WEEKLY SUMMARY SPECIAL REPORT VENEZUELA: PROSPECTS UNDER PEREZ

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001500060004-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: December 19, 2016
• Document Release Date: May 26, 2005
• Sequence Number: 4
• Publication Date: February 22, 1974
• Content Type: REPORT

 Approved For Release 2005/06/09: CIA-RDP8&0,875LR
Weekly Summary
Special Report
Venezuela: Prospects Under Perez
State Department review completed
GIA
0 C, n I I ri7k, i'"I., I
, flL , . T
SERVICES 2IANCH
F.M.1 I
h!
as "
Secret
N" 957
February 22, 1974
'ROY
' No. 0008/74A
25X1
Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2
 25X1 Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2
Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2
 Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2 25X1
SECRET
VENEZUELA
Prospects Under Perez
The landslide proportions of Carlos Andres Perez' victory in the presidential
election and the unprecedented majority his Democratic Action Party won in Congress
give his government the potential to be the strongest Venezuela has had since that of
Romulo Betancourt (1958-63). In contrast to President Caldera, who was short on
both public support and congressional backing throughout his term, Perez will begin
with a secure position of leadership and a generally free hand as president.
His chances to sustain this strength appear
good. Despite his background as a controversial po-
litical figure over the years, the vigor and de-
cisiveness he displayed in his bid for the presidency
clearly appealed to the electorate. During the pre-
inaugural period, he has worked to nurture the new
spirit of dynamism by conducting an intense round
of press conferences, TV appearances, newspaper
interviews, and consultations with advisers and
experts. He means to give substance to his cam-
paign motto, "DemocrFcy with Energy," through-
out the five-year term that begins on March 12.
He intends to focus on domestic matters,
where his philosophy is mildly leftist and reformist.
Venezuela's oil boom and high per capita
income have created a picture of pros-
perity that is still unavailable to large
segments of the population. The con-
spicuous consumption of the privileged
has created severe social tensions,
which the new government is intent on
111UU L1 tai ueveiuprnent
programs launched by his
predecessors and to as-
sist Venezuela's
I ong-neglected
farm population,
hoping to make
agriculture an
"engine of de-
velopment."
Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2
 Approved For Release 2005/06/09-- P85TOO875ROO1500060004-2
,SEdKff
25X1
Venezuela's oil boons mid hick her capita income huwe created a picture
of prosperity that is still iiiiavailablc to large se merits of the population.
Special Report
February 22, 1974
Approved For Release 2005/068 P85T00875ROO1500060004-2
 Approved For Release 2005/O
09C -RDP85T00875R001500060004-2
9ERET
25X1
Oil: A Tool and - Symbol
Perez feels that the domestic programs he
envisions can be realized only by better manage.-
ment of the country's oil resources. He believes
that Venezuela's oil treasure represents a power-
ful tool from which he can extract both the funds
and concessions needed to implement his pro-
grams. His determination to make oil work more
effectively for Venezuela's needs is reinforced not
only by the heavy world demand for petroleum,
but also by the p.:!itical necessity to respond to
the nationalist mood in Venezuela.
For the Venezuelan public, the foreign-
operated oil industry has the same symbolism as
did copper in Chile. Besides their deep resentment
of the very visible role of foreigners in economic
and cultural affairs, Venezuelans at all levels of
society feel the need to express their new-found
sense of national identity, and are increasingly
protective of their national assets.
The rising spirit of nationalism has also fed
Venezuela's desire for a leadership role in the
hemisphere, and oil serves that ambition as well.
Perez has already put his prestige on the line by
announcing that he will use his oil policy to break
down the "totalitarian" trade policies the indus..
trialized nations adopt in dealings with the devel-
oping countries. Perez told visiting economic min-
isL s from oil-short Central America that his ad-
ministration plans to use its increased oil revenues
to help the less-developed countries. He ruled out
any special price on oil for these countries, but
indicated that he would consider providing long-
term, low-interest financing for petroleum sales at
market prices. He also guaranteed that Vene-
zuelan oil would be availaL.e to the Central
American states.
