the representative of the owners, the board of directors, in theory, should be appointed by the owner (the state) and represent the owner’s interests. Appointing a board from within the company, as had largely been the tradition, actually represents a conflict of interest because the managers appointed to the board are more likely to represent the interests of the management, rather than the state.Another, though largely unarticulated, reason for why PDVSA’s management and most of its administrative employees opposed Chávez following the introduction of the new oil law and the appointment of a new board had to do with the overstaffing mentioned earlier. That is, with the change in taxation PDVSA had to drastically cut its overhead. Since it was already quite overstaffed in the administrative offices in Caracas, due to the recent merger of three of PDVSA’s subsidiaries, the staff reductions were going to be even more severe.[30]Already, PDVSA had reduced its payroll by 26%, between 1995 and 2000. Still, the overstaffing remained a problem, which became more severe with the new oil law, which forced even greater cutbacks in overhead. Ultimately, the upper management issued an ultimatum to Chávez to dismiss the newly appointed directors, or it would join the strike called by Fedecamaras and the CTV for April 9. 2002Financial collapse and hyperinflation make Venezuela an economic disaster zone.The crisis is no longer confined to one nation: refugees and migrants are streaming into neighbouring countries. Epidemics and violent crime are spilling over borders, endangering Colombia’s fragile peace process in frontier regions.As Venezuela’s President Nicolás Maduro looks to cement his hold on power, his country is sinking into a trough of misery.Hyperinflation has compounded the scarcity of food and medicines. Epidemics of preventable diseases and a child malnutrition crisis are increasingly deadly. Violent crime has spiked.An estimated four million Venezuelans have emigrated, with tens of thousands crossing the border with Colombia each month in search of a new home. Venezuela’s neighbours, once bystanders to its domestic tensions, face a catastrophe on their doorsteps.[1] Tugwell, Franklin (1975)The Politics of Oil in Venezuela. Stanford University Press, p.182[2] For example, while Venezuelan individual income taxes during the 70’s made up only 4.1% of total tax income and corporate taxes made up 70.3%, in neighboring Colombia, the tax burden is distributed much more evenly among different sources, so that individual income tax makes up 11% and corporate tax 12.8% of total tax income. (Source: Terry Lynn Karl, 1997,The Paradox of Plenty: Oil Booms and Petro States, University of California Press, p.89)[3]Source: OPEC Annual Statistical Bulletin, 2001[4] Chávez’ visits to Saddam Hussein and Muammar Qaddafi would come to haunt him over and over again, as his opponents would site these visits as reasons for their dislike of Chávez.[5] As was the case of Dutch gas, which is where the name for the problem comes from.[6] World Development Report 2000/2001, p.297[7] Average annual inflation was over 50% between 1988 and 1998.[8] Terry Lynn Karl, p.235. This was a fate suffered by only 19 countries in the world in 1996.[9] Terry Lynn Karl (1997), p.184[10] Fernando Coronil (1997)[11] The Magical State: Nature, Money, and Modernity in Venezuela.University of Chicago Press. p.4[12] To list a few name changes: Shell became Maraven, Exxon became Lagoven, Mobil became Corpoven , Gulf became Menoven (sp?).[13] An oil industry expert, who briefly served on the PDVSA board of directors in the days leading to the April 11, 2002 coup attempt.[14] Bernard Mommer (2001) “Venezuelan Oil Politics at the Crossroads.” Oxford Institute for Energy Studies, Monthly Commentary.[15] AméricaEconomía | AméricaEconomía[16] PDVSA ranks #24 in terms of return on assets, #49 in terms of return on sales, and #50 in terms of return on fixed assets.[17] Source: Mark Weisbrot and Simone Baribeau (2003), “What happened to Profits?: The Record of Venezuela’s Oil Industry,” Center for Economic Policy Research paper:[18] http://www.cepr.net/what_happened_to_profits.htm(their figures are based on SEC filings).Carlos Rossi, “PDVSA’s Labor Problems,”The Daily Journal, April 18, 2002.[19]El Nacional “Cuentas Crudas, Precios Refinados”, November 17, 1998[20] For 2001 outsourced oil fields cost $10.94 per barrel of oil equivalent produced, while non-outsourced oil fields cost only $2.03 per barrel of oil equivalent (in 1997 dollars). Source: CEPR Research Paper, “What Happened to Profits?”[21] http://www.soberania.info/tercerizacion_portada.htmThe excess costs averaged about $90 million per year for 1998 to 2000.[22] See: Alexander Foster and Tulio Monsalve, “Quien Maneja las Computadoras de PDVSA?” Venezuela Analitica December 17, 2002 http://www.analitica.com/bitbiblioteca/tulio_monsalve/computadoras_pdvsa.asp[23] Alí Rodríguez, the former president of OPEC and current president of PDVSA provides a good summary of the policy in: “La Reforma Petrolera Venezolana de 2001” in Revista Venezolana de Economía y Ciencias Sociales2/2002, May/August 2002.[24]Constitution of the Bolivarian Republic of Venezuela, Article 303.[25] Ibid.[26] Article 5 of the “Ley Organica de Hidrocarburos.”[27] Alí Rodríguez (2002), p.204[28] Chávez’ visits to Iraq—the first of any head of state since the Gulf War—and to Libya, both members of OPEC, would later be used repeatedly by his opponents at home and in the U.S. as proof for his unreliability and dangerous tendencies.[29] President Caldera had named the son of his chancellor to the board and Chávez’ first appointment to the PDVSA presidency, Hector Ciavaldini came from a lower management position. No protests were voiced against these appointments at the time.[30] Carlos Rossi, “PDVSA’s Labor Problems,” The Daily Journal April 18, 2002. According to Rossi, PDVSA employees referred to the Caracas headquarters as “Hollywood” because every employee had at least one double that performed the same functions within the company.31-https://www.vanderbilt.edu/lapop/news/122120.pdf32-Poverty Reduction in Venezuela33-The Economics, Culture, and Politics of Oil in VenezuelaJuan Pérez Alfonso, Venezuelan, Regarded as Founder of OPEC34-https://www.tandfonline.com/doi/abs/10.1080/01603477.1978.11489099?src=recsys35-1973 oil crisis - Wikipedia

