Confusing content with details

In 2007, when Barack Obama was in the early days of chipping away at Hillary Clinton’s solid lead in the polls, one of the most effective tools he employed to convince Democratic primary voters to support him was his stance on the war in Iraq.

His main point: he was against the war from the start, but Hillary voted for it in Congress.

Obama didn’t provide many more details than that, but he didn’t need to. Hillary got zero traction pounding away the fact that since Obama got to Congress, their votes on the war were practically identical.

By planting that flag early and frequently, Obama basically told the story: I’m a dove, Hillary is a hawk. If you like war, vote for her. If you don’t vote for me.

Obama’s stance on this issue did not have details, but it was full of content because Obama used it to define himself in front of the voters. That is what effective politicians do.

And while Leopoldo López’s oil policy announcement is not in the same league, it does help define him. In that regard, it has tons of content.

Quico’s flippant response to my post struck me as startingly off-base. Normally, I would just let if fly, but there is a risk of over-simplifying the very real – and relevant – divide between those in our body politick who favor more oil production and those who favor less.

People who know about oil in Venezuela generally fall in one of the two camps. On the left are the people – many of them in the Chávez administration – who think that we should restrict the production of oil so that prices are high. The thinking seems to be: produce little, collect hefty rents, distribute them for political gain, retain power. Rinse and repeat.

This doctrine is enmeshed in the Venezuelan psyche. Its origin is patently Perez-Alfonsonian, born of the 1960s mentality that Venezuela, as a major player in the world’s oil markets, had a key responsibility in keeping the international price of oil high. The thinking was that producing too much oil would so depress world prices, you would end up being worse off: the extra revenue from selling more oil would not compensate the fall in revenue stemming from lower prices.

However, this philosophy feels remarkably out of place in today’s Venezuela, because it assumes quite explicitly that the elasticity of world prices with respect to Venezuela’s output is negative and greater than one in absolute value. Or to put it en cristiano, it assumes that increasing production will mean that prices will fall, and the nation will be worse off.

In order for this to make sense, one would have to buy the premise that Venezuelan oil production matters a ton.

Now, this may have been true in the 1960s, but it’s not true today. For example, in 1960 Venezuela accounted for 33.6% of all crude oil and products traded by OPEC. By 1979, that percentage had fallen to 7.2%. Currently, Venezuelan exports represent 3.4% of world exports of oil. And while the percentages are not exactly comparable to each other, the point remains – Venezuela is not the player it once was.

However, you don’t have to take it from me. It turns out the 2002 paro petrolero provides an interesting natural experiment to test how important Venezuela really is to world oil markets.

In December of 2002, PDVSA’s production was essentially halted and the company was forced to declare force majeur and default on its contracts. Contrary to expectations, the price of oil did not shoot up significantly. In November of 2002, a barrel of West Texas Intermediate crude was selling for $26.27. By March of 2003, the price was $33.55 – barely a ripple, considering the world was headed toward war in Iraq at about the same time.

So if you buy the premise that Venezuela really is a price taker in the world’s export markets, then it makes perfect sense to try and increase oil production. Any barrel of oil we don’t sell at today’s prices is literally money buried underground, ready to be used to provide health care and education for our people. Deciding not to use it … well, it makes no sense.

Furthermore, there are ancillary benefits to increasing oil production. The nation’s capital stock rises as new technologies come in. The regions where the oil is located benefit from increased economic activity. One might even think that, under the right conditions, private Venezuelan oil companies would be created. These companies could, given the right incentives, go out and provide goods and services in oil-related activities.

The thinking behind this strategy is that developing your oil industry is no different than developing a car industry or a software industry. Attempting to gain market share should be good for your industry, good for the economy as a whole, good for the productivity of your workers, and good for the nation.

The emerging consensus in the opposition’s spheres is that Venezuela should lean more toward the latter model than the failed former one. Sure enough, there are many in the opposition who cling to the old ways. But the candidates seem to be coalescing around this proposal, and this is noteworthy, no matter what Quico says.

López’s announcement may lack specific details as to how to bring about increased production, and it’s even doubtful he could pull it off if given the chance. Still, it says a lot about this emerging consensus, and about his own burgeoning political philosophy.

It is the complete opposite of a fluff announcement.

42 thoughts on “Confusing content with details

  1. Simply put, LL oil policy is 180 degrees different from Hugo’s policy. IMO LL’s makes more sense because of what you are saying about the real incidence of Venezuela in today’s oil market.

    Because of Chavez, all the market share we have lost, the arabs, the russians, the canadians, etc., are more than happy to take it. Therefore, the only ones benefiting from our inefficiency are the rest of the oil nations. That’s dumb.


