The Quest: Energy, Security, and the Remaking of the Modern World

by Daniel Yergin

  By the end of the 1980s, Venezuela was the very paradigm for the petro-state. It was in deep crisis. Inflation and unemployment were rising rapidly, as was the share of the population below the poverty line. The widening income gap was evident in the massive emigration from the countryside to the cities and in the ever-expanding slums and shanty towns that climbed up on the hills surrounding the capital city of Caracas. Meanwhile, a substantial part of Venezuela’s current revenues was being diverted to meet interest payments due to international lenders.

  All these pressures were made worse by one other factor—Venezuela’s rapid rise in population, which had, over two decades, almost doubled. Such an increase would have required heroic economic growth under any circumstances to keep per capita incomes constant. (Although sometimes overlooked, the growth in population was an indicator of social improvement—of better health and lower infant mortality.) To prevent explosive social protest, the government ran an ever more complex system of price controls that made the economy even more rigid. The price of almost everything was set by the government, right down to ice, funerals, and the price of a cup of coffee in a coffee shop.6

  At the end of the 1980s, Pérez won a return term as president. By the time he moved back into the Miraflores, the presidential palace, in 1989, it was evident how severe the slippery “trap” of oil had become. Despite all the oil money, the economy was in terrible shape and getting worse. Per capita incomes were back to where they had been in 1973. In his inaugural address, Pérez had declared that he would administrate the nation’s wealth as though he were “administrating scarcity.” Determined to reverse course, Pérez immediately launched a program of reform, which included reducing controls on the economy, cutting back on spending, and strengthening the social safety net for the poor. After a very turbulent first year, marked by major riots in Caracas that left hundreds dead, the economy started to respond to the reforms and began to grow at high rates.

  But undoing the petro-state was very difficult. The traditional political parties, interest groups, and those who benefited from the special distribution of rents united to oppose him and obstruct his program at every turn. Even his own party turned on him. The party activists were outraged that he had appointed technocrats to economic ministries, denying them access to the favors and rents to which they had become accustomed.

  But those were not Pérez’s only opponents.

  THE COUP

  On the night of February 4, 1992, Pérez, just returned from a speech in Switzerland, was falling asleep in the presidential residence when he was awakened straight up by a phone call. A coup was in process. He raced to the Miraflores, the presidential palace, only to find it under attack. A group of ambitious young military officers had brought a long-planned conspiracy to a head and launched a coup against the state. The assault on the palace was coordinated with attacks elsewhere in Caracas and in other major cities.

  A number of soldiers were killed in the bloody assault on the presidential palace. Pérez would have likely been killed too—he was certainly the prime target—save that he was spirited out of the building through a back door and hidden under a coat in the backseat of an unmarked car.

  While the conspirators elsewhere in the nation achieved their objectives, those in Caracas were not able to capture the presidential palace. And they failed in one of their other most decisive objectives: to seize the broadcasting companies in order to announce their “victory”. But when a group of the rebels arrived at what they thought was one of the television stations, they discovered they had the wrong address; the station had moved three years earlier. Another group went to the right address of another station. But the station manager succeeded in persuading them that their videotape was the wrong format and that it would take some time to convert the tape to broadcast format—long enough, as it turned out, for the station to be recaptured by loyal forces. Before the night was out, it was evident that the coup had failed, at least in Caracas.

  The next day, the leader of the Caracas part of the coup, the thirty-eightyear-old Lieutenant Colonel Hugo Chávez, now in custody, was put on national television, “impeccably dressed in uniform,” in order to deliver a twominute statement urging the rebels in other cities, who were still holding their targets, to surrender. The message was heeded. But Chávez’s two minutes on the airwaves did something more: they transformed him from a failed conspirator into an instant celebrity, a charismatic caudillo, very different from the maneuvering politicians of the traditional parties that the cynical public was accustomed to seeing. “Unfortunately, for now, the objectives we sought were not achieved in the capital city,” Chávez calmly told the other rebels—and the nation. “We will have new situations. The country definitely has to embark on the road to a better destiny.” The for now reverberated around the country.

