Fueling Concern: The Role of Oil in Venezuela

By Tinker-Salas, Miguel | Harvard International Review, Winter 2005 | Go to article overview

Fueling Concern: The Role of Oil in Venezuela


Tinker-Salas, Miguel, Harvard International Review


Since the 1921 discovery of the Barroso No. 2 well, Venezuela and oil have become inextricably linked. The reaction of diverse population groups to the discovery of the well proved to be a harbinger of the intricate social dynamics that the oil industry engendered in Venezuela. The Venezuelan elites and international oil interests celebrated the appearance of what the New York Times labeled the most important well of its time, one that produces over 100,000 barrels per day. The Venezuelan rural population who inhabited the area around the well, however, saw their crops and property despoiled and their way of life forever transformed by the erupting well. To placate the god that had unleashed this calamity on their community, residents marched to the site of the well with a figure of San Benito, an Afro-Venezuelan saint popular among the poor who lived on the banks of Lake Maracaibo. This apparent clash of values and interests between those who viewed the well as a sign of future prosperity and those who saw their lives altered embodied the social tensions that haunted oil policy throughout most of the 20th century. Though the newfound wealth appeared to transform the country, providing many with the highest standard of living in Latin America, a significant percentage of the Venezuelan population continued to languish in poverty.

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The first phase of oil production proved chaotic as dozens of companies filed claims and thousands of Venezuelans relocated to the oil fields. Foreigners, mostly from the United States, the United Kingdom, and the West Indies, flocked to Venezuela and soon inhabited the oil camps and residential enclaves that sprung up in the countryside. The Great Depression produced the first in a series of industry-wide contractions that eventually left Shell Oil and Creole Petroleum Corporation (CPC), a wholly owned subsidiary of Standard Oil Company of New Jersey, as the dominant producers in Venezuela.

As the Venezuelan government increasingly became dependent on oil revenues, it wrested greater concessions from the foreign oil companies, augmenting its share of revenue in 1943, but without challenging the role that foreign companies occupied in the Venezuelan economy. Venezuela was the only nation in Latin America that permitted large-scale production of oil by foreign companies. As foreign oil companies turned their attention to the Middle East, US companies actually promoted Venezuela and its royalty sharing arrangement, known as the 50-50, as the preferred model of state-company relations. Oil workers and their unions became the most powerful sector of the Venezuelan labor movement, even though they never accounted for more than a minute fraction of the work force.

By 1949, increased competition from oil-producing countries in the Middle East compelled Venezuela to take a proactive role in defending its perceived interests. A Venezuelan delegation visited the region and initiated an unprecedented dialogue among oil-producing nations. Though scoffed at by the foreign companies, which actually provided the logistics for the trip, these efforts eventually led to the establishment of OPEC in 1960. The Venezuelan government formally nationalized foreign oil holdings in 1976, fully compensating US and European interests and creating a new national corporation, Petroleos de Venezuela (PdVSA).

The Oil Economy, Culture, and Society

While it is a well-worn axiom that oil is central to understanding the Venezuelan economy, this approach has not been applied with equal rigor in analyzing cultural and social developments. Since the 1940s, Venezuela has become dependent on oil revenues not only to sustain its economy, but also to shape political attitudes and social values that hold sway over large sectors of the population. The persistent dispute between the government of Venezuelan President Hugo Chavez and the opposition forces regarding the future of the new PdVSA represents a struggle for the economic purse strings of the nation.

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