Friday, November 25, 2005

The fallacy of "dependence"

The Guardian today adds to the seemingly limitless supply of publicity being given to Venezuela’s Hugo Chavez with a piece by Simon Tisdall headlined "Chavez the Bush baiter". Tisdall opens up by exclaiming that:
Hugo Chávez knows how to wind up the US government. His latest wheeze - selling discounted home heating oil to chilly residents of Massachusetts - follows his offer to help victims of Bush administration bungling over Hurricane Katrina.
I guess it is now established fact, at least in The Guardian newsroom, not only that Bush “bungled” over Katrina, but that it was this “bungling”, and not Katrina herself, that created “victims” requiring help. That aside, I must wonder exactly how these things have “wound up” the US government. I don’t doubt that both his involvement in the Massachusetts oil deal and his offers of “help” over Katrina were intended by Chavez to do so. But from what I have seen, far from getting wound up over them, the US government has mostly just simply ignored them.

But what I particularly wanted to note was something else that Tisdall wrote. Noting the possibility of a new Columbian oil pipeline stretching to its Pacific coast, he says:
That could increase Caracas's oil exports to China at the expense of the US, which depends on Venezuela for roughly 15% of its foreign oil.
The extent to which the US is “dependent” or “reliant” on Venezuela for oil imports is a fairly typical formulation in media coverage of Chavez, the US, and oil. It frames the issue such that the US appears to be a hostage to Chavez. Hence, if Caracas increases oil exports to China, it will come "at the expense of the US". But is that really the case?

First of all, the US imports about 61% of its oil, which means that when Tisdall says “roughly 15% of its foreign oil”, what he really means is “roughly 9% of its oil consumption.” So already it is clear that the US is not quite so “dependent” as the inflated figure suggests. But is it really the case that the US is “dependent” on specifically Venezuelan oil to any extent at all? The answer to anyone with much economic sense: Of course not.

Imagine you live in a town with 5 grocery stores, and you like to spread your business around, so, after growing 40% of your own food in your back garden, you go to each of the 5 stores and buy 20% of your remaining needed food from each. Does that make you “dependent” on any given store for 12% (20% of 60%) of your food? No. If one store refused to sell to you, you could simply reallocate where you purchase from, and buy 15% from each of the remaining 4 stores.

The oil market is a global market. If, for whatever reason, Venezuela decided not to sell to the US, the US would simply go elsewhere to buy what was needed. True, it may have to pay a higher price, but then so would everyone else, because global demand for non-Venezuelan oil would have increased. In other words, if Venezuela decided not to sell oil to the US, all oil consumers would suffer, not just the US, because the global supply would have dropped and global demand would have risen, leading to higher global prices. In fact, everyone, not just the US, is “dependent” upon Venezuelan oil, even if it happens to be primarily the US which buys from Venezuela.

But suppose, for the moment, that Tisdall is correct, and the US does indeed “depend” on Venezuela for 9% of its oil consumption. Let's look at the situation from a slightly different point of view. The US currently imports about 13.2 million barrels of oil per day, which, given Tisdall’s 15% dependency, means that the US is importing roughly 1.98 million barrels per day from Venezuela. Venezuela’s entire oil exports are just 2.36 million barrels per day. So, it turns out that the US accounts for 83.9% of all export revenues that Venezuela receives from its oil production.

Now, according to the CIA World Fact Book’s entry on Venezuela:
Venezuela continues to be highly dependent on the petroleum sector, accounting for roughly one-third of GDP, around 80% of export earnings, and over half of government operating revenues.
So, one could say, if one was so inclined (which, of course, The Guardian is not) that Venezuela is dependent on US oil consumption for roughly 28% of its GDP, 67% of its total export earnings, and at least 43% of government operating revenues. Or, in other words, without US oil consumption, Venezuela would be an extremely poor country.

Hmmmm. 9% of US oil consumption, versus 28% of Venezuela''s entire GDP. Exactly which country is “dependent” upon the other?

3 Comments:

Anonymous ixic said...

Scott

Ah but China could easily replace US demand for Venezuelan oil and thereby become the support for 28% of the Venezuelan GDP.

In much the same way, Japan and China support a significant proportion of the US GDP through their purchase of US debt.

Between Venezuela, China, Japan, Saudi and Iran, the US is so dependent that it will not long survive.

We won't, just now, mention how dependent the rest of the world is on the US economy and it'll be a cold day in hell before we point out that quantity has a quality all its own.

I'm not, of course, referring to a $12 Trillion economy that rather shades the mighty Chinese GDP of $1.5 Trillion along with the equivalent size European economies.

We're in the last few years of the overstretched imperium....

Quite why we're back in the mindset of the 'James Earl Carter' era I don't know but at least USN didn't name a carrier for him.

Jeff

12:45 PM  
Anonymous avaroo said...

Personally I'm all for Chavez discounting oil to Bostonians while 52% of the Venezuelan population lives below the poverty line. Boston is such a toweringly elite town, it's amusing to see Chavez favor Americans, wealthy, elitest ones at that, (at least compared to most Venezuelans).

I say give to New York too, Hugo. And Chicago. And Philly, don't forget Philly.

8:17 AM  
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