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Wednesday, August 02, 2006

The Axis of Oil?


Venezuelan President Hugo Chávez’s fourth visit to Moscow, to meet Russian counterpart Vladimir Putin, signals a burgeoning bilateral relationship. The trip focused on new arms deals and energy co-operation. Both countries also used the occasion to further their international ambitions, inflated by windfall oil revenues. Yet while the Venezuelan president aspires to a strategic partnership, Mr Putin has a more limited agenda—and views Venezuela almost as much as an instrument as a partner.

On July 27th the two presidents sealed a US$3bn agreement whereby Russia will sell to Venezuela advanced fighter jets and helicopters. Caracas has sought the accord for a year and a half, since the administration of US President George Bush—with which Mr Chávez has a hostile relationship—banned the sale of military supplies and spare parts to Venezuela. The Russian aircraft will begin to replace Venezuela’s ageing fleet of US-supplied fighter jets and other equipment. The US opposed the sale, arguing that Venezuela’s purchases of military materiel are unnecessary for its own defence and are a threat to regional security.

As relations between Caracas and Washington have grown colder in recent years, Mr Chávez has reached out to other countries, including many with similar nationalist and anti-US ideologies. These include Cuba, Iran, Syria and North Korea. Before arriving in Moscow, Mr Chávez also visited—and avidly embraced—the authoritarian president of Belarus, Aleksandr Lukashenko.

Energy burst

While the military supply deal was of most concern to the US, the meetings between Messrs Chávez and Putin focused largely on energy accords. Both countries are major oil producers—Russia is the world’s second-largest and Venezuela the fifth—and are benefiting from record high oil prices. In terms of natural gas output, Russia is the largest and Venezuela the eighth-largest in the world.

Russia’s biggest oil company, Lukoil, has begun exploration work in Venezuela’s Orinoco basin. And Gazprom, the state-controlled gas monopoly with aspirations to be a global energy giant, has obtained licences to work in the Rafael Urdaneta gasfield. It has also agreed to work with state energy company Petróleos de Venezuela (PDVSA), to develop the Venezuelan gas industry over the next 50 years. These are the first forays for Russian companies into Venezuela, and Mr Putin said they might eventually spend billions of dollars there. Gazprom might even participate in the construction of a massive US$20bn, 8,000-km pipeline project extending from Venezuela to Argentina. The company has a penchant for, and plenty of experience with, huge infrastructure projects.

The axis of oil?

The meeting in Moscow was not one of minds, however. Motives differ markedly. Mr Chávez, who consistently fuels tensions with Washington with his anti-US rhetoric, had both business and ideological reasons for visiting Moscow. The military deal was a slap in the face to the Bush administration. The US also strongly protested previous arms sales, involving 100,000 Russian Kalshnikov assault rifles that were agreed in 2005, with first shipments arriving this year. Venezuela has said it is interested in buying 920,000 more, or, alternatively, building a factory to manufacture them on Venezuelan soil. It reportedly may even have ambitions to become a supplier of Russian weaponry to other governments in Latin America.

Oil, however, is a still more potent weapon for Mr Chávez, and he is keep to forge an anti-US oil bloc with other major energy producers. This is despite the fact that the US is the largest market for Venezuelan oil, taking some two-thirds of Venezuela’s exports.

As Venezuela’s efforts to lead an anti-American bloc in Latin America, his first front, have floundered—other leftist or radical nationalists recently have lost elections in a few countries in the region—he has expanded his outreach beyond the Western Hemisphere. Mr Chávez is also trying to bolster international support for his bid to get Venezuela a non-permanent seat on the UN Security Council, which opens up in 2007. The US resists this, and is lobbying for Guatemala instead.

Putin’s prosaic vision

Russia, for its part, is not entirely welcoming of Mr Chávez’s overtures. It did not treat the Venezuelan’s trip as a top-level state visit, but rather downgraded it to a working meeting with informal talks between the two presidents. Mr Putin was even cautious with his body language, avoiding the brotherly embraces that Mr Lukashenko of Belarus so willingly accepted. He also stated publicly that his government’s co-operation with Venezuela was not aimed against any particular country but was rather designed to “develop our economies and raise the living standards of our people".

Mr Putin is not interested in a strategic relationship with Venezuela, nor in leading a global, anti-US bloc—even though the mix of co-operation and competition in his approach to the US has tilted towards the latter of late. Rather, the embrace of Mr Chavez serves a few specific political and commercial interests.

Commercially, the openings in Venezuela’s oil and gas industry are valuable for Russian companies. It is not surprising that Lukoil is leading the way in Venezuela, as it is the only Russian major at present to have sizeable production located outside Russia. Opportunities in gas may be greater still, and this is all the more important for Mr Putin because the Russian beneficiary would be state champion Gazprom. The company’s leadership, with Mr Putin’s support, is determined to make Gazprom a global energy giant, with upstream and downstream assets in gas, oil and power both in Russia and abroad. A presence in gas-rich Latin America, which is oriented primarily to markets that Gazprom will not otherwise tap, is highly desirable.

Arms sales are another important element, as they constitute Russia’s major source of foreign exchange after the export of raw materials. Faced with the loss of many of its traditional markets in eastern Europe to NATO suppliers, Russia has a strong interest in breaking new arms markets in Latin America. Mr Putin noted other areas of potential collaboration for Venezuela: finance, machine-building, mining, metals, chemical, transportation, and other military and technical co-operation.

The new Cuba

Politically, by receiving Mr Chávez just days after the G8 summit in St Petersburg, Mr Putin has demonstrated Moscow’s determination to pursue a foreign policy line independent of the US. It is doubtful whether, two years ago, Mr Putin would have agreed to schedule Mr Chávez’s visit so soon after meeting his fellow G8 leaders. Now, however, the country’s leadership is suffused with confidence on the back of strong economic growth and huge oil revenues. The impression that the US is bogged down in Iraq and struggling to deal with the Iranian nuclear problem heightens Russian confidence.

For Mr Putin, the Chávez visit had specific political attractions. Moscow has been irritated recently by US criticism of Russia’s record on democratic and political freedoms, as well as high-profile US support for Georgia, Ukraine and other pro-Western states in the former Soviet Union. By embracing the Venezuelan president, Mr Putin probably feels he is paying back Mr Bush in kind—and signalling that if the US administration is intent on mischief-making in Russia’s backyard, then Moscow will reciprocate by supporting Mr Bush’s foes in the Americas.

Venezuela is thus a bit-player in Russia’s own global power game. For this reason, Moscow is likely to continue to rebuff calls by Caracas for some type of grander geopolitical alliance. Instead, it will keep the relationship within the realm of energy and other sectoral co-operation—while perhaps relishing the fact that its growing ties to Mr Chávez are another thorn in Washington’s side.
Source: ViewsWire Latin America
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