Venezuela-Libya Ties Coming to the Surface

Summary

Sources in the Libyan government confirm that Venezuela's president is seeking a $5 billion loan from Moammar Gadhafi. The request appears to be the first stage of a larger Venezuelan-Libyan relationship, which could include investments in a Cuban refinery and negotiations with a company that may have ties to Russian organized crime.

Analysis

Libyan government sources have confirmed STRATFOR's report earlier this month that Venezuelan President Hugo Chavez requested a $5 billion government-to-government bridge loan from Libyan leader Moammar Gadhafi. The money is needed to avert a financial crisis and help Venezuela's government cover a fiscal deficit estimated to be more than 8 percent of GDP in 2002.

Chavez reportedly sent the request to other OPEC countries, but only Libya agreed to consider it. However, the sources said that instead of loan guarantees or other forms of collateral, Gadhafi wants equity participation in existing or future oil and gas assets owned in Venezuela or internationally by state-owned oil monopoly Petroleos de Venezuela (PDVSA).

The Libyan government has not replied officially to Chavez's request yet, which may be due to the fact that majority foreign ownership of any energy assets in Venezuela is prohibited by law. Also, the book value of PDVSA's European assets is significantly less than $5 billion, and the U.S. government likely would block the sale of any part of U.S. oil company CITGO -- which is entirely owned by PDVSA -- to Libya.

However, sources in the country's military intelligence agency and its oil industry told STRATFOR July 26 that the loan sought by Chavez apparently forms part of a larger evolving commercial and political relationship with Libya. Such ties may include a major joint Venezuelan-Libyan investment in Cuba's Russian-built Cienfuegos refinery, as well as possibly some Libyan participation in major natural gas projects PDVSA has planned in eastern Venezuela.

The Cienfuegos refinery was built during the 1980s with financial and technical help from the former Soviet Union, but it was shut down in 1992 because the facility was technologically obsolete. Several times in the past decade, there have been reports that PDVSA would invest substantial sums in re-engineering and upgrading the refinery's technology.

However, two separate feasibility studies by PDVSA and a private consulting firm concluded that it was not economically or technologically viable to invest any money in the Cuban refinery. There was also a concern at PDVSA that such an investment would sour ties with the United States.

STRATFOR's sources in Caracas say that state-owned Cuba Petroleum Company (CUPET) is participating actively in the Venezuelan-Libyan discussions on possible joint investments in the Cienfuegos refinery. Although the deal does not appear to make much sense economically, both Venezuela and Libya may be pursuing it for political reasons to get closer to the regime of Cuban leader Fidel Castro.

These sources also reported that Crown Resources AG, a Russian-owned crude oil and refined products trading firm, appears to be a direct party to the Cienfuegos talks. The company was known previously as Crown Trade & Finance Limited (also known as the Alfa Group), which was formed in the British Virgin Islands in 1992.

Sources at a multinational law firm with subsidiary offices in Caracas and Moscow told STRATFOR July 26 that Crown Resources, which failed in 2001 to acquire a global commodities trading company owned by recently pardoned U.S. fugitive Marc Rich, allegedly has ties to Russian organized crime. STRATFOR's attempts to speak with the company officials in Caracas, Moscow and its corporate headquarters in Zug, Switzerland, were unsuccessful.

However, Venezuelan sources with longtime ties to Rich said negotiations with Crown Resources ended last year when a due diligence investigation turned up "troubling indications" of links with suspected Russian mobsters. Rich, who fled to Switzerland to avoid tax-evasion charges and was pardoned by former President Bill Clinton in January 2001, may have feared running afoul of legal authorities in the United States and Europe if he closed a deal with the firm.

If the allegations involving Crown Resources are accurate, it would indicate that high-level officials in the Chavez regime are involved not only in questionable loan and investment negotiations with the governments of Libya and Cuba, but also with a company alleged to have ties to some members of Russia's criminal underworld.

Senior Venezuelan government officials believed to be involved in the Cienfuegos talks include PDVSA president Ali Rodriguez and Foreign Minister Roy Chaderton, according to military intelligence and oil industry sources in Caracas. The disclosure that Rodriguez is representing the Chavez regime in the negotiations has caused an uproar at the highest levels within PDVSA.

Company vice president Jorge Kamkoff, a veteran oilman who is widely respected within the oil industry in Venezuela and internationally, has reportedly objected strenuously to undertaking any investments in the Cuban facility.

Kamkoff did not return STRATFOR's calls seeking confirmation of these reports. However, other sources in PDVSA said July 26 that Kamkoff will be forced to retire in weeks or even days and likely will be replaced by Aires Barreto, a naturalized Venezuelan citizen who was born in Goa, India. Barreto reportedly is widely despised within PDVSA because he conducted a purge of veteran middle- and senior-level company managers during the controversial tenure of former PDVSA president Hector Ciavaldini.