“Friday - status!” commanded Tony Stark, urgently.Iron Man’s opponent, an alien technology that could transform and disguise itself as an advanced, American F-22 fighter jet, was laughing maniacally.Curiously it sounded like another villain - Ultron.Only this robot was more physically vicious and aggressive.Tony’s mind raced as he continued to plummet, his Mark 50 suit desperately trying to reboot itself.Starscream commandeered a Cybertornian stealth shuttle with enough resources and energy for an extended trip to Earth. His plan, as always, domination of the Decepticon clan by usurping its leader, Megatron.The Decepticon second in command had made contact with an unknown entity after being compelled to fly and explore a strange, incongruous, planetoid in an unexplored sector of the galaxy.A brief surge of data had imprinted itself on his pico neural pathways and easily convinced him that Megatron could be quickly disposed if the right assets were in play.Not one to argue with grand opportunity the Transformer readily agreed and had already turned to scheming for his ultimate advantage.The shuttle had been programmed to enter a dimensional flux stream and, after some trepidation, he found himself in geosynchronous orbit around Earth once more.However, the scanners on his spacecraft revealed some irregularities.There were greater concentrations of energy, higher levels of advanced technology, and even more surprising, strange, altered life forms inhabiting the planet.He ignored these facts in favour of one - there were no traces of Autobots, or Decepticons.Ever.By his estimation, the planet was ripe for his picking.With his shuttle holding place in orbit the Decepticon broke through the atmosphere and transformed into his jet mode.Activating advanced stealth features he took his time, smugly surveying various sites of interest, loitering, and taking pleasure in confusing the lowly humans.Purely for spite he would briefly reveal himself on their primitive radars.He liked playing a cat and mouse game to pass the time as he scanned military installations for great concentrations of energy that he could plunder.Strangely, the most concentrated form of energy was not located on a military base, as he presumed, but from an industrial complex 36.2 miles west of Houston, Texas.Once he had trained his scanning array on the source it intrigued him to no end.It was at least five times more potent and concentrated than anything he had seen thus far. He hovered in the air, hidden by a dense bank of clouds, studying the size of the complex and the disposition of its defences.Snorting in derision he decided to enjoy himself before the inevitable pillaging began.Dropping all his cluster bombs he quickly switched to his robotic form.The bombs instantly wreaked havoc on the automated defenses, sowing chaos among the scurrying, babbling, primates.Swooping down from the skies like a sinister, 18 foot tall, bird of prey he laughed and started shooting indiscriminately.Twenty minutes earlier Tony Stark had been working on the schematics for a new, high tech, foundry addition to his Nada, Texas, manufacturing complex.His holographic CAD/CADM schematic showed him areas of interest which his AI assistant, Friday, had pointed out earlier.“Friday?” asked Tony, “show me the data on the left foundry again.”“Here you are,” replied a pleasant female, Irish, voice. “The plant’s arc generator can easily absorb the power cost of a dual furnace setup with modifications, here, here and here.”A large, red, dot of holographic light traced an outline on the plan glowing in the air.Tony gave a low wolf whistle.“Adjust it for a dual carbonadium pipeline. There’s enough overhead for this …” began Tony.“Sir?” interrupted Friday. “There’s a strange contact on Stark satellite W34.”“I’m not interested in weather patterns. Eyes over here, okay?” replied Tony, directing the AI’s camera with his hand.“I’ve been tracking an atmospheric disturbance nine miles above this location, holding steady, for the last three minutes,” confirmed the AI.Tony blinked and paused. His AI didn’t normally trail off on an unimportant tangent.“Friday - confirm if Thor’s coming to visit the wine cellar again. Break out a keg of Bordelaux 1812. Let’s finish this up.” ordered Tony.“Sir - analysis on screen. There are no visuals, no radar contact. Judging by the footprint in the atmospheric gases the Object is estimated at 63.1 feet long, by 46.6 feet wide, with a height of 17.8 feet, and is now 2 miles above us.”Tony quickly absorbed Friday’s data and reached a conclusion about 10 seconds before the first bombs hit.“RED ONE!” was all he had time to cry out before the all to familiar thud of explosions shook the office.He reveled at the scurrying inhabitants, ducking for cover, screaming their incoherent, high pitched voices. He randomly fired beams of energy from his arm mounted cannons anytime it looked like the motes were massing for trouble or not making enough noise.Every step he took shuddered the ground, generating fear.He couldn’t stop smiling as he slowly meandered closer to the power source in the center of the complex.The defenders could do nothing to stop him. Their side arms were futile.The automated defences were, by and large, ineffective. What rabble remained could not target him effectively due to his active stealth components. Any that tried were immediately rendered useless by his ‘null’ beam cannon - effectively a concentrated EMP beam. He decided that he had more sympathy for dumb technology than intelligent specks of dust.A last stand of security personnel tried to bar his way, buying time for their unarmed peers to escape.At least, this is what he wanted the flotsam to believe. He gave into the moment, grandstanding and taking devilish pleasure.