  At that particular moment, however, Chávez’s own road was leading to a prison cell.7

  HUGO CHÁVEZ

  Son of schoolteachers, Hugo Chávez Frías had grown up in the sparsely populated savannah region of Venezuela. As a youth, he had proved himself a formidable baseball player, with dreams of signing in the American major leagues. He was also a budding artist and caricaturist. But those were not his only interests. Two of his best friends in the city of Barinas were named Vladimir, in honor of Lenin, and Federico, in honor of Friedrich Engels, Karl Marx’s coauthor. During his teenage years, Chávez spent hours in the library of their father, a local communist, discussing Karl Marx and South America’s “Liberator” Simón Bolívar, and revolution and socialism. All this had a lasting impact, as evidenced by the book he carried with him on the day he entered the military academy as a cadet, The Diary of Che Guevara. And, already, as a new cadet, he was writing in his diary of his ambition that “one day I will be the one to bear responsibility of an entire Nation, the nation of the great Bolivar.” At the academy, he imbibed the careers of other ambitious young officers from modest circumstances—Ghaddaffi in Libya, Juan Velasco Alvarado in Peru—who had gone on to seize power.

  It did not take Chávez long after graduating from the military academy to connect with other like-minded conspirators. “As far as anyone knows,” his biographers have written, “Hugo Chávez began to lead a double life when he was around twenty-three.” By day, he was a hardworking , dutiful, and obedient officer. At night, he was meeting secretly with other young officers, as well as extreme left-wing activists, plotting his way to power. One day, in the early 1980s, Chávez was out jogging with a group of other junior officers when they broached the idea that some of them, including Chávez, had been harboring for some time—that they secretly launch a revolutionary movement. And right there, in front of a tree much favored for its shade by Simón Bolívar, they took an oath to that effect. From that moment onward, Chávez saw himself as the future leader of Venezuela. He formed a clandestine officers’ group, the Bolivarian Revolutionary Army, that built its network in the army.8

  It was in 1992, a decade or so after that jog, that Chávez and his coconspirators launched their failed coup. In the subsequent two years that followed his arrest, Chávez spent his time in prison reading, writing, debating, imagining his victory, receiving a continuing stream of visitors who would be important to his cause—and basking in his new glory as a national celebrity.

  Later in 1992, a second coup attempt, this by more senior officers, also failed. But its very fact demonstrated how unpopular Carlos Andrés Pérez had become. Perez had alienated the public with his policies, especially the cutbacks in the spending that was the hallmark of the petro-state. He also continued to infuriate his opponents with his economic reforms and decentralization of political power. They got their revenge: they impeached him for corruption. The specific charge: he had provided $17 million to the new president of Nicaragua, Violeta Chamorro, who had taken over from the Marxist Sandinistas, and, fearing for her life, had asked for help in setting up a presidential security service to prevent her assassination. Here, with Pérez’s removal
from office, was proof anew of the old maxim that no good deed goes unpunished.

  Pérez’s opponents celebrated their victory in deposing him. But it would eventually prove a costly victory for these defenders of the old order of the petro-state. For the impeachment would further discredit the political system, ultimately leading to their own ruin.

  On Palm Sunday, 1994, Rafael Caldera, Pérez’s successor and longtime rival, freed Chávez and the other plotters and provided an amnesty. It is possible that Caldera simply thought that these were young military officers led astray. There is also the possibility that Caldera acted out of a degree of personal sentiment. Hugo Chávez’s father had been a leader of Caldera’s old party in the state of Barinas and was the person who would have received him when he campaigned there. Curiously, Caldera did not add to the amnesty what might have been the normal restriction—permanently banning Chávez and the others from political life. It was a significant omission. But Caldera certainly never imagined that any of the plotters could ever navigate their way through Venezuelan electoral politics.

