Jeff Reardon
March 29, 13
International Business
Final Paper-The Oil Industry

One of the most valuable natural resources in the world is oil. To the United States this resource provides our homes with heat, gives us means of transportation, and is even used (at a smaller percentage) to support electrical needs. Two thirds of the oil that the United States use goes towards fueling our cars, delivery trucks, and our planes as well. We also have found that we can use oil for lubricants and to create plastics as well. The value of this resource is critical to have and that is why there is a constant look for where to get it and at a fair price. We tend to go to Venezuela, Saudi Arabia, Canada, and Mexico. The chart below shows how the United States consumes oil each year. Venezuela is a very large supplier to the United States for oil. They are blessed with many oil reserves, so many that they could cover Saudi Arabia with oil barrels. They are also very close to our (North America) market. This means they have the largest oil industry as well as close access to one of the most needy markets in the world as well. According to the an article from the textbook, “an estimated 30% of its GDP, 55% of government revenues, and 95% of its exports are related to oil products.” Forbes magazine stated that, “In 2011 the U.S imported about 350 million barrels of oil from Venezuela.” That is a substantial amount of this resource and because of the prices we get from Venezuela that is why we go to other places first. The fact that Venezuela has that much business from oil shows that they have a lot of control over the price in the oil industry. They can basically say they are responsible for millions and maybe even billions of peoples heat in their homes. The oil they have is said to be thick and does not flow easily which means it is expensive to produce. The profit margins are huge for potential price control when distributing to the demanding market. Even though the industry has declined from 3.3 million barrels per day to 2.23 million revenues have been hurt by deals that Venezuelan President Chavez has mad to promote his domestic and foreign agendas. Chavez traded oil to the Cubans for security and free medical care to the poorer parts of Venezuela. Although that has impacted their oil revenue it is a smarter move because he is attempting to take what they have a surplus of (oil) and create a better lifestyle and living environment for the poor. However he has also been known to use his political power to punish any firms that stand in the way of his goals. This can effect his nation by getting shut out of trading, because although Venezuela has a vast supply of oil, that’s not the only place in the world that contains that valuable natural resource. During Chavez’ Presidential terms he has seen oil production decline by approximately 25%. Venezuela’s oil industry was under private control until they nationalized it in 1974. In the 1990’s the PDVSA held an “oil opening” which let multiple private companies extract oil, which then led to majority shares in joint ventures and the operating agreements. The world’s largest reserves of heavy oil are located in the Orinoco Oil Belt. The joint ventures include Exxon Mobil, Chevron Texaco, Statoil, Conoco Phillips, and BP. Together they share a 60% stake (at minimum) no matter what other foreign investors try to pay. They want to control the prices of oil and gas and by doing this and banding together, they have to power and ability to do so. If Venezuela wants to keep the United States as a constant buyer of oil they need to end their anti-American ways. We are 40% of their sales each year and that is after we use our own oil, as well as get it from other places as previously mentioned. Venezuela produces between 2.5 and 3 million barrels of oil a day. If Venezuela wishes to keep selling that and making profit they should realistically rethink about their pricing. My advice would be