News Analysis: Mexico-Venezuela Clash Over Oil as Foreign Aid

By Louis E.V. Nevaer, New America Media
Tuesday January 30, 2007

MEXICO CITY—Venezuelan President Hugo Chavez’s use of “oil diplomacy” to secure his position as the leading socialist voice in Latin America is upsetting relations with Mexico and threatening to unravel a decades-old Mexico-Venezuela foreign aid program to struggling neighbors. 

Mexican officials are quietly seething at Chavez’s grandstanding, deploring his use of the San Jose Accord as an ideological weapon in his campaign against the United States. 

The San Jose Accord between the two largest oil-producing countries in Latin America has guaranteed crucial shipments of affordable petroleum, regardless of fluctuations in the world market, to Barbados, Belize, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Nicaragua and Panama. 

Inked on Aug. 3, 1980, as oil prices soared and recession buffeted smaller nations in the region, this joint aid program has never been interrupted by any political and economic disagreements with beneficiaries. 

Even when Mexico’s diplomatic ties with Cuba reached a low point in May 2004—when Mexico led the U.N. condemnation of Cuba for human rights violations, Castro disparaged then-President Vicente Fox as a lapdog of the Bush White House and ambassadors were recalled—Mexico didn’t disrupt the flow of oil to Havana under the terms of the San Jose Accord. 

“The San Jose Accord’s purpose is to provide foreign aid, in apolitical terms, to the nations of Central America and the Caribbean,” says a Mexican official at Pemex, Mexico’s state-owned oil monopoly. 

“It has never been used for political purposes, or as a political weapon,” adds the official, sharply alluding to Chavez’s use of oil as a tool to foment socialist “revolutions” in neighboring countries. 

Mexican diplomats are stunned by the politicized perception of “oil diplomacy,” and how they now have to defend themselves. “Suddenly there are questions about the ‘wisdom’ of selling oil on preferential terms, or as grants,” a Mexican official at the foreign ministry says. 

“We have to explain that we are not following Chavez’s lead, but simply complying with a foreign aid program created more than a quarter century ago.” 

Mexican officials are also worried about the American media’s tendency to inaccurately report on the nature of the San Jose Accord oil diplomacy. 

Typical of the inaccuracies was a Miami Herald report that Cuba’s future is in the hands of Hugo Chavez, not Fidel Castro’s successor, Raul Castro: “The Venezuelan president is propping up the Cuban economy by giving it nearly 100,000 barrels of oil a day virtually for free, according to experts.” There’s no clarification that Venezuela is simply complying with its obligations under a two-decades-old pact with Mexico that’s older than Chavez’s presidency. 

Further fueling Mexican resentment is Chavez’s unilateral decision to transform “oil diplomacy” into a tool for building a “cult of personality” throughout Latin America, which they say feeds into American fears. 

“We are being linked with a policy that is becoming more and more anti- American,” says a foreign ministry official. 

“There is no economic rationale in [Chavez’s] deals. It is a political investment,” Ricardo Haumann, an economist at Harvard’s Kennedy School told the Christian Science Monitor. 

At the heart of the emerging rift are two conflicting aims. Mexico is betting its future on globalization and further economic integration with the United States; Venezuela is working for regional dominance and limiting U.S. influence in the hemisphere. 

“Chavez essentially has rendered Castro and Castroism immune to any kind of U.S. action unless the U.S. is prepared to threaten its oil supply and begin a diplomatic conflagration in the Caribbean,” Larry Birns, of the Washington-based Council on Hemispheric Affairs, said last fall. 

Giving Mexico further reason to reconsider its participation in the San Jose Accord, Chavez has initiated oil deals throughout the hemisphere, linking virtually every nation in Latin America. Mexico’s President Felipe Calderon told the press last December,“[This accord] must remain an apolitical economic assistance program.” 

Chavez has a different vision: “We must use oil as a weapon to fight American imperialism,” Hugo Chavez told his radio listeners earlier this month. “It can help finance socialism for us and our neighbors.” 


Chavez oils his way to good graces 

Apart from the San Jose Accord with Mexico that provides oil and oil subsidies benefitting 11 Central American and Caribbean nations, Venezuela’s Hugo Chavez has other initiatives using his country’s oil wealth as a means of establishing dominant influence throughout Latin America. 

• Cuba: Chavez now ships 90,000 barrels of oil a day, more than the allotment required by the San Jose Accord and a vital lifeline to Castro’s stagnant economy. Venezuela’s state-run national oil company PDVSA also opened its Caribbean headquarters in Havana. In return Castro has sent more than 30,000 doctors and teachers to Venezuela, helping consolidate support for Chavez among Venezuela’s most disenfranchised. 

• The Caribbean: Chavez launched PetroCaribe, an economic pact that will benefit smaller nations through subsidized oil, goods-and-services-for-oil exchange and interest-deferred financing for oil purchases. Of the 15-member Caribbean-community group Caricom, 13 have signed on to this agreement. 

•Andean Region: PetroAndina, PetroCaribe’s counterpart for Bolivia, Ecuador, Peru and Colombia, guarantees the development of these countries’ oil industries under Venezuela’s leadership. 

•Mercosur Region: Chavez has proposed specific programs for three member-nations of Mercosur,the South American trading bloc comprised of Argentina, Brazil, Chile and Uruguay. Foremost, he’s promoting the creation of PetroSur, which would give Argentina, Brazil and Uruguay oil on terms similar to those envisioned for PetroCaribe. (Only Chile is excluded from Chavez’s oil diplomacy.) 

Chavez since 2006 has been supplying oil to Argentina to ease a critical shortabe. In return for an additional four million barrels, Argentina will provide farm equipment and shipbuilding experts for Venezuela’s merchant marine fleet. Venezuela’s state-run PDVSA is opening service stations throughout Argentina in a joint venture with Energia de Argentina (Enarsa). PDVSA and Brazil’s state-run Petrobras, built a $2.5-billion refinery, dramatically raising Venezuela’s profile in Brazil’s energy sector. 

Chavez signed a separate accord to supply oil to Uruguay for the next 25 years under favorable terms: 67 percent of Uruguay’s oil imports will be paid with agricultural goods; 33 percent will be paid through subsidized-interest loans. Venezuela’s PDVSA will upgrade Uruguay’s La Teja refinery in order to process Venezuelan crude. 

Chavez now ships 8,600 barrels of fuel a day to Paraguay, priced at 25 percent below world prices and financed with interest-free loans. 

With these initiatives, Chavez now benefits every nation in Latin America, except Mexico and Chile, and his rise as the leading populist voice in the region is solidified. Financed by Venezuela’s oil riches, he’s well on his way to becoming Castro’s ideological heir. 


Louis E.V. Nevaer, author of the forthcoming book, "HR and the New Hispanic Workforce."