What do you do when a socialist dictator just ups and takes your business? This happened to ExxonMobil when Hugo Chavez confiscated its oil operations in Venezuela.
In 2007, Hugo Chavez, the anti-American socialist dictator of Venezuela, seized ExxonMobil’s assets in the Cerro Negro Project in Carabobo, Venezuela. A contract existed between Venezuela and ExxonMobil for oil project operations in the country. ExxonMobil owned 41.66 percent of the project but Chavez took it, nationalizing the project to full ownership by the Venezuelan government.
It goes without saying that no compensation for the seizure was forthcoming from Chavez to ExxonMobil. In a retaliatory move, ExxonMobil won a court order to freeze Venezuelan assets of $315 million while the case proceeded through international arbitration. ExxonMobil wanted fair compensation for its confiscated properties. Chavez wanted to sell the seized ExxonMobil refineries to countries such as China, Cuba, and Iran. In countries that abide by the rule of law, selling stolen property is illegal.
This is what happens when governments believe what’s yours is theirs. It is the guiding principle of socialist regimes. That Venezuela entered the bonds of an international legal contract with ExxonMobil had no bearing on the seizure. Contracts are mere pieces of paper to be ignored when socialist regimes seek to raise money. They don’t earn it, they take it.
The Venezuelan government claims ExxonMobil exploited its natural resources. If that’s the case, then Venezuela exploited ExxonMobil’s ability to find Venezuelan oil in the ground, to have the technology to extract it from the ground, to refine the rather poor Venezuelan crude oil into useable products, to transport it to customers, and to have the expertise to market internationally. A contract honors what each party brings to the party, so to speak. No one exploited any one else until Venezuela grabbed ExxonMobil’s assets without fair compensation, thus violating a mutually beneficial contractual arrangement.
With ExxonMobil’s technical expertise on hold in Venezuela, production from the Orinoco Belt oil projects have suffered. Production is down since the 2007 takeover. Oil rigs are idle. Operating rigs clog. Suppliers won’t resupply or maintain the ones that work. Maintenance contractors are abandoning their obligations. Oil rigs stand idle. The product that brought great revenue to Venezuela has been compromised by its own government.
From the looks of it, ExxonMobil is playing by the rules, expecting the rights of property, the legality of contracts, and the rule of payment in trade. Venezuela is now willing to talk to ExxonMobil, according to a Yahoo! Finance report. How nice for a thieving country to want to steal diplomatically.
Chavez should have made this gesture before seizing ExxonMobil’s property. Inviting the party from which one steals back to the table to talk is a fool’s strategy. ExxonMobil is a company that does not suffer fools.