UPDATE: Free falling....

My oh my oh my..... The price of crude is dropping like a rock, thanks in part to the global economic crisis causing reduced demand for oil.

What will Chavez do if the price of oil drops any further? How will he pay for his 'imperial' foreign policy of giving oil and money away to buy influence in South America and the Caribbean?

Here is further evidence that Chavez turn at the reigns of power in Venezuela has damaged it's economy. The estimate is that Venezuela has lost out on 25% of it's potential output - from 3.2 million bpd in 1998 to 2.4 million bpd now. (I've seen other figures that make the 2.4 figure seem rather generous.)

And why has output declined, when reserves are in the 80 billion barrel range? From the mouth of the president of PDVSA

"The new PDVSA is central to the social battle for the advance of our country,"
said Rafael Ramirez, the company's president and the minister for petroleum. "We
have worked to convert PDVSA into a key element for the social battle."

That's political speak for "we've plundered the profits of our oil and diverted them to buy the allegiance of foreign governments, and lined our own pockets as well." What happens when you don't invest some of your profits back into your business? Output falls - especially in the oil business.

Since 98, Chavez has nationalized the oil industry, ripping the oil fields out of the hands of private enterprise (largely American), in the name of taking back the oil profits. Problem is, those private enterprises invested billions in the oil fields to maintain output and to drill new areas. (Billions that Chavez never compensated them fairly for.) They knew what it took to get the maximum value out of the oil fields in Venezuela.

But no more....

And now, PDVSA is producing food and furniture? They can't perform their main business adequately, yet they have other tasks as well. Wow.... I bet the furniture falls apart when you get it home.

I find the last paragraph very interesting. Experts believe Venezuela won't be able to pay it's bills if oil drops below $80 a barrel. That means even as we speak, Venezuela is having a hard time paying it's bills.

And to think that Venezuela, back in the 70's and 80's, used to be able to pay it's bills when the oil boom produced far lower prices per barrel.

How sad....

UPDATE: See the MATH on how much Venezuela is missing out on per year with it's drop in production.