Venezuela Colombia Diplomatic Thaw: The Story of a Pipeline

Venezuela Colombia Diplomatic Thaw: The Story of a Pipeline

Venezuela and Colombia, two neighbors critical to the global oil balance that raised the specter of war in South America only a couple of years ago, recently reaffirmed their commitment to build a cross-border pipeline, on top of their increasing energy cooperation.

The endgame, which apparently is a question of time, is an $8 billion, cross-border pipeline able to carry 600,000 barrel per day of heavy crude from both countries to Colombia’s Pacific coast and onto Asia, bypassing the Panama Canal.

“We are looking with a lot of interest at the intention of the government and authorities of the People”s Republic of China to be part of this initiative,” Colombia’s Energy Minister Mauricio C’ardenas said last month after meeting his counterpart.
The pipeline would connect Venezuela’s Orinoco Belt, which holds most of the continent’s unexplored oil, with a port in Tumaco, on Colombia’s coast. Each country would contribute half of the crude’s capacity. Both countries would benefit from the Asian export outlet to further expand their industries and government income.

The exact layout won’t be ready before the end of the year, both governments said, but it’s based on a 2000 mile proposal that dates back to 2006, when political disputes wrenched the project.

Indeed, the geopolitical history of this pipeline is fraught with saber-rattling, terrorism, and brinkmanship between the two strategically placed countries, and diplomatic forays involving the United States, Russia, and China. But its future is filled with expectation and optimism, to the point of stirring concern.

Ch’avez needs that pipeline. The US, which buys most of Venezuela’s oil, is gradually decreasing imports, a trend that will increase into the future, with or without Ch’avez. It’s a question of a shifting trend in internal demand.

On the other hand, China has lent Venezuela $30 billion that will mostly be paid with long-term oil supplies. Its companies have also signed deals worth $40 billion to develop and eventually produce 800,000 bpd, most from the Orinoco Belt. Ch’avez has promised to double current exports of 460,000 bpd to China, but he needs the pipeline for that.

China, of course, is happy to underwrite the new pipeline project, not only because it would buy most of the oil, but also because its construction will spur even more exploration and production from both countries that lack enough pipeline infrastructure.

On top of the pipeline, Colombia’s state oil company Ecopetrol agreed to join Venezuela’s PDVSA in venture to explore four fields, targeting to increase current production of 40,000 to 100,000 bpd. The two also agreed to study other ventures to export natural gas to Central America by extending a pipeline that already connect both countries.

The turnaround

Few expected this good will though. What changed was Colombia’s leadership. During most of last decade, relations between the two “brotherly” nations were schizophrenic at best, but mostly poisonous. Colombian President Alvaro Uribe and Hugo Ch’avez of Venezuela were the mirror images of each other.

Both were populists who rose to power democratically on the promise of drastic changes in their countries, except their visions were diametrically opposed politically, diplomatically, and economically. Uribe was America’s sweetheart and poster child, and Ch’avez was the nemesis and stood for all the wrong things.

The two were at each other’s throat. Ch’avez saw Colombia as opening the door to a US invasion to depose him, and Colombia saw Venezuela as a shelter for Colombian guerrillas waging a violent war against the government.

In August of 2010, Juan Manuel Santos replaced Uribe, who had failed to gain court approval for a third consecutive presidential term that bordered on authoritarian. Santos quickly moved to completely overhaul the country’s foreign policy.

Santos had inherited what amounted to a trade embargo with Venezuela, saber rattling in Ecuador, few friends in the rest of Latin America, and only conditional support from the United States. There was talk of a regional arms race and warmongering. Colombia lost a market worth 20 percent of its exports in 2008 and Colombian guerrillas were exploiting bilateral frictions to their benefit.

“Yes, [relation with Venezuela] were not almost at an end; they were at an end. We had no diplomatic relations, no trade. The only discussions we had were through the media and we were talking about war, which is inconceivable. So I decided to have cordial and cooperative relations not just with Venezuela, but also with Ecuador, a country with which we also had no relations. What we decided is that it is in our interest to have a region that is not on the verge of war,” Santos said in August 2011.

Only three days after taking office, Santos reestablished relations that Ch’avez had severed under Uribe. The Venezuelan leader agreed to deny Colombian illegal armies use of his territory and to reactivate commerce. Colombia agreed not to interfere in Venezuela affairs. And Santos agreed to reconsider a building a pipeline to the Pacific.

Santos dropped a military deal with the US signed by his predecessor that he had drafted as defense minister. By the end of November 2010, Colombia also reestablished relation with Ecuador, a Bolivarian country, with the mediation of Ch’avez. By then Santos had visited Brazil and Argentina, mending tense ties with the two. In less than four months, Colombia had turned back almost a decade of diplomatic setbacks with the rest of Latin America.

Ch’avez in return is paying back Venezuela’s debt to Colombian exporters of around $1.4 billion and signed what amounts to preferential treatment of Colombian exports, an FTA of sorts. Around 90 percent of Colombian exports will enter Venezuela duty free. Colombia also extended a natural gas export deal vital to Venezuela.

To be sure, regardless of what Ch’avez does in the future, Colombia has already won. Bilateral ties historically have been mostly one-sided in favor of Venezuela. But Venezuela’s economic prosperity, as conceived by Ch’avez, transits through Colombia. Ch’avez needs to increase oil production and to send it to Asia, and Colombia is critical to both goals. Venezuela needs natural gas from Colombia and the pipeline.

By intertwining the destinies of Colombia and Venezuela through bilateral commerce, gas exports, or pipeline interconnections, Santos seeks to balance relations, to make it more costly for Ch’avez to threaten Colombia in the future. Santos already won the moral upper hand too. If Ch’avez decides to break the deal after the elections or further in the future, his standing in the rest of Latin America would suffer.

By confronting Ch’avez, Colombia and the United States lost almost all leverage over him. At the height of the bilateral impasse, Ch’avez had little at stake and Colombia on the other hand stood to lose all security gains as long as Venezuela ignored the presence of guerrillas its territory.

Santos correctly concluded that Colombia’s best interest would be served by balancing relations and mutual interests with Venezuela, while strengthening ties to the rest of Latin America and the United States.

© 2013 Energy Tribune

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