  Now out of prison, the former conspirator, guided two seasoned politicians of the left, was determined to win political power not with bullets but at the ballot box. This time, instead of guns and conspiracy, Chávez’s weapons would be his new popularity, organization, unstoppable personal drive, and sheer charisma. He put himself at the head of what he called the Bolivarian political movement, and with endless energy, crisscrossed the country denouncing corruption, inequality, and social exclusion. He also traveled abroad. In Argentina, he spent time with a sociologist who propounded a theory of the mystical union of the “masses and the charismatic leader”—and also denied the Holocaust.9

  But his most important trip was to Cuba, where he forged a deep bond with one of his heroes and another baseball fanatic, Fidel Castro. Castro would be his mentor, and indeed embrace him as his political son. For his part, Chávez would come to see himself as Castro’s legatee in the Hemisphere, but different in one crucial aspect—a Castro who would be bolstered with tens of billions of dollars of oil revenues.

  LA APERTURA

  Meanwhile, things had gotten worse for Venezuela’s economy, leading to a severe banking crisis. By the middle 1990s, it was clear that Venezuela urgently needed to increase its oil revenues to cope with the country’s problems. Since world petroleum prices were not going up, the only way to raise additional revenues was to increase the number of barrels that Venezuela produced. The new president of PDVSA, a petroleum engineer named Luis Giusti, embarked on a campaign to rapidly step up investment and output.

  The most significant initiative, and one with global impact, was la apertura—“the opening” (really, a reopening )—inviting international oil companies to return to Venezuela to invest in partnership with PDVSA, to produce the more expensive and technologically challenging reserves. This was not a winding back of nationalization, but rather reflected the trend toward greater openness in the new era of globalization. It was also a pragmatic effort to mobilize very large-scale investment that the state could not shoulder by itself.

  La apertura was highly controversial. To some it was anathema, heresy. After all, the traditional route that had been followed—nationalization, state control, expulsion of the “foreigner”—was enormously popular. But to Giusti, this was all ideology. What mattered was not appearances and symbolism, but revenues and results. The state did not have the resources to fund the full range of required investment, and social programs were a huge competing call on the government’s money. Moreover, despite its competence, PDVSA did not have the advanced technology that was needed. La apertura would bring in international capital and technology. Output would increase from older fields. And, at last, Venezuela would be able to use technology and large-scale investment to liberate the huge reserves of very heavy oil in what is called the Faja, the Orinoco region, that up to then could not be economically produced. “The Orinoco was dormant,” said Giusti. “ We had known for one hundred years that the oil was there, but nothing had been done.”

  With la apertura, Venezuela might be able to double its production capacity by five million barrels over six or seven years, and the state would capture the lion’s share of the additional revenues through taxation and partnership. But none of this could be accomplished without foreign investment. As Giusti summed it up, “There was only so much money, and we had so much to do.”10

  PAINTING THE PICTURE

  The hardest part was the politics, starting with President Rafael Caldera. Giusti had to convince the president, who knew the nationalistic politics all too well. Giusti had the detailed plan for la apertura printed in two handsomely bound volumes, with blue covers and gold letters. At a meeting with the president, he saw that Caldera had put paper clips on many, many pages. This sent Giusti into something of a panic. He knew that Caldera was a very skilled lawyer and that he would lose if he got into a detailed legal discussion with the president.

  How was he going to persuade the president to reverse what was one of the most fundamental and popular principles of national politics and public opinion? Somehow he had to get to the essence; he had to paint the whole picture for Caldera. Then he had an idea. Why not actually paint a picture ? He knew a brilliant geologist who was also a talented landscape painter, Tito Boesi. On a Thursday, Giusti called Boesi and said that he wanted the geologist to paint a large canvas mural that would depict every stage of the country’s oil technology development, from the seepages that had enticed the original explorers to the application of the various generations of technologies, up to what might be imagined for the future of the Orinoco. The purpose would be to vividly demonstrate how increasingly complicated and expensive would be the further development of Venezuela’s petroleum patrimony.