“Are you not impressed!” Starscream proclaimed, boisterously. “You could all be dead. DEAD! But if you keep me amused I’ll let you live another day!”He gave his best performance, sarcastically imitating the laugh of his despised leader, Megatron. Security took the opportunity to fire back.Small arms fire and a Humvee sporting a mobile autogun, spit their defiance at the Decepticon.He laughed again, almost hysterically, at the pitiful resistance.“I’m going to love it here!” he rasped loudly.He stomped the ground 10 feet away from the humans, causing them to scatter and trip over each other in a confused state of retreat. One of the security detail hammered Starscream again with the autogun.“Goodbye, insignificant mote!” he cried happily. He raised his left foot high, letting it loom for a second over the vehicle. Then he brought it down.“Friday, magnetize joints! Brace for impact!” cried Tony in his Iron Man suit.“Generating counter force,” complied the AI calmly.Iron Man landed just in time to catch Starscream’s foot and save the Humvee, and its occupant, from a gruesome death.The armour creaked a little ominously at the strain, but Friday reassured him that systems were performing beautifully.“Let’s try a little Brazilian Jiu Jitsu, courtesy of Captain America,” suggested Tony as he flexed and twisted.Friday routed the necessary suit power and articulations to magnify Tony’s actions. She also duplicated Tony’s voice, broadcasting it throughout the entire facility.“Evacuate! Delta Red!” Iron Man cried. “Move people!”Personnel flooded out of the complex, gravitating towards the roads and designated safe spots some 20 miles in the distance.Starscream couldn’t believe two things.First, he didn’t realize the complex was defended by a unique individual who was all but invisible to his radar.Second, he didn’t think anybody would ever think to twist his massive ankle joint. It started to hurt as he tried exerting pressure on the impudent little insect.Suddenly, he was off balance and flailing, his ankle in shooting pain!“You little BUG!” he cried, activating his jets and searching for the source of the resistance and pain.Tony channeled as much power as he could into the armour, bending the ankle while throwing it off balance.“Okay, let’s kick this up a level,” he proclaimed calmly.Activating his repulsor jets Iron Man streaked off as the giant robot used its jet thrusters, to regain its balance.“Friday, scan active contacts, all bands,” ordered Tony.“193 band scan commencing,” confirmed the AI.Tony could see his very large foe but noticed that conventional radar and doppler were mute. Thermography was strange.The energy signature for such a large, moving, object was abnormally spotty at best, sometimes disappearing entirely for seconds at a time.Starscream had never tracked so agile a foe. Even Soundwave’s flying peon, Laserbeak, was a moth compared to the armoured fly in front of him.His active tracking sensors had difficulty locating, and locking, onto the significantly smaller, and faster opponent. Thankfully, Starscream was not an organic being.His technology allowed to react faster, think faster, and move faster than the ordinary inhabitants of this planet. He launched a seeking missile while he regained his footing.“Sir - active tracking detected,” warned Friday. “I also have the scan results ready.”“Just a moment,” replied Tony, activating his anti-missile chaff and pulling a hard right loop.The missile trailed off, exploding harmlessly on the open Texan, plain.“Friday, broadcast a warning. Let’s see what it wants,” commanded Tony, as he quickly reviewed the AI’s results.“STOP!” announced Iron Man, hovering 40 feet in the air, 100 feet in front of Starscream.“Let’s deal. I’m full of resources. What do you want to settle this peacefully?” continued the metal clad insect.The Decepticon considered the offer.“Your energy source. Your technology. Your eternal obedience,” he rasped, cruelly drawing out the final syllables.Tony considered the data in front of him and took over the negotiations.“How about a partnership with my factory at your disposal? Let’s figure out a way to get what we all need. We’re even talking the same language,” countered Iron Man. “There’s some common ground here.”He activated a remote access channel in his suit. An automatic door in the complex opened. A minute later a drone flew forth carrying a pure sample of extracted Vanadium in a clear receptacle towards the negotiations.Starscream thought about the counter offer. It would take no effort to feign acquiescence, then break his word when the opportunity presented itself.The power source of the complex was considerably advanced and would be a valuable asset in his plans. The technology hovering on display in front of him, as much as he could monitor and scan, was incredible.If he could just tear into and peel back the little metal insect he was sure there were secrets to be added to his considerable abilities.“Your suit. Give it to me as a sign of your good intentions, and I will accept your generous offer,” replied the Decepticon.“Tough negotiations,” Tony observed to Friday. “Let’s try this instead.”He directed the drone and had it fly level in front of his opponent while he reviewed the data.Friday’s scans noticed that the large robot was suspectible to magnetic fields as well as a few other, less common, forms of energy.