Should we care who wins the upcoming Venezuelan presidential election due on Oct. 7 — beyond most people’s desire to see the back of Hugo Chavez, Venezuela’s self-promoting, populist left-wing president, of course?
Well yes, particularly if you are an industrial manufacturer or if you are interested in current oil and aluminum prices.
Chavez has been in power since 1998, and since then he has been returned to the ballot box two more times, enjoying strong support from Venezuela’s poor. A combination of suppression of the opposition and profligate social spending (some would call it vote buying) has meant he has managed to remain in power – albeit with a dwindling majority.
In the meantime, the FT reports Venezuela’s crude oil production dropped from 3.2 million barrels a day in late 2008 to 2.5 million b/d in September this year. Although Chavez has promised to boost production to 6 million b/d over the next two decades if he wins a fourth term, his outstanding success in scaring off just about every foreign investor in Venezuela means he will struggle to gain the technology or funding to even begin to deliver.
Chavez’s challenger though, a 40-year-old center-left pretender by the name of Henrique Capriles, is a different matter.
A business-friendly law graduate, he is said to be keen to mimic Brazil’s success in boosting oil production and has his eyes on Venezuela’s huge reserves of low-quality, tar-like crude in the Orinoco Belt.
For this, he will certainly need foreign expertise, most probably Canadian, but after Canadian-listed Miner Crystallex had its $3.8 billion Los Cristinas confiscated by Chavez’s government and given to China’s International Trust & Investment Corp. for development, it’s unlikely the Canadians would touch a deal of any size with Venezuela under the current regime.
As the FT points out, Venezuela’s importance in influencing current oil prices cannot be overestimated. World oil prices tumbled nearly 9 percent over two days in April 2002 after Chavez was briefly deposed in a coup d’état as traders bet the opposition would boost production.
But after he returned to power, the oil price per barrel quickly rose. If Capriles were to win, and polls suggest they are currently neck and neck, traders could take the view that Venezuela could be on track to regain its place at the top table of oil producers.
That would be negative for oil prices, and a falling oil price means reduced energy costs, so the loss of one leg of support to aluminum prices. “When oil prices rise, aluminum prices rise” is a common correlation.
So a win for Capriles may mean more than a new dawn for Venezuela’s long-suffering economy, it could mean some respite for a global economy under the crush of high oil prices.