In protecting the country's independence,
particularly in oil matters, Perez must be even
bolder than his predecessor, who was able to
provide for government exploitation of gas re-
serves and to decree a host of minor controls over
foreign oil interests-despite their vigorous pro-
Special Report
tests. In fact, because of accusations that he and
other Democratic Action administrations have
been friendly toward US business interests, Perez
may lean over backwards to avoid seeming to
favor US corporations operating in the country.
Caldera will not give Perez an easy starting
point. In his few weeks left as president, Caldera
has already expropriated two almost-defunct por-
tions of Creole oil concessions and plans other
nationalist measures, such as converting foreign-
owned milk and electric power concerns into
mixed enterprises with Venezuelan Government
participation. Party leaders are preparing a draft
bill calling for immediate nationalization of the
oil industry when the new congress convenes on
March 2. Complete nationalization at this time is
a highly unlikely possibility, yet an idea worth
plenty of political capital. In an action designed
in part to counter the opposition's political gam-
bit, Perez told a number of journalists recently
that present foreign oil holdings will revert to the
state within two years after his government takes
office.
In the new congress, Caldera's Social Chris-
tians, as the major opposition party, will beat the
drums of nationalism whenever the new govern-
ment exhibits apparent weakness in its dealing
with the oil companies or the US. The party's
courses of action are somewhat circumscribed by
the fact that it is still in considerable disarray
following the elections. A party congress, report-
edly scheduled for June, has been put off until
later in the summer, presumably to give Caldera
time to orchestrate the conclave. This may avoid
a fractious session marked with recriminations
over the recent election and divisive debate over
the tactics and policies that the party should
espouse during Perez' administration.
It is with this set of convictions and pres-
sures that Perez will launch his effort to secure a
better deal from the US,' Venezuela's traditional
and still-favored market. But his approach and
3- February 22, 1974
Approved For Release 2005/061 G R UP85T00875R001500060004-2
 Approved For Release 2005/06/0d,p, RAP85T00875R001500060004-2
25X1
Venezuela
bimmaas
" Mane Grande
rE`nco !rq ados le Sol to Guanare
Garlnas?
San Crlrldbal P%
&e
Martin
Oilfield
Selected crude oil pipeline
Refinery
it Petrochemical complex
0 60 100 150 Miles
0 50 100 160 Kilometers
Special Report
Lechoso a
Las -/ Temblador
Mercedes EI Tlpre' . 1
Orinoco Ter Belt or
February 22, 1974
Approved For Release 2005/06jqfE;0R f P85T00875RO01500060004-2
 Approved For Release 2005/O6/O8EQdfFJC 1 85TOO875ROO1500060004-2
25X1
style will be those of a pragmatic businessman,
not those of a demagogue or ideologue. Perez is
unencumbered with the ideological baggage of his
Social Christian predecessor, and he senses no
practical or political advantage in joining the
ranks of Yankee-baiters. He has gone along with
Caldera's decision to take a percentage of oil
royalties in kind, but has passed up opportunities
to threaten a forced lowering of production
during the oil crisis. In essence, Perez has no basic
disposition to be an adversary in relations with
the US, with which Venezuela-and his party par-
ticularly-has enjoyed cordial ties for a long time.
Yet Perez has expressed dissatisfaction over
what he sees as disequilibrium in US-Venezuelan
relations. Venezuela, he believes, should receive
more from the US in exchange for being a de-
pendable supplier of oil-more, that is, than high
prices and an assured market. Specifically, Perez
hopes to achieve:
? the removal of trade barriers to non-
traditional exports that he hopes to develop,
such as metal products, chemicals, and petro-
chemicals;
? assured adequate supplies of industrial
raw materials and agricultural products (cot-
ton, black beans, wheat, soybeans, pulp and
newsprint, synthetic fibers, stainless steel, fer-
rous scrap, and equipment such as farm
machinery-all of which are in short supply
world-wide) ;
? technical and managerial assistance for
development projects at reasonable prices.
