Chavista mismanagement (and thieving) has left Venezuela with a $2 billion oil shortfall on its contracts. The country literally DOES NOT HAVE ENOUGH OIL to supply all the nations it’s signed contracts with to supply. Therefore, it’s buying $2 billion in oil from Russia to avoid penalties, not the least of which is its claim to be an important oil superpower.

It’s nothing to be surprised about, given that socialism ALWAYS produces shortages. That’s been a lesson to the world for about 80 years. The example this travesty parallels most closely is from 30 years ago, when the Soviet Union, which had been a breadbasket under the Russian czars, was driven by shortages to purchase U.S. wheat. Communism produces the same result no matter how many ways you try it. And insanity is doing the same thing over and over and expecting a different result. That brings us back to Hugo Chavez.

I know dense people who still believe that oil production has not fallen in Venezuela. They claim it has too much oil and oil companies investing there will pay any price to get it. As noble Exxon Mobil has shown, they will not. There are limits to how much rubbish they can take from dictators because they must answer to shareholders and cannot show losses. Unlike Chavez, they are accountable.

Oil to Chavez is not an important resource with potential for creating value, to be treated with attentiveness through the cycles of investment, production and maintenance. Instead, oil, to him, is something that comes out of the ground on his command. It’s a bottomless commodity whose chief purpose is his own aggrandisement.

That’s led to many harsh measures on the producers of oil, whom he dubs “robbers.” He’s killed incentive to produce by firing the state oil company’s talented staff, by breaking contracts with western oil companies who invest there – forcing them into joint ventures which are nothing more than workers’ collectives. He’s rendered the state oil company intransparent, closing all of its books to the public and creating a petri dish for corruption.

That’s been killing oil production to the point of oil shortages in the oil giant. Oil production is down 60% from the pre-Chavez days. Sixty stinking percent! Venezuela is the only OPEC member besides Indonesia that is now producing below quota, what should be a sign to everyohe that Chavez’s rape-and-pillage philosophy toward Venezuela’s oil resources is literally destroying its productive capacity.

If Chavez would stop giving his nation’s oil away like cheap party favors, as he does for Fidel Castro’s no-pay dictatorship in Cuba, his country could probably produce enough oil for its customers in the short term.

Now Venezuela has run out of oil and must pay $2 billion to buy it abroad. Will there be any accountability for this squandering of the national treasure? Of course not. The ballot boxes are rigged. But the rest of the world can look on in scorn as another figurative breadbasket endures its period of starvation under communism. We’ve seen this movie before.

Andy Webb-Vidal at the Financial Times has the story here.

Venezuela buys Russian oil to avoid defaulting on deals

By Andy Webb-Vidal in Caracas
Published: April 28 2006 03:00 ö Last updated: April 28 2006 03:00

Venezuela, the world’s fifth-largest oil exporter, has struck a $2bn deal to buy about 100,000 barrels a day of crude oil from Russia until the end of the year.

Venezuela has been forced to turn to an outside source to avoid defaulting on contracts with “clients” and “third parties” as it faces a shortfall in production, according to a person familiar with the deal. Venezuela could incur penalties if it fails to meet its supply contracts.

Documentation obtained by the Financial Times shows that the state-owned Petr????leos de Venezuela (PDVSA) made a financing arrangement this month with investment bank ABN Amro to facilitate the purchases of oil from Russia via Rotterdam.

PDVSA is believed to have dropped the Dutch bank after the Russian government agreed to provide Venezuela with an “open account” facility to buy the oil.

The Ruhr Oel refinery in Germany, in which PDVSA has a50 per cent stake, may be among the clients that are being supplied with the Russian oil.

PDVSA would not confirm yesterday that it was buying oil from Russia but said a statement would be issued today. The company said it would be “logical” that the Ruhr refinery was sourcing some of its oil from Russia because it would be cheaper than transporting it from Venezuela.

One US trader who deals in Venezuelan oil agreed, saying: “We have been expecting PDVSA to start buying Äoil from theÅ Urals for the Veba system for some time. It is possible that they are trying to buy directly from Russian producers.”

The move suggests a growing gap between Venezuela’s declining domestic output and its expanding contractual obligations to international customers.

Luis Pacheco, a former planning director of PDVSA, said: “Why would Venezuela be buying crude oil from Russia? I would imagine it would be to meet obligations for light oil deliveries, but they are relatively small. Most of PDVSA’s obligations are for heavy oil.”

Under President Hugo Ch????vez, PDVSA’s oil output has declined by about 60 per cent, a trend analysts say has accelerated in the past year because of poor technical management.

Mr Ch????vez’s push to extend his influence throughout Latin America and the Caribbean with promises of cheap oil for friends and allies may be overstretching PDVSA’s finances, however.

Venezuela currently supplies about 300,000 barrels per day of oil and products to Cuba, Nicaragua and others under favourable long-term financing arrangements.

This week, Venezuela signed a deal to send oil to town mayors in Nicaragua aligned with the leftwing Sandinista party.

UPDATE: Academic Elephant puts it much more eloquently than I here.

UPDATE: Miguel at Devil’s Excrement has an excellent discussion in the comments section on this matter here.

UPDATE: Although I do not agree with the article’s suggestion of peak oil, most of the rest of this new article is very good here.