  Giusti told Boesi that he needed the painting right away.

  “Are you crazy?” said Boesi.

  “I need it,” insisted Giusti. “I know you’re a very good artist, Tito. But it doesn’t have to be a masterpiece.”

  Summoned to the president’s house the following Saturday, Giusti appeared with Boesi’s canvas painting rolled up under his arm. When called upon, he asked the president if he could show him something. To the perplexed look of many in the room, including the president, he rolled out the canvas on the long conference table and explained its story.

  When Giusti finished, he could see that President Caldera was angry. At first he thought it was directed at him, but then realized that Caldera was angry with his own entourage, which, the president had concluded, had not properly briefed him on the scale of the challenge facing the industry on which Venezuela depended.

  Several days later, the president approved la apertura. Over the next few years, as the contracts were negotiated and implemented, la apertura would bring tens of billions of dollars of international investment into the country, jump-starting the development of the vast oil sands, the Faja, and “reactivating” older oil fields, which needed injection of new technologies to reverse their decline.11

  THE OIL WAR

  There was a second very important aspect to oil policy as well. Venezuela would produce at its maximum rate, irrespective of OPEC output quotas, indeed disregarding the country’s quota. Venezuela argued that its quota had been set a decade earlier and did not reflect changes in its population and social needs. Of course, other OPEC countries, wanting to maximize their own output, vehemently disagreed. Between 1992 and 1998, Venezuela increased its oil production by an astonishing 40 percent. That engendered an acrimonious battle within OPEC. Observers began to write about an “oil war” for market share between the two countries that had taken the lead in founding OPEC—Venezuela, now ignoring quotas; and Saudi Arabia, insisting that they be observed. That was the battle that culminated in the November 1997 Jakarta meeting and was resolved with the agreement that all exporters could produce flat out, which by now they were all more or less already doing. 12

  But by then the Asian financial crisis h
ad already begun to trigger an oil price collapse, ravaging the budgets of the oil-exporting countries. At this point, Venezuela recognized that it could no longer afford its market share strategy. In March 1998 Venezuela, Saudi Arabia, and non-OPEC Mexico met in Riyadh and worked out a set of production cutbacks for exporters, OPEC and non-OPEC alike. Most of the other exporters went along, out of self-interest and sheer panic. But it was not enough to deal with the drop in demond from the Asian crises. Then the oil prices, after a brief recovery, fell to $10 and then further to something that, for the exporters, was intolerable—single digits.

  THE ELECTION : NOT EVEN “THE REMOTEST CHANCE”

  By late 1998 Venezuela was deep into an economic crisis, poverty was rising rapidly, and social tensions were high—and mounting. “Economically, Venezuela is reeling, with oil prices under $10 a barrel,” reported the New York Times in December 1998. It was just at this moment that Venezuela was going to the polls to elect a new president. The two dominant parties, Acción Democrática and Copei, were thoroughly discredited. They were also depleted; they seemed to have run out of ideas, energy, and conviction. For a time, the presidential frontrunner was a mayor best known for having once been Miss Universe, but she faded as the campaign progressed.13

  Chávez, unrelenting in his attacks on the political system, had risen from a few percentage points to the top of the polls. As was customary during a presidential election campaign, PDVSA provided briefings to the candidates. By this point, Giusti himself had become a controversial figure because of his championing of la apertura and wide-open production, and because he was seen by some as pursuing his own political agenda. When Chávez arrived at PDVSA’s headquarters, he told Luis Giusti he wanted his briefing to be one-on-one, with each just having one aide there. For ninety minutes, Giusti took him through the industry’s situation. At the end, Chávez thanked him for an excellent presentation and then, just before they went through the door, grabbed him by the arm and warmly added that he wanted to express his appreciation and personal affection. Chávez then went downstairs to the waiting press; he announced that as soon as he was elected president, he was going to fire Giusti.