682. National Intelligence Estimate 89–72, Washington, October 19, 1972.1 2

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[Omitted here is a map of Venezuela.]

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VENEZUELA: THE POLITICS OF OIL

CONCLUSIONS

A. Venezuela, whose modernization was launched and sustained by oil, has become concerned about its future development. The high price of Venezuelan oil on the world market -- a result of government demands for ever-larger shares of the profits of the oil companies -- and a virtual standstill on exploration of new fields have slowed the growth in oil production and revenues and, as a consequence, the pace of economic development over the past decade. Because of the slowdown in growth and a new sense of nationalism, the Venezuelan government has adopted a tougher stance towards the companies and is making stronger demands for a larger share of the rapidly expanding US oil market.

B. Despite persisting social problems, stemming in part from maldistribution of Venezuela’s oil riches, one of the two major center parties, AD or COPEI, seems likely to win the presidential election in December 1973 and to perpetuate the country’s generally moderate political course through the next presidential term 1974–1979. Emerging anti-establishment parties are seeking to radicalize the nationalist mood. But the leaders of the country’s sizable business sectors are exerting strong counterpressures; and the military, though not directly involved in the political scene, remain a strong force for moderation.

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C. The major parties cannot ignore rising nationalist pressures. But neither can they overlook the need for cooperation with the US and the oil companies to guarantee the markets and capital required for steady national development. AD and COPEI have recently agreed to try to keep the touchy issue of oil on the side lines in the coming political campaign, and the government has adopted a more prudent attitude in dealing with the companies and the US on oil. This more accommodating approach is encouraged by recent US proposals for a long-term treaty that would provide the Venezuelans with continuing high revenues, large new amounts of foreign investment, and a secure US market. At the same time the treaty would extend to the companies financial incentives and guarantees to explore and exploit new deposits believed to be large enough to provide the US with a reliable source of oil to help meet rising energy demands.

D. Radical or opportunistic politicians are likely to continue to exploit aspects of the oil problem for partisan purposes, and negotiations for an energy agreement will be complicated and delicate. If the negotiations become stalled or are abandoned over the coming year, we would expect a new government squeeze on the companies, leading to a further slowdown in production and possibly a phase-out by one or more of the companies. In such circumstances there would be considerable pressures to give vent to popular nationalist feelings against the oil companies. Another conflict with the companies could touch off anti-US incidents in the country and lead to a crisis in Venezuelan-US relations generally.

E. The prospects now seem good, however, for completion of a treaty during 1974 after the new Venezuelan administration takes office, which will meet the essential long-range requirements of Venezuela, the US, and the companies. The favorable negotiating climate reflects in part the concerns of Venezuelan political leaders about declining proved reserves and their efforts to work out a common petroleum policy.

F. Once in force, the treaty will be subject to continuing nationalist pressures. In the event a rightist regime, e.g., one headed by Perez Jimenez, came to power in 1979, we would expect that it would abide by the agreement, as long as it provided the income required to sustain economic growth and did not hinder nationalist aspirations in [Page 4] other directions. A radical leftist victory in 1978, on the other hand, would probably lead to pressures for major revision of the treaty to maximize Venezuela’s advantage over the companies. The country’s continuing need for oil revenues and access to the US market, and strong moderating influences from centrist political forces and from the military might, in the end, impel the government to try to work out new arrangements to permit continued operations by the companies. But in the absence of new mutually acceptable arrangements, prolonged and acrimonious conflict between the government and the companies would have a serious adverse impact on the Venezuelan economy, further inflame Venezuelan nationalist passions, and create a major crisis in US-Venezuelan relations. These developments could produce a showdown between moderate and radical forces and strong pressures for intervention by the military.

G. We believe, however, that the considerable advantages that would become available to Venezuela under a long-term energy agreement with the US would enhance the prospects for a centrist party to win the 1978 elections and thus reduce the chances for the above contingencies. While even a moderate government would seek periodic modifications in Venezuela’s favor, there is a good chance that under such a government the treaty would continue to hold up at least through the presidential term of 1979–1984.

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[Omitted here is the Discussion.]

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 361, Subject Files, National Intelligence Estimates. Secret; Controlled Dissem. The Central Intelligence Agency and the intelligence organizations of the Departments of State, Defense, Treasury, and the NSA participated in the preparation of this estimate. The Director of CIA submitted this estimate with the concurrence of all members of the USIB except the representative of the FBI who abstained on the grounds that it was outside its jurisdiction.
  2. This estimate concluded that, because Venezuelan leaders were concerned about declining oil reserves, Venezuela would probably agree to a long-term United States-Venezuelan treaty on petroleum which would meet the needs of the petroleum companies, and both nations.