370. Ambassador’s Overview, Country Analysis and Strategy Paper1

Venezuela is important to the United States as the source of 40% of U.S. oil imports; as the third largest market for U.S. exports in Latin America and the 11th largest in the world; as a host for almost $3 billion in U.S. private investment; as a major supplier of iron ore; and as the locale of the most economic large resource of unexploited petroleum in the Hemisphere.

In the petroleum field there has been some easing of tensions since the early 1971 period when an atmosphere of confrontation existed between the Venezuelan Government and the oil companies over greatly increased taxes and tough new controls designed to force the companies to maintain high levels of production, exports and investment. Tension had also resulted from Government charges that lower levels of output were designed to punish Venezuela for its nationalistic oil policies. Negotiations on trade and petroleum matters authorized by President Nixon have done much to ease these tensions. The more important elements of the U.S.-Venezuela Trade Agreement which Venezuela denounced New Year’s Day 1972 have been preserved by an exchange of Notes. Hopefully after the elections December 9, 1973, an energy agreement can be concluded between the two governments under which development of the Orinoco Petroleum Belt oil resources can be carried out. However, the potential for conflict arising from Venezuela’s desire to increase its control over, and income from, its natural resources, while less serious than last year, still exists.

Venezuelan entry into the Andean Pact could threaten existing and future U.S. investment and disrupt normal patterns of imports of particular commodities. The new ad valorem tariff schedule, which will require repeated changes to correct deficiencies and to track with arrangements with the Pact, is another imponderable for future U.S./Venezuelan trade and investment, as are Venezuela’s interpretation [Page 990] of Pact Decision 24, domestic legislation on foreign investment, and growing competition from Japan and Europe. Yet there are still substantial opportunities for investment in and trade with Venezuela in the next five years. On balance of payments account, much of U.S. dollar outgo for purchase of Venezuelan oil is compensated by U.S. profit remittances and almost a billion dollars of annual U.S. exports to Venezuela.

Politically the December 1973 elections will almost certainly proceed normally and either COPEI or Acción Democrática will win. Neither, however, will gain a majority and whoever wins will have to govern on the sufferance of the other. Nationalism will remain an irritant to relations between the two countries, but it should not be any more of a problem in the near term than it has to date, no matter which party wins. In the long term Venezuela is facing social and economic pressures which, in the next five years, could juxtapose severe societal strains with an economic downturn. If this occurs there is a possibility of drastic changes in the domestic picture, with concomitant effects on relations between our two countries. Aside from the uncertainty this entails, such a threat to the democratic system here would be of concern; as one of the few working democracies in South America, Venezuela in its attempt to operate a stable, free government merits our sympathy and support.

Venezuela’s fast-evolving foreign policy of unity and integration with the countries of South America, her loosening of the formerly extremely close ties with the United States, her interest in Europe, and her desire for leadership in the Caribbean will probably continue whoever wins the election; the “Betancourt Doctrine” is probably gone for good. Venezuela’s moderate Law of the Sea positions and her apparently successful attempt to gain the adherence of both the “Santo Domingo Group” and the respectful attention of the “Montevideo Group” will in the long run be of benefit to the U.S. Venezuela may become the bridge between the 12-mile countries and the 200-mile group. The Venezuelan Government is still a strong supporter of the UN and OAS. It has attempted to seek a lifting of OAS sanctions against Cuba. Such steps will probably be accompanied by a process of reestablishment of trade relations, probably involving petroleum, with formal diplomatic relations likely, no matter which party wins. We do not foresee a settlement of the highly complex continental shelf boundary dispute with Colombia until after the 1974 Colombian elections. Tensions between the two countries over this problem will continue until some interim or long-term agreement is reached. Continental shelf negotiations with the Netherlands Antilles will begin after the elections but will probably go nowhere until a settlement with Colombia is reached. The dispute with Guyana will remain quiescent. A major [Page 991] discovery of petroleum by this country or others in disputed territory could, of course, drastically change this generally optimistic picture.

As in the past, the economic relationships of the two countries will in the future be of paramount importance, as the United States confronts a growing need for energy and as the psychology of nationalism and a seller’s market in petroleum put increased pressures on the large American investment portfolio in this country. It will be necessary for the United States, keeping these three factors firmly in mind, to avoid being overly sensitive to nationalist rhetoric which in months and years to come will continue to be used by Venezuelans to demonstrate their credentials for leadership in this continent. We should concentrate on enhancing and increasing the surprisingly large deposit of friendship and respect for the U.S. which still exists in Venezuela.

Robert McClintock
  1. Summary: The Ambassador’s overview of U.S. interests in Venezuela focused on trade, in particular petroleum. In addition, the Ambassador noted that Venezuela’s foreign policy would become more oriented towards Latin America and Europe, and less towards the United States.

    Source: National Archives, RG 59, Central Files, 1970–1973, POL 1 VEN–US. Secret. Drafted by Cox on March 14; cleared by Luers, McClintock, and the CT; approved by Devine. Sent as an enclosure to Airgram A–143 from Caracas, March 18, 1973.