Markos Kounalakis

Caracas and cars, energy and democracy

Members of a pro-government “colectivo,” or “collective,” march in downtown Caracas, Venezuela, this year. President Nicolas Maduro and his supporters say the escalating protests against his socialist government in the oil-rich but economically struggling country are part of an attempted coup.
Members of a pro-government “colectivo,” or “collective,” march in downtown Caracas, Venezuela, this year. President Nicolas Maduro and his supporters say the escalating protests against his socialist government in the oil-rich but economically struggling country are part of an attempted coup. Associated Press file

Driving up to the gas pump these days is not as frightening as it was just a year ago. Prices are not down to my childhood 49 cents a gallon, but today’s petrol has dropped significantly from the heart-stopping hundred dollar SUV fill-ups.

That is good news for American commuters, with the extra buck or two of savings possibly going toward holiday gift spending. But this good news for U.S. consumers is bad news for countries and governments that rely heavily on high prices for gas exports to pad their leaders’ slush funds or pay their nations’ bills.

Russia is an obvious loser in this game, with about two-thirds of its economy depending on oil exports and high prices. Under sanctions for its Ukraine adventure and Crimean annexation and facing a seemingly unstoppable slide in the value of its ruble currency, Moscow is finally paying a heavy price for both its military aggression and its overreliance on global energy demand.

When gas prices sink, Moscow cuts cheap energy deals to lock in remaining markets and keep some cash coming in, as it recently did with China. But Russia’s national reverse cash flow and limited borrowing ability ultimately cost the average citizen, whether a babushka buying borscht or a Vladivostok longshoreman paying his vodka tab. Putin’s popularity is bound to suffer.

Next on the list of losers is a founding nation of the cartel that embargoed oil and manipulated the 1973 U.S. oil crisis. Venezuela established the Organization of Petroleum Exporting Countries in 1960 with the goal of controlling and capitalizing on the world’s bubbling crude.

Fast-forward to 2014 and it is now payback time. With the U.S. now energy independent and sitting atop vast untapped reserves, America’s new energy reality is the Venezuelan leader’s nightmare.

Venezuela’s President Nicolas Maduro is already facing street protests as he watches oil prices continue to sink and with them his long-term political prospects. For years, the anti-American, leftist Caracas governments of Presidents Hugo Chávez and Maduro have used oil revenue to buy off its people, securing electoral victories through a combination of populist politics, charismatic leadership and some redistribution of the state coffers.

The unwritten Venezuelan compact was that the people would accept the payoff from the erstwhile revolutionary government in exchange for allowing government corruption and incompetence to go unchecked. Venezuela, despite its oil money and vast reserves, is an impoverished nation, a country political scientists identify as suffering the “resource curse.”

The “curse” is corruption bred by state control of valuable natural resources. Not all states are subject to the curse. Norway has plenty of oil, but has a healthy, growing economy, government transparency and democracy. It experiences the “resource blessing.”

Cursed Venezuela, however, hides its inefficiencies and feeds its inequalities with the world’s addiction to previously expensive oil. To balance its budget, Caracas needs to sell oil at $117.50 per barrel on world markets. Today, the price floats around $70. Cash starved and with 60 percent annual inflation at home, Maduro is jailing the opposition and stifling protest. Internationally, Venezuela implores OPEC to slow down production and supply, and bring prices back up. The Saudis said “no” and have suddenly aligned with America’s energy policy to further hurt Venezuela’s leaders.

If Ashton Carter is confirmed as the next U.S. secretary of defense, he will enter office with one of the greatest strategic weapons in the renewed American arsenal: U.S. oil production and pricing power. America’s current energy policy will increase negotiating pressure on Iran, punish Russian aggression and encourage popular democratic movements in Venezuela.

And what hurts our adversaries, in this case, helps our allies. Low energy costs should jolt stagnant European and Japanese economies into growth.

California is also a grand beneficiary. The state should accelerate exploitation of its multiple resource blessings. What are those blessings?

Innovation, conservation and exploration.

California represents the best of America’s open, free and innovative culture. It is on the forefront of developing fossil fuel-free transportation options and cars that can drive quicker, closer and even by themselves.

The state’s civic and political leadership is committed to energy conservation. Economic growth and environmental savings will come as a result of – not despite – reduced carbon emissions and improved fuel efficiencies.

Finally, and perhaps most controversially, the nation is still at the start of its renewed exploration of multiple and innovative energy resources, whether renewables from the atom, land, sun, sea or wind, or the in-ground energy and oil reserves that sit yet untapped. All of them need to be developed cautiously and carefully, with environmental sensitivity and respect, but they all need to be part of America’s energy future.

Energy innovation, conservation and exploration at home will keep oil prices down and should be the fuel that ignites democratic movements and burns corrupt hands around the world. Fifty bucks a barrel should work.

Markos Kounalakis is a research fellow at Central European University and a visiting fellow at the Hoover Institution. Contact him at markos@stanford.edu and follow him on Twitter @KounalakisM.

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