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Hugo, Peking-Style
// Venezuela's President Liberally Seasons His China Visit With Oil
Venezuelan President Hugo Chavez arrived in Beijing yesterday for a six-day visit. Today he will meet with Chinese president Hu Jintao and sign multibillion-dollar contracts for the delivery of oil to China, in which China will receive part of the oil that Venezuela currently supplies to the United States. This will allow the Chinese government to painlessly withstand a possible loss of Iranian oil and will be key to the country's energy security net. Backing up the China-Venezuela geopolitical tandem will be Moscow, which is actively supplying Hugo Chavez with Russian weapons.
Chinese Reception
Yesterday, immediately after disembarking from a plane at Beijing's airport, General Chavez brusquely and belligerently declared, "this will be my most important visit to China, with whom we will build a strategic alliance. Our plans are to create a multipolar world and to challenge the hegemony of the United States." The Venezuelan leader, who is often given to shocking statements, was utterly serious. After all, in comparison with his previous visits, in 1999, 2001, and 2004, the stakes this time are high as never before.
Today Chavez will be received by Chinese president Hu Jintao in the lavish Great Hall of the People on Tiananmen Square. The leaders are expected to sign several key energy contracts that mainly concern an increase in the delivery of Venezuelan oil to China from 150,000 to 200,000 barrels a day, with plans to supply the People's Republic with up to one million barrels of oil a day by 2012. By that time, the Venezuelan government plans to double its extraction of oil to 5.8 million barrels a day. According to Chavez, China's large share of Venezuelan oil exports will be achieved not only by increasing oil output but also by decreasing deliveries of Venezuelan oil to the United States. The amount of oil supplied to China by Venezuela will thus increase almost sevenfold, meaning that Venezuela will supply around 20% of China's oil needs and will become a key exporter to China, overtaking Angola, which currently supplies 18% of China's oil imports.
What is more, the president's cousin Asdrubal Chavez, who has become part of the management of state gas monopoly Petroleos de Venezuela SA, has made the leadership of China's CNPC additional profitable offers concerning the cooperative extraction of oil from fields in the Orinoco river basin and a new offer of joint development of a shelf in the Gulf of Venezuela. Both of these sites are already being worked by Gazprom and Lukoil.
Hugo Chavez and Hu Jintao also ratified a deal concluded in May in which Venezuela agreed to purchase 18 Chinese oil tankers for $1.3 billion. In the next year Venezuela plans to buy 42 tankers, thus tripling the size of its oil fleet and ending its dependence on ships rented from the United States. It is possible that the majority of these tankers will be built in Chinese shipyards. Venezuela will then own one of the largest tanker fleets in the world. The leaders are also due to sign a deal today for Venezuela's purchase from China of 12 rigs for drilling oil wells. The same number of rigs will be built in the near future in a joint venture between China and Venezuela.
Finally, China gave the Venezuelan leader a raft of pre-election gifts. In the Venezuelan presidential election scheduled for December 3, Chavez will need the votes of the poorest levels of the population, which China can help him to get. A contract will be signed today for the construction of 20,000 homes in Venezuela at a total cost of $1.2 billion, of which China will pay 75%. Furthermore, contracts will also be signed for railroads and irrigation systems in Venezuela to be built by the Chinese.
The Panama Operation
Having signed these momentous agreements with Hugo Chavez, Beijing will have for all intents and purposes completed the energy security net that it has recently been working on putting into place. Ironically, not too long ago the possibility of Venezuela joining this network seemed utterly unrealistic. Oil can be delivered from Venezuela to China only by ship, and the closest shipping channel lies through the Panama Canal, which is too narrow for large tankers. What is more, until recently the canal belonged to the US, which is unlikely to take kindly to an energy partnership between Beijing and Caracas. As a result, Venezuelan oil had to be delivered to China by sea across the Atlantic and Indian Oceans, which took 45 days and significantly affected the price the oil could command.
However, Beijing has recently succeeded in solving this problem. The first Chinese steps in this direction seemed to be a chain of chance occurrences. At the end of 1999, the American government finally gave full control of the Panama Canal to the Panamanian government, which immediately solicited bids for the management of the canal's ports. The contract was won by the Hong Kong firm Hutchinson Whampoa, whose owner is a 78 year-old Hong Kong businessman named Li Ka-Shing – the wealthiest man in Western Asia, whose $18.8 billion fortune places him in ninth place on the Forbes list of the ten richest people in the world. Born and raised in mainland China, since the time of Deng Xiaoping he has maintained excellent relations with the Chinese government and is on very friendly terms with the top brass in Guangdong and Shanghai – the bosses of the Chinese People's Liberation Army.