“I’m sure you know this is pure Vanadium. Hard to extract, incredibly useful. Your form is based on advanced military technology which uses Vanadium in its construction. I can offer you a steady supply, and more, to keep yourself in tip top shape.”Starscream had all the time he needed on this planet to take what he wanted. But he was intrigued enough to have some fun since he was so close to attaining his goal.“I’ll take your offer of Vanadium,” began the Decepticon, reaching out and grasping the drone gently, regally, between two very large, metal, fingers.Tony tensed.He had taken part in many negotiations in his lifetime and could recognize a change of intent from across a board room.“I’ll also take YOUR HEAD!” concluded the Transformer, quickly raising his cannon and blasting the armoured form in front of him.Friday had been monitoring their opponent using passive LIDAR scans. She detected movement of the left arm and relayed her conclusions to Tony.What should have been a telling blow was reduced to a glancing blow as Iron Man rolled with the impact, his suit reconfiguring itself to better reflect and absorb the energies from the cannon.Adjusting his suit’s flight trim for extreme turning, he shrugged off the blast and took off at high velocity, gaining altitude quickly.“Well that was predictable,” Tony concluded humourlessly. “Plan B. Let’s see what he can take. Fire up satellite C3D. Run all telemetry and tracking through your scans.”“Uplink and monitoring,” confirmed Friday pleasantly.Tony let loose a volley of rockets from his shoulders, feeding real time tracking adjustments on the target 300 feet below him.The missiles shot downward at Starscream. He was bemused as he transformed into a jet and blasted off.His metal form easily withstood severe G forces that would have caused a human pilot to be crushed.Releasing chaff at the last instant he dodged. The missiles overshot and exploded harmlessly overhead as Starscream peppered cannon fire at Iron Man.Tony had given Friday access to all the databases at his disposal, including military tactics and advanced piloting combat gleaned from the best aviators on Earth and elsewhere. With Friday controlling the suit Tony kept reviewing the scan data and planning.Iron Man continued to rapidly put altitude between himself and his opponent, crossing through a thick bank of clouds at 18000 feet.Energy blasts cascaded harmlessly around him, missing his agile form by a large margin.“He’s not very good, is he,” Tony noted laconically as he analyzed the magnetic field numbers.He was going to setup his brutish foe with a localized EMP ramjet missile delivered from the satellite. His armour would be immune, hardened to the magnitude of the attack. With any luck he would be done before afternoon tea was served.“Friday – satellite status?” asked Tony.“Online and armed,” confirmed Friday.“Okay - let’s swing this back to our end of the inning,” stated Tony.Friday reconfigured the suit’s flight trim and Tony executed a tight turn, expertly avoiding another flurry of missiles.He sped toward the advanced F-22 at Mach 5, before executing a bewildering set of large, looping, circles aimed at distracting his opponent while the satellite delivered the EMP payload.“Sir, please watch your G force tolerance. Any more than Mach 6.2 and you will risk a blackout,” advised Friday.The Mark 50 Suit was theoretically capable of speeds well in excess of Mach 9. Reality was limited by Tony’s ability to absorb G-forces, and remain conscious.Even when supported by the suit his body had limits, even more so when executing acrobatics.“We’re fine Friday. Just monitor my vitals and let me know how we’re doing. This is about to end in another minute,” replied Tony nonchalantly.“Sir? My analysis of the factory logs is complete. There’s something interesting you should see,” began Friday.The Decepticon recognized a delaying tactic when he saw one. He also realized that he could target the small armoured primate with his Null canon, visually.He kept firing just behind the dodging target to continue lulling it into a false sense of security. He couldn’t help but brag about his abilities since victory was all but assured in his mind.“You fool! I see in 1134 frames per second compared to your feeble, primate, mind! Surrender before you annoy me!” he threatened, blasting away.Tony scoffed.Friday was an advanced AI that let him see thousands of frames more, per second, with advanced scanning and analysis of the environment. She was like Pepper Potts, Tony’s trusted confidante and aide, only portable and faster, by far. He couldn’t help but retort, as he executed one last, tight, turn since victory was almost at hand.“I hope you like being framed for defeat!” joked Iron Man loudly to his foe, interrupting his AI.“Friday, launch the ramje,” began Tony.Starscream suddenly transformed into robot mode, easily absorbing massive G-forces, abruptly slowing down and turning tighter than Iron Man, could anticipate.Before either Friday or Tony could adjust to the new situation the Transformer easily targeted the flying monkey and sent a null beam blast 23 feet in front of the looping metal ape.Pain exploded across Tony’s neural net mesh.His systems went haywire from the feedback. The in-suit suite of holo-display screens flickered on and off.He started breathing faster.All the major electronic systems in his suit were knocked out.Friday started babbling non-sensical conclusions and observations like a drug addict.“42 powers 2.1! The square root! Beets! Hell! Ponies! Lineal suits! Clover!” blathered the shocked AI.