05/08/2006 06:36 am ET | Updated May 25, 2011

Straight Talk About Oil From Venezuela's Hugo Chavez

Venezuelan President Hugo Chavez has surely been a thorn in the side of the Bush administration and western oil companies. But there's this to be said in his favor: However hostile he may be, what he says is honest; at least we know where he stands. Compared to the suave, hypocritical double-talk we hear from our "friends" in Saudi Arabia, Chavez's billingsgate is oddly refreshing.

With oil selling at well over $70 a barrel, thanks to the manipulations of the world oil cartel and its oil patch cronies, both Venezuela and the Saudis are sitting comfortably in what Red Barber used to call the catbird seat. In fact, Venezuela may be taking the lead in the OPEC cartel. It has vast reserves of "heavy oil" -- deposits so thick and tarry that the crude oil needs extensive processing before it can be refined -- and, at these prices, that oil can now be counted in the country's proved reserves. Added to 80 billion barrels of conventional oil, that brings Venezuela's total reserves to 316 billion barrels (greater than the purported reserves of Saudi Arabia's 261 billion barrels). And Venezuela is gulping in oil income of more than $200 million a day, half of it from exports to the United States.

Characteristically, Chavez has been putting his mouth where his money is. He warns that he will cut off oil supplies to the States unless we stop undermining him, and that if we try to invade Venezuela, Americans will die, and we still won't get any oil. He spews contempt for Secretary of State Condoleezza Rice, whom he calls an "imperial lady." In a press interview not long ago, he sent a street-lingo blast he has not -- so far -- uttered to her face: "Don't mess with me, girl."

Chavez is also forcing Western companies in Venezuela to tear up their old concession contracts and accept new terms far more favorable to Venezuela. Most recently, in a move that oilmen see as a step toward outright nationalization of the industry, he proposed to seize majority control of four huge heavy-oil projects, and added insult to injury by nearly doubling royalties on heavy oil and raising taxes on whatever profit remains. Conoco-Phillips alone estimated that Chavez's new rules would cost it $4 billion over the life of its contract. But the companies don't have much choice; not long ago, Chavez seized oil fields outright from France's Total and Italy's Eni when they refused to play by his new rules -- and he won't pay any compensation.

In sharp contrast, the Saudis are always affable and soothing. King Abdullah assures us repeatedly that his country wants nothing more than world prosperity and stable oil prices, and stands "willing and ready" to pump any amount of oil "needed to stabilize the world oil market" even as prices leap forward. The long-time Saudi oil minister, Ali al-Naimi, reaffirms that the kingdom is "keen to ensure a balance between supply and demand . . . so that producers benefit and consumers do not lose." If prices keep rising, Naimi asserts, it's never OPEC's doing. He blames speculators, the fear factor, or consumers for not building enough refineries.

But all this is bullderdash. Over the past two years, the Saudis' vaunted "stability" has meant more than doubling the crude-oil price -- and at nearly every step, the Saudi soothing syrup has proved to be snake oil. In December of 2004, for instance, with the price at $42/bbl, Naimi assured reporters that OPEC's "target range" of $22 to $28 a barrel was still in force. Then, instead of pushing for an increase in the cartel's output that would have driven the price down to the targeted ceiling, Naimi called for an outright cut in production of 1 million barrels a day -- an action that could only force still higher prices.

Sure enough, in fits and starts, the price kept rising. And when Chavez and other OPEC leaders called for a target price range of $50 to $60, only the most muted objections were heard from the Saudis. It was good public relations and nothing much more given the clout they could have brought to bear.

It's worth repeating that Naimi himself has said it costs only $1.50 a barrel (and probably less) to pump Saudi Arabia's oil. Every nickel we pay above that is pure gravy -- money extorted from us that we could be spending for other needs, and in poorer countries for the staples of life itself. I know they are entitled to a reasonable profit, but margins over 4,500 percent at today's prices for crude -- yes, more than four thousand five hundred percent!.

Sure, Hugo Chavez is a menace and a royal pain. But at least he's open about it. With friends like the Saudis