While U.S. troops continue to battle terrorists, U.S. oil companies are locked in combat with another foe – President Hugo Chavez of Venezuela.
There are no guns, airplanes or aircraft carriers. This battle is going on in the offices of Venezuela’s state-owned oil company, Petroleos de Venezuela, and in the halls of the presidential palace of Hugo Chavez. He wants foreign oil companies to pay even more taxes for the privilege of drilling there. Indeed he wants a 50 percent rate in place to boost revenues because he’s running for re-election in December.
In addition, he has slapped on higher royalties (which function just like taxes) on oil companies, in some cases to as high as 30 percent. And he’s even raided the Venezuelan offices of Chevron Corp. for files that he said will prove that Chevron and other oil companies owe $3 billion in back taxes. Finally, he has also turned operating agreements into government-controlled joint ventures.
It’s not as if the oil companies haven’t been paying taxes. Oil revenues account for half of the government’s budget there.
To date, U.S. oil companies have tried to negotiate for solid commitments from Chavez, but he insists that the country “is being robbed” of back taxes and is reluctant to ink any deals. U.S. companies also are staying in Venezuela for now, because it is home to the largest oil reserves in the Western Hemisphere.
But as Daniel Webster said, “The power to tax is the power to destroy.” And Chavez’s moves may well destroy the investments that U.S. companies have made down there.
This shouldn’t surprise anyone. Chavez himself said in a 1997 interview before winning the presidency, "Oil is a geopolitical weapon."
But, paradoxically, the power to tax can also be the power to be destroyed. If Chavez pushes taxes—and his luck—too far, the oil companies may pack up and go elsewhere, which would destroy Venezuela’s economy.
And without capitalist dollars to preach anti-capitalism, Chavez would be one more penniless demagogue with fighting words and a failed economy—like his hero, Fidel Castro.