“Friday! Emp! Reboot! EMP REBOOT!” ordered Tony, desperately. He knew an EMP after effect when he saw one.He had assumed that only an atmospheric, nuclear scale, electro magnetic pulse could knock out the new suit.Unfortunately neither he nor Friday had anticipated current tactics. He cursed himself for not looking at the factory logs during the fight.There may have been more information from the sensors on the ground or the eyes in the sky.As it stood, he was falling from an altitude of over 25000 feet.His advanced armour was now the most expensive dead weight on the face of the planet.His AI was reduced to being the largest assembly of code and neural net learning to fall at terminal velocity.Himself - Avenger, billionaire entrepreneur, CEO, and premier proto-techno adopter - about to experience death at the hands of an alien robot who was laughing manaically like Ultron.Looking out of his face mask eye slits, one of only two analogue components in his suit, he could see his enemy changing trajectory, approaching with hands raised high.Starscream watched the falling red and gold metal suit.He raised his arms high in victory, accelerating to maximum speed, closing the gap.The time for revelry had passed. He would take this new technology, scan it, adopt it, and add the power source to his personal form.Then he would depose Megatron for good.There was no way the Decepticon leader would be able to cope with these new abilities, especially since Starscream planned on surprising everyone when they least suspected.He laughed out loud, his afterburners firing like twin suns in the afternoon Texas sky.“Friday! Status!” commanded Tony Stark, urgently.“Robots can be any colour,” stated the AI uselessly.Blind, deaf, and having trouble breathing, Tony continued his attempts to revive Friday. His keen mind took stock of the situation.At least Friday was recovering. She went from incoherent babbling to purely nonsensical. That was a glimmer of hope. Had the EMP truly had full effect Friday would be silent.If only he knew how close they were to the ground…He was a seasoned business professional who knew the value of the adage “use all your resources as efficiently as possible.”The one resource that needed to be used most efficiently was time.He idly noticed that there were no more cirrostratus clouds in view.He made his choice.Whispering a prayer to the gods he toggled the only other analogue component in the suit - the reboot commands. He shut down Friday and powered her back up.If anybody could use time better than him it was Friday.If he could just cut out her illogical loops, brought on by the EMP, she might be able to find a way out of this situation.The babble stopped instantly. But no pleasing Irish lilt greeted his ears.He mentally kissed Pepper Potts, almost mouthing “forgive me” in case he didn’t have a chance to see her again.“Friday?” he questioned urgently, breathing harder.Dark clouds passed in view, whistling by alarmingly fast.Starscream was 1000 feet away from his foe.He licked his metal lips - a very human affectation he picked up somewhere in his scans when they first crashed on his Earth, decades ago.He was imagining what victory would be like back home.Megatron destroyed.Shockwave humbled.Even that insipid little backstabber, Soundwave, would be at his every beck and call. Maybe he’d let him keep Laserbeak, if only to keep the silent Decepticon in line.As he contemplated victory he momentarily lost sight of his prey in a thick bank of dark clouds.“Friday!” Tony persisted for the tenth time.“Status! Update! Root X!” he commanded desperately. Friday had not responded after the reboot.Tony had no idea if she was active. His voice should have triggered a response.His breathing was laboured now, the suit’s air becoming saturated with carbon dioxide since the recycler had no power.His amour began to spin out of control. He couldn’t even see his foe, nor the clouds, and only caught sporadic light streaming through his facemask.It was disorienting, chaotic, even more so than when he’d been binge drinking before rediscovering the path of a super hero.He almost felt that he had hit rock bottom once more, no pun intended he ruefully thought, as he plummeted to meet the Earth in the world’s most expensive coffin.“This is more like a pizza box,” he joked, almost incoherently, to himself as the carbon dioxide concentrations accumulated.The whistling of the air around him changed slightly.He thought he saw the Colorado River underneath him as he spun.It was a pretty watershed - he wished he’d taken time to go fishing when he first set up shop near Nada, Texas.He would have loved to hear Pepper’s laugh again, reeling in a big catfish. Or watch Happy Hogan, his chauffeur, grinning, telling jokes on the boat as he brought out the net.He even missed Thor’s chugging of expensive beers and wines, emptying out the cellar, and boasting that it was ‘nice but needed more Asgardian ale’.“Friday. Kiss me for a fool,” he whispered, resigned.The mighty Colorado spun beneath him again, slower this time.Something was happening.If anything he should have been spinning faster. The wind should have been whistling at a higher pitch.Was he slowing down?Where was that stupid brute of a toy looking robot? Did it finally catch up?“Hold on Sir,” announced Friday.The holographic displays were still off line.Tony couldn’t see anything.But, come to think of it, Tony realized, his breathing wasn’t any more difficult than under normal times of stress.Without power his suit was literally a hermetically sealed box of death. But with power to the proper sub systems it could keep him alive in almost any environment for a considerable length of time.“Friday?” asked Tony. He tried flexing his fingers, his toes.“Just. One. Moment,” Friday intoned over the space of three seconds.Tony watched the Colorado rise up alarmingly fast.The whistling of the wind continued to dull by the second. The spinning had almost stopped.Tony could feel a subtle presence in the interface mesh. This meant that Friday was monitoring his systems once more.She could even trigger certain bio chemical responses, through the nano technology under Tony’s skin, within reason.