Venezuela nationalizes oil industry - Add commodities

May 2 , 2007

Today, Venezuela nationalized the rest of its oil industry, forcing firms such as ExxonMobil, Chevron and BP to become minority partners in the state-run oil company, Petroleos de Venezuela SA.

These companies will have a 40% ownership in projects they have built, operated and profited from for years. They will now lose ownership and some profits. Many companies are stating their hesitancy to continue investing in Venezuelan oil ventures. At the same time, Venezuela has the 7th largest oil reserves (as much as Russia, and more than the U.S.), that these companies really don’t have many other places to go.

What Venezuela’s oil industry ownership means:
According to the EIA, Venezuela supplies 8% of the U.S. oil imports, the fourth largest foreign source of oil after Saudi Arabia, Canada and Mexico. Therefore, any disruption to its production of oil will have an immediate effect on oil prices.

Venezuela’s economy is dependent on oil exports, which account for 90% of its exports, over half of its federal budget revenues, and almost one-third of GDP. As a result, GDP has risen at about 10% annually since since 2004.

Venezuela’s President, Hugo Chavez, was recently reelected because his social programs, financed with oil money, have improved people’s lives. His movement, called Bolivarism, has allies in other Latin American countries such as Ecuador, Bolivia, and Nicaragua. He is also aligned with other countries, such as Russia and Iran, that are using their oil and natural gas reserves to further political aims.

Action steps:
Make sure you have commodities mutual funds, including oil, in your portfolio. Think about ways to decrease your own personal use of oil. This will help not only the greening of the planet, but the greening of your wallet, as well.

For other ideas on how to protect yourself from the high cost of oil, get the WorldMoneyWatch report “Oil’s Hidden Threat”

Source: Voice of America, May 1, 2007

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