  2. “In November of 2002, a barrel of West Texas Intermediate crude was selling for $26.27. By March of 2003, the price was $33.55. Barely a ripple, considering the world was headed toward war in Iraq at about the same time.”

    Barely a ripple? A 30% increase in price is barely a ripple? I don’t think there is a commodity seller in the world who wouldn’t consider a 30% increase in price huge. And I sure wouldn’t consider a 30% increase in my salary (with no additional hours worked) barely a ripple.
    I think the reason you are seeing it that way, and wrongly, is you are taking the more recent prices of $100+ per barrel and projecting that backwards to 2003 which leads you to see that increase as insignificant when it fact it was quite significant. The fact that the average price in 2003 was significantly higher than the average price in 2002 was a big part of what saved Chavez’s bacon.
    Further, if Venezuela tossed its quotas aside and doubled production it would be naive to think others wouldn’t do the same. If the world economy, and China in particular, keep growing quickly that might not be a problem. But if we have another large recession, which is looking increasingly likely, it could be really bad news for prices and hence total revenues.


    • Why would you attribute all of the price rise to Venezuela’s drop in output?

      Oh, and keep in mind this was after production ground to a halt. Not nearly as dramatic a change in production as what Lopez is proposing, which, let’s remember, comes from roja-rojita PDVSA’s own investment plans.


      • I know it isn’t correct to attribute all the change to Venezuela, but you were making the assertion not me. My point is mainly that a 30% increase is not a “ripple”.
        Moreover, your idea of looking at what happened in 02/03 as a frame of reference IS pretty reasonable. After all, isn’t having Venezuela’s oil production go to to zero of the same magnitude as having production double? – in one case world production is increasing by 3.4% and in the other it is decreasing by 3.4%.
        Given similarly shaped price elasticity curves they should provoke similar changes in prices – just in opposite directions.
        Having a 30% drop in prices after doubling production sure makes that action look a lot less profitable once you take into account how much you’ll have to invest to bring about that price increase. And if other producers increase their production in response than all bets are off.


    • Wait a second, are you talking tactics or policy? If you talking political tactics, then hell yes! Now I can drill dig it! My only criticism of the tactic is the trap of small think. Triple oil production and quadruple cash in hand by 2016. 3/2016!


    • I think it should, but I’m in the minority on this. I don’t think this is what Leopoldo and the others are proposing.


      • I’m agree that the time of the OPEC has passed a long time ago. Let’s just end it and stop pretending.


  3. There is another reason Chavez is not in favor of higher production, higher
    production means more workers, more workers mean less control, for the same income, he reasons.
    As an example he has pushed new refineries in Brazil, and China, that way
    Venezuelan workers can’t strike for political reasons. affecting the governments income.
    As Rockefeller said the 3 best businesses in the world are, a well run oil co, not so well run oil co, and a badly run oil co, Chavez prefers a badly run oil co.


  4. Defining content as Q did reduces the communications processes ignoring context; his first example works that way. If I said “I am putting a gold jacuzzi in the basement,” and I am and have the taste of a Russian mafioso, there is no reason to doubt I have the wherewithal to do so. Same works with López comment on doubling oil production, wasn’t it what the “apertura petrolera” essentialy meant? There is a series of implicit or unsaid details, I agree; but even if it is a “wish” as Q says, López’s comment still has more content than saying “I will win the Lotto this week”.


      • OK, let me just say I think your whole premise makes no sense, Juan.

        It’s not as though the government is ideologically averse to raising oil production.

        They have had, and continue to have plans to dramatically expand oil production. They’ve already signed a whole bunch of deals with Repsol YPF, Mitsubishi Corporation, Inpex, Suelopetrol CA, Eni, PetroVietnam, Petronas, ONGC, Indian Oil Corporation, Oil India, CNPC, Rosneft, Gazprom Neft, Lukoil, TNK-BP and Surgutneftegaz to expand oil production in the faja. The Junin and Carabobo block aperturas (not that they’d call it that) are ongoing realities.

        The problem is chavistas have no idea how to raise the financing for these deals, and they won’t give up the level of control they’d have to give up to get others to bring in all the money themselves! They haven’t thought through the tradeoffs, so people discount their plans.

        Setty, as usual, has this whole angle covered:

        The problem with Leopoldo’s announcement is exactly the same as with these vague chavista promises of big pie-in-the-sky production hikes. Because the issue here isn’t some ideological divide between people who believe small country assumptions apply to PDVSA and those who think they don’t. The problem is about establishing the credibility of any announcement you do make. It’s about signalling seriousness, signalling you’ve done your homework and worked through the implications of your headline promises.

