Chávez, China cooperate on oil, but for different reasons

One country's motivation is political, the other's pragmatic. Venezuela is seeking a strategic geopolitical alliance, China a steady supply of energy.

A new oil exploration deal between the two countries – China's largest single investment in an overseas energy project to date – makes US officials nervous. But with Chinese and Venezuelan goals in such stark contrast, say most observers, Washington has little cause to fear a new anti-American axis stretching from the Pacific to the Caribbean.

Venezuelan President Hugo Chávez has cast the $6 billion deal as another punch in his campaign against US political and economic hegemony in world affairs.

Beijing takes a more practical view of the deal. "Wherever there is oil there are Chinese," says Jiang Shixue, deputy director of the Institute for Latin American Studies at the China Academy of Social Sciences, a government-run think tank in Beijing. "China wants more oil and it is going all over the world" to find it.

More oil to China = less for US?

Under the November agreement, China will pay $4 billion into a $6 billion fund to develop Venezuela's oil industry, in return for the rights to explore for oil in Venezuela's Orinoco region, potentially among the world's richest deposits.

The deal is set to be renewed after three years.

Venezuela also announced its intention to supply 1 million barrels of crude a day (bpd) to China by 2011, up from the current government figures of 350,000 bpd, and to construct three refineries in China.

As relations between Caracas and Washington soured further last year, US officials are understood to have voiced their reservations about the agreement – before it was signed – to Chinese authorities.

Venezuela is currently one of the United States's top five oil suppliers. But if Mr. Chávez can diversify Venezuelan crude exports with new markets, some observers suggest that that might encourage him to take an ever harder line against his longtime foe and its corporations.

Last summer, Chávez demanded that six foreign oil companies cede majority ownership to Petroleos de Venezuela, PDVSA, the state oil company.

Exxon Mobil Corp. and ConocoPhillips rejected the terms.

"He is hoping to get [from China] the kind of financial support and expertise [he loses] when he chases out Conoco," says William Ratliff, an expert on China's influence in Latin America at Stanford University's Hoover Institution. "Certainly Venezuela has in mind that relations with China – and Russia and Iran – make it less dependent on major international companies."

In a statement on the PDVSA website, Chávez bluntly stated the political significance he attaches to the China deal. "Relations between China and Venezuela should be at the highest strategic level, and in the front lines of the battlefield," he declared.

"Venezuela is truly seeking China to counterbalance US influence," says Daniel Erikson, a senior associate with the Inter-American Dialogue in Washington.

China stands aside as Chávez rants

But while Chávez's rhetoric revolves around the creation of a new "multipolar" world – one with multiple power centers – China is driven mostly by the need for primary products, as it devours goods from Africa to Latin America, and anywhere else it can find the raw materials it needs to fuel its rapid economic growth.

Beijing certainly has an interest in broadening the basis of international relations.

"China recognizes that in the course of rising it wants to avoid a world whose institutions are dominated by the US," says Evan Ellis, an expert on China-Latin American relations with Booz Allen Hamilton, a consulting firm in McLean, Va. "China's position is strengthened by a world in which the US does not have consolidated control."

China is not interested in engaging in Chávez-style verbal warfare, however, because it has too much to lose. "China not in the business of being a threat to the US, it is in the business of maintaining a high rate of economic growth." says Roger Tissot, director for Latin America at PFC Energy.

"China is a developing country, as is Venezuela, and we can deepen our cooperation within the framework of South-South cooperation," adds Dr. Jiang. "But our cooperation does not target any third country.

"The US and Venezuela can fight, but China wants to stand aside," he explains. "The US is key to China's foreign policy – the top priority, the heaviest among the heavy."

Even for Venezuela, selling oil to China instead of to the US does not necessarily make business sense.

Abelardo Daza, an international analyst at ODH Consulting Group, says that the average transport costs for a barrel of oil sold to the United States, five or six days away by sea, is $3; costs double for the 30-day trip to China. "If you sell more oil to China, you are going to get less income," he says.

Many analysts also warn that China, and other countries with which Venezuela is forging relations, lack the technical expertise to extract and refine the unusually heavy crude found in Venezuela's Orinoco region. "Venezuela is bound to the West by technology that [the other countries] cannot provide," says Mr. Ratliff.