The Geopolitics of Oil: Iraq and Venezuela
On March 19, 2003, the Division of International Studies, The Middle East Project and The Latin American Program co-sponsored “The Geopolitics of Oil: Iraq and Venezuela,” with specialists Professor Alberto Cisneros Lavaller, Universidad Central de Venezuela, and James Placke, Senior Associate, Cambridge Energy Research Associates. The panelists explored the implications the Venezuelan crisis and the War in Iraq could have for the oil market.
Alberto Cisneros Lavaller, Universidad Central de Venezuela, referred to the social unrest and the political polarization in Venezuela and he suggested three possible outcomes: the current administration stays in power, the opposition finds an institutional exit, or the stalemate is resolved with violence. Cisneros Lavaller described the effects that Venezuelan national stoppage has already had on the oil market, which include a 16 percent decrease in oil exports to the United States. The stoppage also has had a negative impact on both the international and American economies and has unsettled oil demand. The price of crude has increased by 30 percent reaching $32 per barrel for the benchmark West Texas Intermediate (WTI). According to Cisneros Lavaller, simultaneous disruptions in both Venezuela and Iraq could lead to export shortages, and a longer lag time to respond to demand in a timely manner. He predicted that oil price spikes could reach $80/b WTI.
James Placke said that an immediate consequence of war would be that Iraqi oil will be off of the market for some time. He added that United States’ plans are to let the Iraqi people manage their oil after the military intervention. Further, Placke stated that, “today there isn’t shortage but low stocks which has to do with severe winters and Venezuela’s conflict in December. That’s why the price today is high.” Placke said that the anxieties generated by a major disruption like war will keep prices high. The crisis in Nigeria could also trigger further disruption. Placke stated that Iraq will need foreign investment to increase its oil production beyond levels maintained until 1991.
Joseph S. Tulchin, the Latin American Program’s Director and moderator of the event, asked what would happen if there was a simultaneous decline in exports from both countries which seemed to be the worst case scenario.
Cisneros Lavaller noted that it would be a terrible problem but no worse than during the Persian Gulf War, which left 5 million barrels a day out of the market. At the same time, Cisneros Lavaller asserted that military intervention could have a holocaust style consequence in Middle East and could lead to an eventual expansion of hostilities which would open “Pandora’s box.”
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