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Venezuela's Collapsing Oil Economy

3:01 PM, May 30, 2008 • By BRIAN FAUGHNAN
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Maxine Waters is talking about nationalizing America's oil sector. She might want to consider an object lesson on how that's working for one of the world's major oil producers:

Venezuela's state petroleum company, Petroleos de Venezuela, increased petroleum imports by nearly 150% between the first quarter of 2007 and the same period this year, bank statistics show...

Venezuela's state oil company says it produced 3.15 million barrels per day last year. Analysts including the Paris-based International Energy Administration put Venezuela's production at around 2.4 million.

Mr. Garcia [an economist at a Caracas business school] said that while the petroleum sector reported growth of 3.3% in the first quarter, this figure is "not consistent with the number of active rigs." PDVSA declared an emergency shortage of oil rigs last July, and the company's year-end report showed they had just 111...

In mid-April, Venezuela's National Assembly Tuesday passed a new oil windfall tax, a new blow to foreign oil companies operating in the country. Observers say the law, as it stands, would further hamstring PdVSA's cash situation and would also discourage private-company investment.

Venezuela should be awash in wealth derived from the high price of oil, but Chavez's government has been siphoning off oil profits rather than reinvesting them in production. Combine that with the seizure of assets from private companies and the confiscatory windfall profits tax on the private firms that remain, and suddenly Venezuela seems unable to make money off its vast oil resources. (More on the failures of state-owned oil companies here.)

This is more bad news for Hugo Chavez, who has seen Brazil check his ambitions in the region, and who has been embarrassed by the discovery of his ties to FARC (the death of whose leader is mourned by Chavez). At home his enemies are finally presenting a united front against him. It may be only a matter of time before Chavez has to decide whether to depart the scene gracefully, or to cling to power by force.

Representative Waters, take note.