Red Tide Rising

According to an article in the Los Angeles Times, "Venezuelan President Hugo Chavez claimed 'total control' of four oil ventures run by foreign companies -- a move that would threaten investments in those projects by U.S. oil giants Chevron Corp., ConocoPhillips, Exxon Mobil Corp. and others." The daily output of the ventures that Chavez nationalized as part of this edict represent 600,000 barrels of oil. This announcement builds upon other businesses Chavez has nationalized since coming to power, including the now state-run oil company. It also builds on Bolivia's recent announcement nationalizing previously for-profit energy businesses.

The red tide sweeping across Latin American is something that all companies with supply and investment relationships in the region need to consider. It is likely to continue and carry over to other countries a well, especially as Chavez provides further economic assistance to garner favor with fellow left-wing leaders throughout the region. Considering these actions, it is now just as critical to consider the political and macro-economic risks relative to regions and countries as it is to consider individual supplier operational and financial viability and stability when looking at supply risk management. Given that the US government has its hands full with Iraq, Iran, and North Korea at the moment, it is unlikely to intervene -- outside of some wrist slapping -- to preserve free markets in our own back yard. Perhaps the next US President will take a more active military and economic role in the region, but I would argue that we're unlikely to see the Bush administration heed the calls of private businesses to preserve their supplier and financial investments in South and Central America anytime soon. Hopefully, I'll be proved wrong, but in the meantime, it's critical to prepare for a new red tide.

Jason Busch

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