There’s something about oil. Even people who believe in free trade and see the folly or protectionism somehow conclude that oil represents a special case where the traditional rules don’t apply. People understand why we shouldn’t be making plastic flowers and toy cars in the US, but when it comes to oil, it suddenly becomes important that that money be flowing to US firms.
Maybe turning things around will help. If energy independence is go grand, how are things looking for the countries that are, well, energy independent?
SpendMatters: Falling commodity prices combined with socialist machismo could be a recipe for significant political, military and economic unrest throughout the Central and South American markets in the coming years. According to this this article in the San Francisco Gate, the fall of oil is “a blow to Chavez’s free-spending administration, which depends on oil for 50 per cent of government revenue and 95 per cent of its export earnings. Other oil-producing countries, which like Venezuela ramped up spending as the price of oil rose to historic highs in recent years, also face serious economic problems … Robert Bottome, editor of Veneconomia, a Caracas business newsletter, said that if the price continues to fall, Chavez’s populist government will face economic turmoil.”
One expert source quoted in the article notes that, “oil must be at least $94 a barrel to ensure Venezuela’s macroeconomic stability this year and generate enough money to pay for imports. Although Chavez frequently touts his country’s independence from Washington, Venezuela is more reliant than ever on the food, auto parts, medicine, construction materials and other products it imports from the United States and Colombia, a close U.S. ally.” But what will happen if Chavez needs to cut back on these imports — or if he scales back the wealth redistribution efforts he’s already embarked upon?
If only Chavez had made auto parts independence and medicine independence a key part of his economic programs, Venezuela might not be in this mess, right? Actually, knowing the history countries with similar economic regimes, they just might try doing that if things keep going south.
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