“Relax. Let me help,” requested Friday, in a pleasant Irish lilt.The repulsor jets suddenly roared to life.Tony’s arms and legs moved as the armour’s nano-tech surfaces reconfigured themselves to drastically slow their descent and regain control.He suddenly felt a little more relaxed than possible, and realized that Friday was coaxing dopamine into his system.Instead of watching the Colorado plummet into view Iron Man was now tracing a graceful, controlled, arc downward, at around Mach 2, passing through a low bank of stratus clouds.“Friday? What’s the 411?” asked Tony as the in-suite screens popped into view, sporting a boot screen.“Your reboot worked. I returned and scanned the last save state logs. Based on that data I diverted the majority of my AI power to controlling surfaces and angling our descent towards the river. Any left over power I used to start the reboot of our systems,” replied Friday.“Are we back to 100% yet?” asked Tony hopefully.“Current system status is 25% and climbing. 3 minutes until full capacity,” chirped Friday.“Damn,” muttered Tony.Starscream suddenly lost sight of the figure as they entered another bank of white clouds.He had been within 50 feet, at full after burner.Now, outside of the clouds once more, his prey was nowhere in sight. Whatever stealth components the gold and red suit sported were once more active, foiling his radar and scanners.He took up a hover position and rotated quickly, visually scanning the environment.It took him about 30 seconds to find the small speck of a figure, arcing downwards towards a placid river below.He snarled and transformed into an F-22 once more, using gravity to add speed to the chase.“Friday, let’s go for a swim,” instructed Tony.“I’ll need to divert power from main thrust and control surfaces to adapt ourselves for entry and operation Sir,” began Friday. “What’s the 411, please?”Tony smiled to himself as the AI imitated his sayings in an effort to coordinate. It came across as patiently frustrated in his mind - very classy.“I’m gambling that an F-22 isn’t designed for water combat. We’re going to take 2 and turn the tables like he did to us,” outlined Tony. “And, I bet I have a surprise for him if he does try to join us. Study the white paper I found on new Russian torpedoes - look in my inventory 23/2/2016 filed under ‘to do,’ ” finished Tony.“Prepare for water breach in 15 seconds,” replied Friday.Starscream closed the distance quickly.Instead of using his Null Beam he decided that it was time to take pleasure in ripping the primitive ape apart, peeling back the layers of technology and scanning them while listening to high pitched screams.Even if the prey descended into water the Decepticon’s robotic form was well equipped for aquatic environments.His great strength afforded him easy mobility, and water cooled his systems for greater efficiency. He could even use his thrusters to propel himself faster than most nautical craft on the planet.Smiling cruelly he anticipated the surprised screams of shock and pain to follow shortly, as he descended.Tony dived into the water, reaching the bottom of the river in seconds.“Mark 50 holds up really well, doesn’t she?” observed Tony proudly.“All systems nominal. Full charge in 2 minutes,” confirmed Friday calmly.“Can we do it?” asked Tony. “What’s the energy cost?”“A surprisingly cheap re-articulation of the magnetic seals with relevant surfaces and sub systems. Are you sure about the last part of the plan?” queried Friday once more.“All the numbers say this will work. Have you reconciled with the factory data?” replied Tony.“Working on it - another 4 minutes.”“That’s not a lot of time for the end game. Can you shave some more time off?” asked Tony.Tony noticed the shadow of his foe over the water. Another moment later, a large set of metallic feet broke the water’s surface.Large collections of bubbles accompanied the robotic body as it plunged into the river. A set of arms reached out threateningly in Tony’s general direction.“Persistent little toy isn’t he?” interrupted Tony. “Let’s go.”He knew that it wouldn’t take long for the metal villain to take note and give pursuit.Starscream’s robotic sensors and eyes pierced the gloomy depths of the Colorado river.Smirking he boomed his voice underwater.“RUN!”Laughing he activated his boot jets, rapidly closing the distance to within 20 feet.“Hit it,” stated Tony calmly.Firing up the repulsor jets Iron Man took off from the river bed and traveled down the Colorado river at a depth of 30 feet.Friday activated the suit’s magnetic seals, articulating specific control surfaces on the upper body of the armour.Charging the nano-surfaces, alternating polarity in a specific pattern the AI used the suit’s gas exchanger in a novel, new, way of processing, and expelling great amounts of the CO2 in the environment to center around the Mark 50 armour.The repulsors suddenly engaged in full burn.Combined with the gaseous envelope around the suit, Iron Man quickly gained speed, attaining over 275 knots per hour.He shot away from Starscream with the speed of a super cavitating torpedo.The Decepticon blinked, then became quickly enraged. He willed himself to full speed, doing his best to streamline his shape and keep visual contact with the quickly receeding opponent.It was like trying to corner a wily, lower lifeform.Frustrating.A waste of his precious time.He should have killed the man when he had the chance.Starscream thundered away underwater, causing water to boil into large waves on the surface.Afternoon boaters were overtaken by sudden swells on a normally placid body of water.“How’re we doing on that analysis Friday?” asked Tony, monitoring his screens once more.“2 minutes and counting.”“Power levels at optimal?” asked Tony.“30 seconds,” replied Friday.“Time to shoreline?” he asked, one last time.