Oil and Political Risks in Venezuela

As in every world oil hotspot plagued with a myriad of political risks, Venezuela is not an exception of this situation. Political risk is to be taken seriously into account when it comes to the oil and business in Venezuela, where political uncertainties reign and PDVSA Petróleo de Venezuela, national oil company, is and has been always at the heart of the political struggle between the Bolivarian Revolution and the opposition groups, being the ultimate and main goal to retain since oil income accounts for more than 80% of the Venezuela total GDP. In every election and every decisive political momentum, the whole national oil circuit enters and activates contingency plans and is always the target for hypothetical actions of sabotage mainly by opposition groups to inflict the most damage possible to the government heavily dependent on PDVSA. Since the 2002 major oil strike targeted at overthrowing former Chavez's government organized by his opponents inside PDVSA politics and the political situation influences the national oil life in Venezuela. This is why when a different election takes place in the country, the main concern for foreign investors be them Russian Chinese Iránians is the hypothetical political direction the country could take in case of any non existent Bolivarian Revolution, a scenario so far not in sight. Of course there are many other kind of risks such as financial ones (the future of PDVSA bond emissions, recurrent credits and loans by foreign partners and banks and the oil company's ability to honor these debts) operational risks (accidents and major incidents at refineries which have been very recurrent in last years) as well as organizational risks ( those related with the production capacity for PDVSA in the long term, which has been descending to low record levels, having put all hopes on the Orinoco Belt of heavy and extra heavy oil the biggest reservoir in the world requiring massive capital investments and infrastructure) that add up to the current high levels of political risks surrounding the Venezuela national oil landscape, even though unlike Iraq, Nigeria, Algeria no religious and terrorist risks threatens and won't threat PDVSA in the long term given the high levels of religious tolerance in the country, in the sense that no record of personnel kidnapping at oil and gas facilities exists so far. No major strikes affecting the oil and gas industry have been recurrent in recent years different than those by labor groups demanding a raise in salaries and improvement of working conditions, and this is very fragmented since there's one major state sponsored oil union which in many ways support the government and PDVSA. One current important risk for Venezuela national oil company is high corruption levels and the clash of internal groups for controlling the direction of the Venezuela national oil company, and the strongest and highest levels of indebtedness due to recurrent loans and credits by foreign partners and international financial institutions due precisely to the threatening levels of corruption and social expenditures that have undermined PDVSA budget for investment in major projects in exploration and production, revamping of refineries, which is a huge risk to the sustainability of the energy business in Venezuela. Other kind of risks is the one strictly linked to the guerrilla warfare in Colombia, which adds up to oil activities in Venezuelan colombian border at the south and eastern flank, where in many cases Venezuelan oil workers have been under threat by members of the FARC, as well as because of repeated attacks on colombian oil pipelines these have consequences on Venezuelan eastern border resulting in oil spills, and the ever present situation of oil smuggling from Venezuela to Colombia ( where a liter of gasoline is sold approximately at 20 to 30 times the price in Venezuela, known for having the cheapest gasoline worlwide). So in spite of these arguments, Venezuela national oil company falls under the national security realm and constitutes a top national priority having strong links with Venezuela armed forces to support its protection and security, given the high levels of political and other types of risks existing in PDVSA.  So for investors, even if the situation is not as bad and unclear as in countries such as Nigeria, Libya, Algeria, Iraq in terms of political and operational risks, Venezuela as it holds the massive oil reservoirs in the world of unconventionals,  suffers as well of high levels of political risk, since energy and powerpolitics have always been inextricably linked.