        To signal that, you need to at least nod at the “how”. You need to show that you understand financing won’t just materialize out of thin air. If you don’t give us *some* sense of that, how are we to tell your crazy promises apart from Ramírez’s?!


        • Yes Chavez invited Russia, Iran, etc to boost oil
          production, but why does Russia, need BP. or Iran hasn’t been
          able to increase oil production in 20 years? or has to import gasoline?.
          because Russia’s new oil is in Siberia, the harshest environment in the
          world, and Iran’s oil field are the oldest in Arabia.

          Both need US technology, the oil fields in Venezuela are
          ether old, or hi sulfur, again needing US technology, so without US technology
          Venezuela’s oil is going nowhere.

          For example 20 years ago US oil Co’s would drill 10 wells to get 1
          gusher, now with software, and other technologies its 1 in 3, US
          recovery of old fields is 30%, 20 years ago 10%
          Saudi Arabia has gone from 5 million to 9 million because you are drilling
          in sand, the problem for the Saudis is getting the.oil on board ships because of shifting sand laying pies on sand is the biggest problem for them.


        • Sigh…

          How many times do we need to discuss the same issues?

          FT, get it in your head mate, LL is not talking to you, or to the readers of this blog. LL is not talking to the international investment community either. He is a Venezuelan politico, emphasis on politico, acting like a Venezuelan politico. We do not belong to his target market, to his constituency.

          In the land where he who controls oil money is king, he is saying, “i’ll double oil production”. Chupate esa…


          • Right. Here’s my election platform:

            Venezuela should quadruple oil production in five years.

            By your theory, my election platform is twice as good as Leopoldo’s!!!!


            • Toro, you’re just being silly, trying to ridicule what you call “my theory”.

              You continue missing the point, talking about content, when you ought to know, as a political scientist -whatever that means- that all politics are local.

              Leopoldo is talking to his audience, in Venezuela. He’s creating a message he thinks may resonate within the Venezuelan context, considering the education levels of his audience. His message is probably a result of his extensive travelling, up and down the country. Even a Venezuelan politico can pick up a lot on such exposure to different people.

              Whereas Toro here, over educated, living in Montreal, clueless about the situation, ignoring context, lectures about how a message ought to be crafted. Well, you may know a lot about how you would like the message delivered to you my boy, I’m sure you are a star in those circles of Caraqueño, third world ‘intellectuals’, que se las saben todas, and yet Chavez has outmanoeuvred the lot of them, but you ain’t the majority. In fact, I’d venture to say that you’ll find impossible to find a politico, anywhere on earth, that gives it to you like you like it, a politico who crafts the message for the sort of intellectual level or those of your ilk.

              So get over it. Con esos burros hay que arrear, if you don’t like what you’re seeing, and I certainly don’t blame you for that for believe or not I agree with many of your positions, throw your hat and see how far
              you get.

              Venezuela is a sad joke of a banana republic, una nacion de pedigüeños sin dignidad. Its politicos, the lot of them, operate in that context and populism is the name of the game. Hai capito?


            • Right, I’m being silly because I’m pulling an entirely arbitrary number out of my ass to make a promise whose viability nobody has evaluated and is therefore impossible to take seriously…I can see how that’s entirely different from what Leopoldo is doing.

              Listen, the electorate doesn’t have to have a PhD in economic theory to sense whether a promise is part of a plan or is an empty slogan. People judge these things instinctually, through context, and by applying common sense.

              In throwing out big plans expressed in nice round numbers unhinged from any hint of as to the “how” Leopoldo is doing NOTHING to distance himself from a government that continually throws out big plans expressed in nice round numbers unhinged from any hint as to the “how”.


            • [i]Listen, the electorate doesn’t have to have a PhD in economic theory to sense whether a promise is part of a plan or is an empty slogan. People judge these things instinctually, through context, and by applying common sense.[/i]

              If that was the case, how have Venezuelans ended up with Chavez for 12 years?

              I will certainly look for the 2.5 million new houses next time I’m in Venezuela, since apparently Chavez keeps his promises.


            • Right, I’m being silly because I’m pulling an entirely arbitrary number out of my ass to make a promise whose viability nobody has evaluated and is therefore impossible to take seriously…

              No. In fact, you’re being silly because you still fail to understand that is not about convincing you of anything, the promises are not targeted at you, feasibility evaluations don’t make the cut in Chavez era Venezuelan politics. If you, after all these years observing the situation and writing about it, have not realised how the dynamics in Venezuela are, then, my friend, mejor te dedicas a la poesia, o a la comida japonesa.

