Revolt in Venezuela's Oil Fields

Angry staff at state-owned PDVSA could bring down Chávez

Venezuelans often boast that oil monopoly Petróleos de Venezuela is a First World company operating in a Third World country. Ranked the world's fourth-largest oil exporter with $54 billion in revenues, PDVSA is also the No. 3 oil supplier to the U.S. and enjoys a reputation as an efficiently run state company. But now, PDVSA finds itself at the center of a political firestorm so huge it is disrupting global oil supplies and could topple Hugo Chávez, Venezuela's authoritarian President.

Chávez has infuriated PDVSA employees by packing the company's board of directors with his allies. In retaliation, the company's white-collar workers have been on strike since Apr. 4, idling key oil installations. "We are saving PDVSA from politicization," declared Rogelio Lozada, the general manager of El Palito refinery, the country's third-largest. The walkout has brought Venezuela's oil exports, which average around 2 million barrels a day, to a virtual halt. And Lozada and his comrades say they won't normalize operations until Chávez' cronies are removed.

The shutdown of a key oil supplier is the last thing the U.S. needs, especially now that Iraq is threatening to turn off the spigot. "Venezuela is considered a very reliable supplier, and now, this is throwing uncertainty into the market," says Kyle Cooper, an oil analyst at Salomon Smith Barney in Houston. PDVSA has 10 days' reserve of oil, but with three of its main refineries and major tanker terminals barely functioning, the company cannot honor the majority of its supply contracts. "The situation is getting worse and worse by the hour," says an oil trader in New York.

If exports don't resume soon, the financial repercussions for Venezuela could be huge: Oil accounts for one-third of gross domestic product and over half of all government revenues. One potential casualty is Chávez. Three years into his term, the former paratrooper and one-time coup leader is looking increasingly vulnerable. His approval rating is down to 35% from a high of 80% in 1999. Chávez' relentless bullying has alienated key sectors of society, including the business elite, the middle class, the Catholic Church--and even portions of the army. Meanwhile, popular disillusionment with his "Bolivarian Revolution" is growing, fueled by endemic poverty and entrenched corruption. Given the charged political climate, Chávez' quarrel with PDVSA may be the catalyst for a popular or military uprising. "The overall aim is to unseat Chávez, but toppling a government is not easy to do," says Carlos Raúl Hernández, a political scientist at Simon Bolívar University in Caracas.

Chávez and PDVSA have been on a collision course ever since the left-leaning populist first took office in 1999. In fiery speeches, Chávez has painted the oil monopoly as an island of luxury in a sea of poverty, citing the U.S.-level pay collected by top executives and generous perks enjoyed by the rank and file. "An elite has taken ownership of a company that belongs to all Venezuelans," he railed during a recent radio broadcast. And while virtually every Venezuelan president has treated PDVSA as a cash cow, Chávez has forced the company to hand over an ever larger share of its profits to finance his pet projects.

Tensions came to a head in late February. That's when Chávez named five of his supporters to PDVSA's 10-member board, just days after he installed a leftist academic, Gastón Parra, as president. Then, when employees protested the moves, Chávez fired seven of them and forced 12 others into retirement.

Chávez' tactics have provoked a groundswell of sympathy for PDVSA. On Apr. 9 and 10, business joined forces with organized labor to stage a nationwide strike. Things could really heat up if the unrest in the oil industry continues to escalate. Cha-vez has drawn up contingency plans to keep the wells pumping by enlisting company retirees, military personnel, and private-sector engineers. But analysts say a hastily assembled army of workers could likely keep the industry operational only for a few days before safety would be jeopardized. Chávez needs to find a way to get PDVSA employees back to work fast--or he could find himself out of a job as well.

By Christina Hoag in Caracas

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