21st Century Capitalism: On Venezuela’s Nationalization of the Oil Industry

By Fernando Dachevsky, Grupo de Investigación de la Historia Económica Argentina (Argentine Economic History Research Group) – CEICS.

Editor’s note: In response to our request to publish some of their writings, we were sent the following article by the Argentine organization Razón y Revolución (Reason and Revolution). We enjoyed extensive discussions with some of its Marxist scholar-activists in December, when Andrew Kliman spoke at their Buenos Aires conference. This article appeared in their publication El Aromo, March/April 2007. Our translation is by Carlos Saracino.

Crisis = nationalization. Far from being a Bolivarian inspiration, let alone a socialist one, Chávez’s oil nationalization in Venezuela responds to a common dynamic in capitalism, present when prices rise. Towards the end of the 1970s, Iraq, Iran, Libya, Saudi Arabia and Venezuela itself nationalized their oil industries. History repeats itself today in the face of the same increase in oil prices.

For many years now, petroleum has occupied center stage in global economic reality. The volatility of its price created therein a strong sensibility to any market alteration that could affect the development of the global economy. Consequently, any news coming from an oil producing country echoes immediately throughout the global news media. Chávez’ announcement that he would nationalize Venezuelan energy production—particularly in the Orinoco belt—was no exception. Followers and opponents alike have portrayed said action as the manifestation of a president willing to confront imperialism as a step toward the construction of “socialism of the 21st century.” Nevertheless, oil nationalization is less than meets the eye.

We are dealing, first and foremost, with a part of the dynamic of capitalist competition. State intervention aims at concentrating a larger portion of the income generated by the rise in the price of oil. Through these means, the state seeks to boost development of capital on a national scale. Nevertheless, the possibility of this development arises neither from Bolivarian convictions nor from the influence of Fidel Castro; instead, it is a given in the context in which the heating up of the global economy pushes oil prices upward. Thus, the force that makes nationalization possible is far from emanating from the construction of any kind of socialism. As we will see, nationalization is the normal historical behavior of an oil producing country’s bourgeoisie: the increase in oil income allows it to dispute its share of the profit with the superpowers for a few years, with the illusion of building an “independent” national capitalism. But the aforementioned force which allows it to do so remains subordinate to the fate of oil prices.

Crisis and Nationalization

In times of economic crisis, the price of commodities such as oil (or soy) tends to rise. The continuing fall in the rate of profit of capitalist industries forces them to sharpen competition between one another in order to survive. This heightened level of competition leads to the widening of the scale at which they accumulate; in other words, in order to lower costs, firms have to produce larger quantities. As is to be expected, this has the side effect of increasing demand for raw materials, which in turn leads to a rise in their prices. Kirchner gains a certain room for maneuvering by utilizing the taxes on exports as a mechanism for appropriating soy income. In the case of countries that live from oil income, nationalization appears as a similar mechanism, though on a larger scale.

Just as state appropriation of agricultural income is not new in Argentina, oil nationalization is not either. In the first half of the 1970s there was a scenario of this kind, in which the fall in the rate of profit translated into an abrupt rise in oil prices.[i] From 1973 to 1974, the latter rose 317%, subsequently doubling in 1979, reaching $85 per barrel (in 2005 USD).[ii] These circumstances made available a mass of wealth way beyond the profit required by oil capital for its own reproduction, for which the states of the primary oil exporting countries then vied. To this end, these states increased their participation in their respective oil sectors. Venezuela did so in 1975, and by then, other oil producing countries were doing so as well, in different ways. In 1971, the Algerian state guaranteed itself 51% of shares in oil firms and Libya begun its nationalizations. The next year, Iraq nationalized the Iraq Petroleum Company. The process was joined next by Iran. In 1975 Kuwait followed suit, and Saudi Arabia, the first world exporter, acquired 60% of the shares in the Arabian American Oil Company (ARAMCO)—by 1980, state control over ARAMCO would reach 100%. In none of these cases was there a move, even remotely so, toward socialism.

The current economic situation appears not to differ much from that of those years. In the debates over the economic crisis that we have published in previous issues of El Aromo and in issues 15 and 16 of Razón y Revolución [Reason and Revolution], it was argued that capitalism is far from returning to its glory years.[iii] In this context, the price of oil began a new upward climb from an annual average price of $20 per barrel in 1999 to beyond $60 in 2006. It is estimated that in the coming years it will stay close to $60. The Energy Information Administration, the official American organ in charge of energy statistics, predicts an average price close to $59.49 for 2007, and $62.58 for 2008.[iv]Similar scenarios evoke similar responses.

What Nationalization?