              People judge these things instinctually, through context, and by applying common sense.

              Right. People judge… How do you know? Are you a true representative of “people” within the Venezuelan context? I’d say you ain’t. Common sense then? Common sense, among Venezuelan politicians? Among Venezuelans?

              I’m sure you’re just taking the piss. If not, that comment should go down, in light of all the evidence, as the most not common sensical argument of yours of all times.


            • You guys are being a tad over-analytical. I was not thinking at all about the framing of the message, or how the electorate will interpret a proposal by Leopoldo to increase production. I was thinking more in terms of governance.


  5. I am waiting to hear Quico’s response. In the mean time, let’s make clear that, so far, the discussion has been framed around two ‘dichotomous’ propositions:

    1) Whether Leopoldo’s proposition to increase oil production has enough meat (a.k.a. ‘content’), with Q. alleging that the proposal has no technical/logistical content, and JC that it has, nevertheless, enough political content. These are different things.

    2) Whether oil production should be raised or not .

    Now, I think framing both discussions in binary, dichotomous, ‘black and white’ terms oversimplifies things. For instance, I think Leopoldo’s proposition to raise oil production has a clear policy output in mind (more production), and highlights a clear failure by the government – ceteris paribus, production is down and, at best, stagnant. I agree with JC on this point. Now, Quico is absolutely right that this is only a very brief part of the story. Sooner than later, Leopoldo will be asked about how he plans to raise production. If the answer is ‘I will invite foreign oil companies to come to the country, etc.’, this will bring up back to the fore Chavismo’s longstanding nationalistic rhetoric about ‘the people’s oil, and how the oligarchy wants to sell it to the yankees’. For many reasons we cannot address here, this per se is not good. This is different from saying, for example, ‘we will increase oil mainly through our very own effort by reinvesting, etc.’.

    BTW, if Leopoldo doesn’t explain what he tries to do, someone else will….. that someone is Chavez, and that’s not good.


  6. I write much more simple English with more complex profound meaning.

    So Crude Oil life and economy will only be till it last ! A country and World should last longer !

    Brazil sugar cane fuel needs big amounts of chemical fertilizers ! I do not know if it can be organic fertilizer fuel !

    I can get Venezuela on a better pathway, and the World to last a bit longer !



  7. Lets say that Global Markets make a weaker World !

    And local own paper money and economy eliminates too many poor and rich !

    Jets and travel is the use up of basic emergency crude oil for a humanity emergency in year 2500 , 3000 or after !
    Though it made it possible for me to be of at least 3 countries. But I did travel first by boat !

    So really the World as it is, is on a downward road, and perpetuates somebody’s slavery’s mind of poverty, and depletion and destruction of World resources, in their illogic competition of consuming all, until it is too late !

    Chavez your logic is too short sighted, as bad as the Imperialists !


  8. Sorry guys, but Venezuela, USA, the World, and Crude Oil, is as stupid as Street Drugs !

    And all you are saying is essentially wrong !

    As to numbers you might be right !


  9. To be fair we have just heard that Leopoldo Lopez (and some in the MUD) said they want to double oil production in Venezuela. And people here have speculated about how and when and what, on the basis of a single utterance.

    Unfortunately you quoted Leopoldo in the middle of a visit to Anzoategui . That might be great campaigning and getting them to vote because double the production, means more money to go around and probably more jobs and a boost to the state economy. Realistic enough in the context of petrostate Venezuela, and probably sounder as a business proposition than anything uttered by Hugo Chavez.

    But still no cigar. No real policy you can weigh and think about. At least for those of us who might be contented with a bare bones howto do it, and why do they think it might work, and why it is desirable to make it work. We do not ask for the whole works, preliminary studies, a complete plan, underlying philosophy of the plan, and all that. We are still waiting for that to reach a conclusion.

    And I hope also that everyone realizes that this lack of a program (and of debate) undermines credibility enormously and lends itself to speculation, even the most malicious kinds.


    • This is something I should have stressed more. I’m not asking for a fully fledged out 900 page feasibility study behind every policy statement – just for a sentence or two to SIGNAL to voters an awareness of and willingness to confront the tradeoffs involved in any policy. You don’t need a policy paper to signal seriousness. You just need to be serious.


      • To be taken seriously, at least a paragraph or maybe two of whys, hows and afters should follow the assertions. We hold our breath. If he does not elaborate, we give up and walk out calling the guy a fake.

