Venezuela's Oil Problem... and Ours

Venezuela is a major oil producer, but apparently has fallen on tough times. According to a news report on the radio this morning, it's now forced to import oil from Russia.

The country has been producing oil at a reduced rate since a strike in 2002, and one has to believe that the situation isn't going to change anytime soon as Hugo Chavez continues to push his socialist economic vision.

That also affects the prices we pay for oil and gasoline since the price of oil is set on the open market.

But as you seethe about $3 gas now and worry about $4 gas next year, remember that Big Oil isn't calling the shots anymore. Venezuela has forced Exxon Mobil to slink out of the country and has made Chevron and ConocoPhillips (COP:NYSE - commentary - research - Cramer's Take) take a 75% hike in royalties and a 50% increase in taxes and say, "Thank you, sir, may I please have another?"

Russia is blackmailing all of Europe by saying "Sell us your natural-gas delivery companies or no natural gas for you." Iran has thumbed its nose at the U.S. and the U.N., figuring that the world needs its oil too much to actually do anything about its nuclear weapons program. And Chad got the World Bank, the U.S. government and Exxon Mobil to cough up disputed royalties by threatening to shut its oil pipeline.

Bolivia is following the Venezuelan example and nationalizing its own mining and oil and gas industries. The problem is that these socialist policies are based on bankrupt political and economic theory, and it's translating into major problems for those economies. Oil and gas businesses are going to stay away from Venezuela because there's no rational reason for them to enter a given country only to lose their assets via nationalization at the insistence of the government. Thus, the energy infrastructure begins to deteriorate rapidly, making it more difficult to produce and refine the oil and gas - further pressuring the price of oil to go higher.

This is yet another side effect of relying upon unstable regimes for energy production and why domestic production and alternative energy sources (wind, solar, hydroelectric, and nuclear) must be utilized in far greater numbers than at present.

UPDATE:
Further proof comes from TheStreet's article cited above:

Exxon Mobil has decided to take its ball home and wait for the bullies to self-destruct. In Venezuela, the company refused to renegotiate deals and simply walked away from projects. There's some evidence that in the long run Exxon Mobil's strategy will work. Production from the national oil company PDVSA is down about 60% under Chavez because of poor management in the oil fields.

UPDATE:
Charles at LGF has an intereresting article that further points to serious problems in Venezuela. My guess is as good as yours, but have no doubt that Hugo Chavez and his inane policies are behind the problems.