The Downward Slide

With oil prices falling precipitously, thanks to fears of a worldwide recession and a resurgent US dollar, those who were banking on petrodollars to fund their precious utopias now find themselves facing the prospect of bitter economic realities according to the New York Times.

[Venezuelan President Hugo] Chávez was emphatic last month when he announced that Venezuela would engage in naval exercises with the Russian Navy in the Caribbean. “Go ahead and squeal, Yanquis,” he said. “Russia’s naval fleet is welcome here.”

The moment, made possible in part by a flood of petrodollars used to buy Russian weaponry, must have been sweet for a man who has spent his presidency wagging his finger at the United States and railing against its capitalist model. Cozying up to Russia, whose leaders have been increasingly at odds with the United States, evoked cold war rivalries in the hemisphere.

Mr. Chávez has also used his oil money — in direct payments and through subsidized oil shipments — to win friends in the hemisphere and elsewhere, including President Evo Morales of Bolivia, who expelled the United States ambassador in La Paz last month, saying the envoy was involved in plotting a coup.

Domestic spending in Venezuela has also surged, through the creation of a wide array of social welfare programs that furthered Mr. Chávez’s goal of building a socialist-inspired state — and suppressed opposition. The 2009 budget, based on $60-a-barrel oil, includes a 23 percent increase in government spending, to $78.9 billion.

At $140 a barrel for oil, that was conservative. With prices now uncomfortably close to $60 a barrel, economists in Venezuela are expressing alarm over the government’s ability to pay its bills, including those for arms purchases.

Venezuelans are already struggling with an inflation rate of 36 percent, one of the highest in the world.

Venezuela, that prime exemplar of the wonders of socialism, didn't even get to benefit as much as it might have from $140 per barrel oil since its overall oil output has fallen by a quarter under Chavez's beneficent management.

According to the Timesarticle, Iran and Russia, who have exploited high oil prices to push foreign agendas are also likely to feel the pinch of reduced revenues as oil falls, though both are better positioned than Venezuela to deal with the fall out.