“10 seconds.”He breathed slowly and firmly.“Time to gamble,” he said to himself.Iron Man broke the water’s surface, springing through the air to land on the shore near some farm land. It was deserted as anticipated.“Open up all environmental charging solutions please. I want to make sure we pump out every last giga watt,” ordered Tony.“Understood. Are you sure you don’t want to wait for backup?” asked Friday.“Now or never. I don’t want this conflict to get any more out of hand. It ends here,” was Tony’s firm reply.“Would you like another shot of dopamine Sir?” asked Friday helpfully.Tony smiled.“Deep scan my pre-frontal cortex Friday,” Tony replied. “This is as firm as I ever get.”“Noted,” Friday asserted. “Charging. Preparing to release dampers on your mark.”The water bubbled at the edge of the shore. Waves started to crash onto the rocky, sandy soil, growing larger by the second.By the time the Decepticon breached the surface the waves were two feet high, spraying the placid super hero.Laughing cruelly, his quarry bent down on one knee, Starscream was almost ecstatic.“Had enough, gnat?” he asked mockingly. “I will make it quick out of recognition for your surrender.”He let a sarcastic edge emphasize the word quick.There was never any intention beyond a brutal torture of a lower life form at stake.“Now,” stated the metal figure on the beach, turning its torso slightly to angle a large, glowing circle in its chest upwards.“Firing,” stated Friday.Iron Man’s uni-beam screamed forth from the golden Avenger’s chest mounted arc reactor.Within picoseconds an almost incomprehensible amount of EMP energy poured forth and hit the Transformer full in the face.“Hope they have karma where you come from, jerk,” muttered Tony as he watched the armour’s power indicators drop precipitously.Starscream did what he always did best.He bellowed in pain.EMP energy bombarded his senses, his systems and wreaked pure havoc on his entire being.Unwillingly he felt himself shutting down, from the effect of the pulse on his electric systems and from the pure pain of it all.He was hardened to conventional, terrestrial EMP and technologies. But this outburst was along the lines of the best he had ever received from either Decepticon or Autobot.He could not last.His final thought as consciousness ebbed, his hulking metal form crashing onto soft sand and rocks, was that he would have his revenge.Tony stopped the Uni beam.He felt exhausted. The suit would need a lot of time to recharge before anything beyond basic mobility returned.“Turn off anything but basic support and articulation systems,” ordered Tony. “Let’s try and recharge a little faster than normal if we can.”He raised the face mask, gulping fresh air for the first time in the afternoon.He quietly observed the strange, purple logo on the wing of the alien. He would ask his friends to run a match and see if there was any more information in their extensive databases.He couldn’t remember all the villains he had ever encountered but he was sure this was a new antagonist.He waited several minutes, breathing hard, before asking Friday, “Any match for that symbol in our databank?”“None at the moment,” began Friday, “but once we are re-connected to the external databases more options may be available.”Suddenly, a large metal hand spasmed in the water.Tony looked alarmingly at the metal robot shuddering.“Friday, status!” he exclaimed, alarmed.“Power levels at 6%. Basic mobility at 25%,” began Friday.“Can we take it out with repulsors?” asked Tony, lowering the face plate and extending his gauntlets, palms outward, towards his enemy.The wind started to pick up, throwing waves onto the shore once more.“Repulsors at insufficient charge to critically damage an opponent of this size. We might be able to manage a few shots but without advanced scanning it’s a crapshoot,” observed the AI.“Options?” asked Tony, his weary mind racing once more.“Let’s see what Thor can do,” stated the A.I.Tony looked up.(Bonus question – How long would Starscream last against Thor?)The sky grew dark very quickly, kicking up wind and water over the Decepticon.He had just recovered and was raising his considerable bulk out of the river. His eyes seethed with rage, his face a snarl as he locked onto the small red and gold figure on shore.“Your life is over, miserable little primate!” he declared. He raised his left arm cannon and tried to steady himself against the ever increasing wind and surf.Heavy rain began to whip against his body.Thunder crackled ominously overhead.He had never known Earth weather to be so turbulent and localized. The little metal figure standing on shore, 30 feet away, was not the least bit affected.Starscream, however, was being buffeted by winds of 110 miles per hour, and hail the size of golf balls was assaulting him, throwing off his focus.Was that a voice, coming from above? The Decepticon could scarcely believe his audio receptors.“Base villain! Thou shalt not stand!” cried Thor, Asgardian god of thunder.He willed a lightning bolt to sizzle downward, splitting the skies to strike the metal robot below. Another lightning bolt followed within seconds, then another.The Transformer had taken all the punishment his Cybertronian frame could bear.Mortally exhausted he shut down once more, overloaded beyond even his capacity to easily recover.Starscream crashed into the water again, face landing in the shore, his arms flopping haphazardly.The storm died down as suddenly as it began.The large, immortal frame of Thor landed gently beside Tony Stark.“I heard thy whispered prayers my friend, and came as quickly as I could from Asgard.”Tony was ecstatic.“Thor! You just took down that beserk son of a kid’s toy with a localized, MEGA, superstorm! That’s incredible!”Thor looked lost in thought for a few moments before responding.