Currently, Venezuela has the sixth largest oil reserves, and is the eight largest oil exporter, in the world. The rise in oil prices gives it strength with respect to its buyers. 70% of its sales are to the United States, a fact that—along with ideologies—explains a great part of the clashes between Chávez and Bush.[v] However, beyond increasing the appropriated income and charging the US more, the much announced nationalization does not constitute an expropriation of oil capital. Instead, the nationalization is no more than an agreement with the oil companies that operate currently [in Venezuela] (British Petroleum, ExxonMobil, Chevron, Conoco-Phillips and Total), in accordance with which the state ensures itself a majority holding in all oil-related activities—which should not surprise us. This will allow the state, first and foremost, to help itself to a larger cut of oil income. But the objectives of this nationalization do not end there.

The largest part of Venezuelan oil reserves are found in the nationalized Orinoco Belt—a region where oil extraction is difficult, and where the crude itself is extra-heavy, requiring a greater degree of processing before refinement. The most optimistic projections estimate a recovery rate of 20%. Even so, despite its low yield the extra-heavy oil in the Orinoco is thought to be more recoverable than oil of the same kind found in other regions.[vi] It has been 16 years since the last important discovery of conventional reserves in the world, and the existing ones are being drained as demand rises.[vii]Although conventional reserves exclude regions with oil of this kind, their exhaustion and the rise in oil prices leads progressively to a situation in which extra-heavy reserves are seriously considered, and acquire the status of commercial reserves. After all, extra-heavy oil constitutes the largest part of the potential reserves that can be added to the commercial pool in the coming decades.[viii] With the inclusion of the Orinoco reserves, Venezuela would become the largest oil reserve in the world, overtaking even Saudi Arabia. Nevertheless, as was previously said, the extraction of oil in the Orinoco is complicated. Its low yield must be compensated for by a high price per barrel. Although the current price is favorable in this regard, it does not thereby make it unnecessary to make substantial investments in extraction and processing. The Venezuelan state oil company, PDVSA, recognizes this reality when it affirms that $59 billion must be invested by 2012.[ix] Predictably, the state will put forward the largest part of this sum. This is why, in making investments that private capital is not willing to make, the state’s appropriated oil income will play an important role in boosting oil production.

Nothing New Under the Sun

The rise in the price of oil pushes Chávez toward energy nationalization, and even gives him some room to buy other firms. According to his apologists, this wave of nationalization is intended to reverse years of neoliberalism and deregulation of the oil industry during the 1990s. They go so far as to call this wave a decisive step in the construction of socialism. However, the reach of this nationalization is much more limited. Certainly, through nationalization the state will concentrate a larger portion of income; simultaneously, it will guarantee the development of oil production in Venezuela, allowing that country to take advantage of a global demand whose annual rate of growth can be appreciated from the recent declarations by the president of ExxonMobil. He said: “…we believe that for 2010, half of the daily volume necessary to meet the projected demand is not yet in production today—and that is the challenge facing producers.”[x]

Now, whoever interprets state participation as a step in the construction of socialism ignores the fact that boosting domestic capital accumulation is a basic task of the capitalist state. Activities that require large investments in order to be realized have always required an initial push from the state. That was the case with the steel sector in Italy, with the aerospace sector in the US, and—without going too far from home—of the railroads in Argentina. What Chávez is attempting is to take advantage of high oil prices in order to expand the size of Venezuelan capital. That is what the “socialism of the 21st century” amounts to, and that [high oil prices] is what its future depends on.


[i] We take as reference the evolution of the rate of profit elaborated by Anwar Shaikh in his Valor, acumulación y crisis: Ensayos de economía política [Value, Accumulation and Crisis: Essays in Political Economy], Ediciones ryr, Buanos Aires, 2006.

[ii] http://www.bp.com/statisticalreview.

[iii] See https://web.archive.org/web/20090414051033/https://razonyrevolucion.org/HTML/dbt/crisis.html.

[iv] See http://www.eia.doe.gov/emeu/steo/pub/contents/html.

[v] See https://web.archive.org/web/20101215152253/http://www.eia.gov/country/index.cfm.

[vi] See Pierre, René: What Future for Extra Heavy Oil and Bitumen: The Orinoco Case, Total, Paris La Defense, France, 2006.

[vii] See http://en.wikipedia.org/wiki/Oil_reserves.

[viii] See Pierre, René, op. cit.

[ix] See www.pdvsa.com.

[x] See http://www.crisisenergetica.org/staticpages/pdf-rtf/Kjell_Aleklett_sobre_Dick_Cheney’_%20apeech.pdf.

1 Comment

  1. It is interesting to read that high oil prices is the reason for nationalization.It is true that during 1970’s several oil producing nations in developing world nationalized their oil industry and it happened that oil price was high during that period.However, I wish to say that oil industry has always been and still remains a political cause.Bloods have been shed for the cause.When Dr.Moammed Mosadegh nationalised Iran’s oil industry in early 1950’s many died.The United States entered the scene and organised the overthrow of Iran’s national government of Mosadegh.The same thing happened in Mexico early 1930’s.

Leave a Reply

Your email address will not be published.