        And let me state it: The lack of a clearly enunciated program accompanying intentions is disappointing to the opposition voters left to speculate, a sign of fundamental emptiness for some ni-nis, and a cue for chavismo to fill in the blanks with malicious and cleverly worded propaganda / comparisons to the past to disenchant or disgust the rest.


      • This particular policy statement is risky for the opposition to detail in a stump speech. The details largely imply engaging in apertura petrolera al cuadrado. Then, chavismo would start the song of not ceding control to foreigners and lopez would have to go into a long argument about why it is necessary and evidently better than the alternative and so on… Even in more civilized countries, this is more effectively done in the context of a political debate, not in the stump.

        Also, Quico is being a bit disingenuous to basically equate lopez’s statement to promising to build millions of houses in a year. Venezuela’s oil production has fallen by what, a third? more? in the years of chavismo, so doubling from where we are now is not really pie-in-the-sky. I realize that many of us overeducated third-worlders (hey JC, you may have found a fellow Palin fan in Boyd ;) ) are hungry for content (or substance, which is what we used to call it) but I fear it is driving you to overanalyze every campaign coverage crumb we get from overseas.


        • Chavismo is already doing that, it has been doing it for years. Filling in all the blanks in the opposition discourse with their own imaginings, with their own words, with pure propaganda, with more success than we would like to think.

          Who’s to blame them? The opportunity presents itself, and that’s politics. Your opponent stutters and falters, you rush and end the sentence!

          Of course, most ni-ni’s don’t necessarily buy it. They buy the other, simultaneous and more plausible sounding explanation: Fundamental emptiness of ideas, beyond a return to the good old days and let’s get rid of Chavez, because… just, because!. You would prefer the chavista propaganda then, as this is certainly not the way to do it. Either get rid of Chavez or having an opportunity to solve a single problem of Venezuela. These ni-ni’s jump to a conclusion, they don’t believe our inarticulate opposition is Rain Man. Just retarded and autistic.

          A comparison is also in order: Between doing business in a hardheaded way, with realistic risk assessment, with risk being shouldered by partners (as it was done with the original Apertura Petrolera, even better!), and… being morons, alienating reliable partners, getting hauled into international arbitration, having to make exorbitant concessions to much inferior partners, and then selling huge futures of oil for new debt (to waste) to the Chinese, with no investment in expanding production or technology transfer.


        • I realize that many of us overeducated third-worlders (hey JC, you may have found a fellow Palin fan in Boyd ;) ) are hungry for content (or substance, which is what we used to call it) but I fear it is driving you to overanalyze every campaign coverage crumb we get from overseas.

          Well put Wlad, though must say, didn’t get the bit about the fellow Palin fan. Care to elaborate?


          • Just a jest. When you discount FT’s arguments by labeling him as overeducated or elitist it sounds a little bit like the anti-intellectual populist-chic stance that is typified by Gov. Palin’s discourse. This is mildly amusing because you don’t strike me as someone who would have a lot of tolerance for demagoguery.


  10. How come when Alek Boyd socks it to FT, FT gets busy “revolviendo” and, squirting a squid’s ink into the argument, before dashing off another post. Whenever I’ve socked it to FT, he throws an apoplectic fit, a royal hissy fit. Jes’ wonderin’ as I look at the clouds drifting by on this beautiful summer day …


    • Maybe you’re too nice to Quico!

      Enjoy your Summer, weather here is cold and miserable.


  11. Sorry to jump into this debate way after the fact. I agree it would be good for Venezuela to raise oil production, but it doesn’t solve the bigger problem — Venezuela does not have institutions capable of turning oil revenues into economic development. It did not in the adeco/copeyano days, it does not under chavismo, and I have no reason to believe that it all of a sudden would tomorrow if Chavez announced he was dying of cancer and was naming LL president. I honestly think Venezuela does not escape this trap without a real plan to do something with oil revenues, someone who can actually pull of Uslar’s Pietri’s “sembrar el petroleo” idea, someone who is actually interested in being the intellectual descendent of Perez Alfonso and rather than just claiming to be. Then again I suppose this is an entirely separate discussion on an entirely separate topic.


  12. Exactly, Jimmy Humboltd! Lopez has started the um, “content” of his campaign in the wrong place. You’re much closer….”the institutions capable of turning oil revenues into economic development” is a competence argument — not a bad place to start. How many Venezuelans would disagree that Chavez ministers are incapable of governing?


    Also, I know this is annoying of me…but Juan, I think you’re selling Obama short! His oft-repeated formulation was “I’m not against all wars, just stupid wars.” His message was that he had the judgment and the courage to be against the war in Iraq when Hillary didn’t. So, much more content than “hawk v dove”.


Comments are closed.