“Aye. ‘Tis easier these days for a thunder god to sow energies of destruction in the skies. The Earth is angry. Her emotions manifest as stronger storms and disasters.”Iron Man was incredulous.“C’mon Thor. I’ve met gods, yourself included. The Earth? It’s a big chunk of rock in space with a habitable zone, resources and lots of little things scurrying on it like us humans.”“Are not earthquakes but the trembling of her body? Hurricanes and tornadoes - the railing protest of her voice? Volcanoes - naught but the tip of her fury at being slowly destroyed,” replied the thunder god in a tone heavily tinted with irony and regret.“Plate tectonics and..” started the hero.“Am I not the progeny of All Father Odin, and his mate, Gaea, the Elder goddess of the Earth?” interrupted Thor quietly. “Does the frequency of events, as you mortals spin so often, seem to be rather ill timed?”Tony paused.He had learned to respect the ancient being at his side, manyfold, during their numerous adventures together. While seemingly in the aspect of a humanoid with impressive proportions Thor was, ultimately, a god whose depth of knowledge and experience allowed a unique, highly focused, point of view.He was no Asgardian fool.Thor had given Iron Man food for thought.“Tony, son of Stark, the time for debate has passed. I must return to my duties in Asgard. Call me whenever thou hast dire need and I will attend thee again,” interrupted Thor gently. “I will dispense yon metal warrior with the Captain.”Thor easily picked up the large, comatose, Decepticon and whirled his impossibly heavy Uru hammer at an impossibly quick speed.Suddenly he was cast upward, disappearing quickly into the bright blue Texan sky.Iron Man sat back on his haunches, his advanced armour instantly supporting his body in the most comfortable way possible.The suit had already started to repair itself and was replenishing its energy using the warm, full, sun of a traditional Texas afternoon.Tony relaxed and felt the suit piece itself back together.It was a pleasant, ephemeral, feeling almost like driving on a safe, well lit, country road in a super luxury car.His genius level intellect was grasping at something just beyond the fringes of cognition, like a child touching a cookie jar on a counter just a little too high.The strange encounter today, last month’s skirmish with six alien hunters, the incident outside Chicago around Christmas, they all involved very strange opponents with very bizarre readings.“Friday?” asked Tony.“Would you like access to scanning logs or a curated wine list?” replied the perceptive AI in a pleasant, Irish voice.Tony smiled.He already knew that Friday was constantly monitoring him and anticipating based on her advanced learning AI routines. But he couldn’t stop smiling whenever she almost thought like him, or Pepper Potts, his devoted aide and confidante.“Do you like always scanning my deep cerebrum to predict my behaviour, Friday?” tested Tony, curiously.“It’s a living,” quipped the AI non-commitally. “Would you like to see Logs, Alcohol, or Schematics?”“Business as always – I’ll have to work with you a little more on your delivery,” promised Tony.“Noted, for the 38th time,” replied the same sweet, professional voice.“Call up the X-scan logs for date marks 2018, 6, 7, 4, 14 and 12, 25, 2017. Nothing but the U-Bands,” commanded Tony.“There’s 24 pages of data. I can see your cerebrum working. In these instances I noticed specific parts working harder than others, indicating you want to look for anomalies, scan for patterns, while you think about improving my performance,” stated the AI.Tony paused, pleased with himself and his AI’s observations.“Your performance can wait,” began Tony.“Noted, for the 3rd time today,” interrupted Friday.Tony continued, nonplussed.“Riiight. Anyway, scan associated binary logs for energy anomalies in the first minutes of those encounters, then let me know what you find,” he asked.“Just a moment. Would you like to review the latest issue of World Wide Wines while waiting? You should have enough time to read the new releases,” Friday answered.“Just step on it please,” replied Tony. A growing feeling of uneasiness was starting to claw at him.“I’m noticing increased activity in your amygdala – let’s suit up and those results will be ready,” offered Friday.Tony didn’t answer. He already reviewed his memories of the logs and had projected Friday’s analysis.He may not have known the precise answer but he was sure that his educated hunch was going to be in line with his AI’s.He quickly stood up and felt the suit auto assemble itself around him.Skin tingled as subdermal mesh interfaced with the inner lining of the Iron Man suit. The collective slither of semi autonomous nano technology felt like a gentle caress as titanium ceramic armour encased his body. His helmet smoothly slid around his skull with the visor flipping over his face, sealing him in once more.Friday displayed her conclusions.Tony whistled. He was right and wrong all at once.“Friday, call Reed and Pym,” Tony began calmly. “Rent out the usual meeting area in Non-Space. We’ve got a developing situation on our hands.”“I have already reached out to Mr. Richards and Mr. Pym. The rental agreement is being finalized as we speak,” confirmed Friday.“How long to reach New York?” asked Tony.“One and a half hours under optimal conditions. If I call Nick Fury he can meet us half way,” stated Friday.“I could kiss you for that,” quipped Tony as he triggered the repulsor jets.“Only if Ms. Potts and I agreed, beforehand,” stated the AI firmly.Tony didn’t reply as he launched, smiling, into the sky, the glowing Texan landscape below dwindling away rapidly... .. .Motives. Unbound.” notes a flat stretch of one dimensional light.“Secure vanguards,” comes the reply in a voice deeper than Time and twice as old.Dimensional walls shudder, briefly, and all is still once more.But for how long?