Thanks to this deal, the infrastructure of the Panama Canal will remain in the hands of Beijing loyalists until at least 2020 (the agreement with Hutchison Whampoa is for 25 years). Li Ka-Shing subsequently lobbied successfully for a modernization project on the canal that was accepted by the Panamanian National Assembly on July 14, less than a month and a half ago. The reconstruction of the canal will begin next year and will be completed by 2011. The canal will then be navigable by tankers with displacements of more than 300,000 tons. To coincide with this, Hugo Chavez has promised to increase the extraction of oil and to reorient the flow of Venezuelan oil supplies from the United States to China. Under these conditions, oil tankers from Venezuela will reach China's shores in 24 days, which is approximately the same amount of time currently needed for delivery of oil to China from Angola. As such, Beijing stands to lose nothing in this plan.
The Substitute for Iran
China's strengthening of its ties with Venezuela is completely in keeping with Beijing's policy of increasing its influence in Latin America. One of the most recent steps in this direction was the concluding of an agreement on Monday to create a free-trade zone between China and Chile. Many experts expect Chile to be only the first link in China's economic expansion throughout South America under the auspices of Mercosur, the South American common market that Venezuela joined in July. Beijing is also active in other areas. For example, each year the Chinese Education Ministry foots the bill to invite thousands of students from Latin America, chiefly from Venezuela and Mexico, to study in China. A Venezuelan student in Shanghai told Kommersant that before the students depart for China, they are specially encouraged by university and ministry officials to "make sure to study well there, since China is our future."
However, its contacts with Hugo Chavez mean more for Beijing than simple flirtation with Latin America. The Chinese government's latest deals have prepared China to painlessly ride out a possible cut in oil supplies from Iran and the Persian Gulf states. As Mikhail Krutikhin, a partner at the consulting company RusEnergy, told Kommersant, "if Chavez really extracts such volumes of oil, then the reorientation of oil exports from the US to China is highly probable. And if the Panama Canal will be able to allow tankers with displacements of 300,000 tons, then Venezuelan oil will not only replace Iranian oil for China, but also may turn out to be even more competitive than Russian oil."
Beijing has long been preparing for the event that China may suddenly be deprived of Iranian oil. In March, Hu Jintao met with Russian president Vladimir Putin and concluded several multibillion-dollar contracts with Russian state-owned energy companies. Within a week he had also closed a deal with Turkmenistan's president, Saparmurat Niyazev, for the construction of a gas pipeline between Turkmenistan and China and the sale of 40 billion cubic meters of gas to China for $80 per cubic meter. This is almost half the price of Gazprom's oil ($150). And when clouds began to form over Iran in April, Hu Jintao launched a worldwide tour that took him to Saudi Arabia and Nigeria, where he made deals for increased oil deliveries in case of war.
The upsurge of a friendship with Hugo Chavez based on oil coincided with a new review of the Iranian crisis after Iran refused to halt its program of uranium enrichment. However, even a war in the Persian Gulf holds no terror for Beijing. "Even with the current working conditions in the Panama Canal, Venezuelan oil is completely profitable and can, in case of war, take the place of Iranian oil," said Mikhail Krutikhin.
Having created its energy security net, Beijing must now maintain it. The major problem for the Chinese government may now become maintaining support for Chavez's regime, which has pushed a confrontation with the United States to the limit. Fearing to spoil its relations with Washington, Beijing has not been openly supporting the Venezuelan regime by selling it weapons. But in this matter, Moscow has unexpectedly come to its aid. In July of this year Chavez signed a deal with Russia for the delivery of 100,000 Kalashnikovs, 38 Russian military helicopters, and 24 SU-30MK2 planes, which will form the backbone of the Venezuelan security forces. In addition, other two contracts were signed: one for the construction in Venezuela of a factory to produce AK-103 automatic weapons under license and another venture for manufacturing 7.62 mm caliber cartridges. The total amount of these contracts was $3 billion. Thus is Moscow guaranteeing Beijing's energy security.
Alexander Gabuyev
All the Article in Russian as of Aug. 24, 2006
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