The Cold War Over Oil Involves Chavez, China and Russia

By Irwin Greenstein

Americans like to believe that the 40-odd-year Cold War drew to a close in the late 1980s and the early 1990s. That's when Ronald Reagan was president, the Berlin Wall came tumbling down and the Soviet Union collapsed. (That led Dick Cheney to also tout Reagan's famous fiscal theory that deficits don't matter.)

With the demise of the Soviet Union in 1991, the history books like to tell us that the US emerged as the sole superpower. Any investor who now believes that hogwash will soon be standing in a soup-kitchen line.

When it comes to the Cold War, our own economic collapse (yes, I've said it) is exacerbated by the new presence of Russia and China in Venezuela.

As history often demonstrates, oil and gunpowder often go together. In conjunction with its oil deal with Venezuela, Russia sent two Tu-160 bombers to Venezuela and the navies of both countries are conducting exercises off the coast of Venezuela.

Big Media reports that this new relationship harkens back to the Cold War as Russia moves into the Western Hemisphere for the first time since it left Cuba. This type of coverage implies that the US still has a fighting chance.

It doesn't take a genius to see that America is fiscal mess. But it may take a massive dose of ginkgo biloba to fully realize that we are the big Cold War losers.

After all, Venezuela is the fourth-largest oil supplier to the US, accounting for than 10% of our imports. Each and every day, we rely on Chavez for 1.3 million barrels of crude.

Now it seems that all we have left is bravado.

The Russian-Venezuelan alliance was ridiculed on Thursday by US Secretary of State Condoleeza Rice.

The United States is confident that its own relations with Western Hemisphere countries "will in no way be diminished by a few aging Blackjack bombers visiting one of Latin America's few autocracies," she said.

Clearly, Rice is whistling in the dark. Venezuela isn't the only Latin American leftist government that could host Russia and China.

On the same day, Bolivia announced it would sign an oil and natural gas exploration deal with Russian state energy giant Gazprom.

Five of Russia's biggest oil national companies are looking to form a consortium to increase Latin American operations.

As these negotiations are ironed out, Chavez will meet with Chinese President Hu Jintao starting tomorrow.

Chavez has bragged he wants to ship China 1 million barrels per day of oil by around 2011 or about 13% of its current oil demand.

Venezuela supplied China with 5.17 million tonnes of crude - just 177,000 bpd - in the first seven months of 2008. That's a 94% increase over the same period last year.

In May, the Venezuelan state oil company PDVSA and the largest Chinese oil and gas company PetroChina agreed to build a refinery in China's far southern Guangdong province.

China this year lent $4 billion to Venezuela, which the South American country will repay in fuel, to create an investment fund for development projects.

Investors take heed: We are entering an age of ideological investing. To succeed in this new world order it's imperative you remember that history will prove we lost the Cold War. Invest accordingly.

Comments

[The Rookie:]

OK Man, I'll be the first. I agree with you about the hogwash, saying we are the only superpower. It is stupid to underestimate your opponent. Thank you for the article, it keeps me imformed
Dave

2008 Sep 24 07:49 PM

[john s. gordon:]

chinese oil companies (i.e., the communist government) is drilling & producing oil on the coast of cuba. the oil produced is being shipped to venezuela for refining. surely our satellites can count the number of drill rigs involved. why is the CIA keeping this information secret from the public?
> jack

2008 Sep 25 08:30 AM

[huangjin:]

Just when I thought America was doomed, it turns out our competitors are "ideologically" investing. In case you haven't noticed, Venezuela is a basket case. Neither it, nor Russia, nor Iran can survive a drop in oil prices, and all three have declining production. Meanwhile, China is loaded with inflated U.S. dollars.

2008 Sep 25 08:36 AM

[Ferdinand E...:]

Russia can survive a drop in oil prices, but this is neither the time nor the place to explain why. As for this article, I consider it very interesting and very useful. A possible exception though is the use of the expression "Cold War". What the author calls cold war is called business at Harvard and Wharton.

2008 Sep 25 09:28 AM

[richandmer:]

Good article, although very scary for the U.S. It would seem that this kind of info would provide ammunition for those of us who feel our energy policies are a disaster and need to drill drill drill our way out of this mess.

2008 Sep 25 06:25 PM

[whidbey:]

WE lost the cold war only in the sense that one believes that Russia and China have the capacity to enter into and honor long term alliances. It is questionable that Russia, who could not maintain relationships on its own borders with former servant states, can enter into relationships with other totalitarian states as equals. Russia and China suffer from state insecurity which means they trust no foreigner, nor deal with them fairly. In the end these relationships become festering poison and end badly. Russia right now is an aging state with an unstable economy run by a clique of thugs headed by Putin. Their markets, security and energy are all very poorly managed. China is a little different. China is racing its population problem to maintain political stability. China must grow, produce jobs and export, or it fly apart. Yes, we may have lost, but maybe they did not win either. Let us see who needs whom.

2008 Sep 29 10:30 PM