Perez will probably be most interested in
negotiating the general terms of an over-all eco-
nomic agreement that includes oil, trade, tariffs,
and other pertinent fields. He will be hesitant to
negotiate a government-to-government agreement
based strictly on oil, having already expressed his
concern about the pitfalls of such an agreement.
He will want to keep fairly open the range of
options he has in such matters as the nationaliza-
tion of the oil industry, a goal Venezuelans in
general want to achieve during the new presiden-
tial term rather than in 1983, as now officially
scheduled to begin. As a first step, Perez report-
edly plans to set up an autonomous government
organization that will be responsible for planning
and managing the early reversion to Venezuela of
foreign-owned oil companies. The organization
would be a cabinet-level office separate from the
Ministry of Mines and Hydrocarbons, which
would concern itself only with the day-to-day
short-range management of petroleum matters
other than reversion.
Perez is likely to be a tough but not intract-
able bargainer. His hand is strong because he has
both alternative markets for oil and other source,
of investment as well as a huge budgetary leeway
for absorbing the initial losses that would prob-
ably follow any reorientation of Venezuela's mar-
kets and trade relationships. If, despite his prefer-
ence for good relations, he eventually arrived at
an adversary relationship with the US, he could,
with Venezuela's resources, break past ties with
the US without risking an economic crisis. Perez
is confident, however, that the US interest in
continuing good relations with an important
neighbor and in maintaining access to Venezuelan
oil will lead to eventual accommodation to Vene-
zuela's needs.
Venezuela has had oil development and mar-
ket offers from Japar:, Romania, Western Europe,
and Brazil, but the US remains Venezuela's most
attractive economic partner. This partnership is
natural from a geographical standpoint and be-
cause of the history of a long political friendship
during which abundant and varied lines of contact
have developed. Because the great bulk of tech-
nical equipment throughout Venezuela's modern
sector is made in the US, it will be much easier
and less expensive for Venezuela to maintain its
ties with the US than to break them. The fre-
quent consonance of views in international affairs
reinforces the comfortable relationship.
Special Report
February 22, 1974
Approved For Release 2005/06/O:CTA-KDP85TOO875ROO 1500060004-2
 Approved For Release 2005/06/09 CIA-RDP85TOO875ROO 15000600,04-2
SECRET
Current oil production, around 3.2 mil-
lion barrels a day, is about 3 percent above
1972 levels but is very near capacity. Re-
cently tightened conservation restrictions
could reduce 1974 production about 200,000
b/d. Production potential has declined be-
cause of limited exploration; proved reserves
have declined and are now equal to about 11
years' production at current rates. The con-
cession agreements call for reversion of con-
cessions to the state beginning by 1983 with-
out compensation. The net book value of US
investment in the Venezuelan petroleum sec-
tor declined from almost $2 billion in 1960 to
about $1.5 billion in 1972. Drilling activity
was down from 632 wells in 1970 to 490 in
3972, and of these only 64 were exploratory.
Petroleum generates about one fifth of
GNP, two thirds of government revenues, and
90 percent of export earnings. Revenues from
oil have risen from $1.8 billion in 1972 to an
estimated $2.8 billion in 1973. For the cur-
rent year, revenues could reach $8-11 billion.
In 1973, the government's budget amounted
to only $3.4 billion.
Development of the Orinoco Tar Belt,
which contains an estimated 700 billion bar-
rels of heavy oil (of which about 10 percent is
recoverable under current technology) will re- '[
quire estimated outlays of $4-6 billion to de-
velop production of one million barrels derail
and to acquire complex new technoloQV.l
 25X1 Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2
Approved For Release 2005/06/09 : CIA-RDP85T00875R001500060004-2