STRATFOR's sources in the company also said that the Chavez regime's recent announcement that oil shipments to Cuba would be renewed Aug. 1, plus the disclosure about the possible investment in Cienfuegos, has infuriated many career oil-industry employees and managers. Moreover, their rage is being fanned by what appears to be an intensifying campaign of surveillance and intimidation of PDVSA employees who do not publicly support the Chavez regime's attempts to forge closer commercial and investment relations with Cuba and Libya.

A recent internal company document warns that many PDVSA managers and employees are once again discussing the possibility of staging work slowdowns and possibly even a general strike in the coming weeks, which could shut down Venezuela's oil production and exports and possibly force Chavez out of office a second time after a brief coup earlier this year.

Haven't heard about it. Are they mentioning Libya?

Here's an article from yesterday:

In the cross hairs: Ashcroft resurrecting Marc Rich case?

POOR Denise Rich. Just when she thought the scandal of Bill Clinton pardoning her fugitive husband Marc was behind her, political expediency has brought it all back on the front burner.
The unsavory saga was supposed to have stopped with the resignation of Democrat-appointed Mary Jo White as U.S. Attorney for the Southern District. But suddenly the Republicans need some kind of scandal to divert attention from their Wall Street pals in the lead-up to November's elections.
It didn't take much to convince gung-ho Attorney General John Ashcroft to disinter the Marc Rich case. I understand Ashcroft has ordered White's replacement, rock-ribbed Republican James B. Comey, to run with it.

I wonder if the alleged new interest with Ashcroft comes from new findings about Libya and Venezuela - or something else, post-pardon. In my mind, all stops should have be taken, and certainly there is political vanity in purusing someone linked with Klinton. Well, too bad. :)

Stratfor has had good articles on Venezuela and Libya. Certainly there are many in Venezuela who want to spill out info, to them or Brit Intelligence, whomever. Unclear to me here if Stratfor has sources in Libya, or they are speaking of confirmation of a prior report from a Libyan govt. press release or the like. But from what I've read, there's more than a few there that would like to dump Gaddafi, maybe by bumping him up to some useless titled position.

Perhaps such information will come to play in another attempt to oust Chavez. Hopefully the "successor" won't be like the last one, throwing out the constitution and acting like a South American autocrat of old.

Venezuelan oil shipments to Cuba resuming in August - Libya studying Cuba's oil refinery***Rodriguez added that Cuba and Venezuela had studied the possibility of modernizing Cuba's Cienfuegos refinery but decided the project isn't feasible. He said OPEC member Libya is conducting a similar study and that Venezuela is sharing information on Cienfuegos with Libya.*** July 2002

***The Bush administration created a stir last week by accusing Cuba of sharing its dual-use biotech capability with "rouge" states that are looking to create plagues for biological warfare. That charge should put into perspective Castro's own warning to the United States during his swing through the Middle East last May. "Iran and Cuba, in cooperation with each other, can bring America to its knees," Castro said at the University of Tehran. "The U.S. regime is very weak and we are witnessing this weakness from close-up." *** Source - May 12, 2002

Fidel, Saddam and Hugo --An improbable but growing friendship of three military revolutionaries*** The Castro-Hussein-Chávez connection is anti-American and anti-capitalistic, but not in an ideological way. What matters to the three is domestic power built upon a base of nationalism that they believe legitimizes their policies In a way, this bizarre trio represents the rebirth, a half century later, of the kind of nationalist populism spawned by General Juan Perón in Argentina and Gamal Abdel Nasser in Egypt. Mr. Castro and Mr. Saddam gained power through armed revolutions; Mr. Chávez, a paratroopers' lieutenant colonel, was democratically elected in 1998, after serving time for trying to overthrow the government in 1992.

…Mr. Chávez is the most intriguing new leader to emerge in Latin America since Mr. Castro - and he is the lynchpin between Mr. Castro and Mr. Saddam. Although Cuba had been sending doctors and health workers to Iraq for years, there had not been any major contacts between the two countries until Mr. Chávez appeared on the scene. This fall, Mr. Chávez became the first democratically elected foreign head of state to visit Iraq since the Gulf War, ostensibly to invite Mr. Saddam to a summit of the Organization of Petroleum Exporting Countries. But it also was an in-your face gesture toward the United States.

With France and Russia, two of the five veto-wielding members of the Security Council, determined to see the sanctions against Iraq ended, the United States can do little to prevent them from withering away. Mr. Saddam has no intention of allowing UN weapons inspectors back into his country, and he knows that renewed bombing of Iraq is out of the question. Confident that the United States and the British would not risk shooting down a civilian airliner in the southern or northern "no-fly" zone, Mr. Saddam has resumed regular domestic commercial flights for the first time in a decade.

Iraq has the world's second-largest reserves of oil, after Saudi Arabia, which it exports legally under UN controls and smuggles out on a huge scale. Mr. Saddam is not short of cash for whatever adventure next occurs to him, and, with Mr. Chávez, he can influence the international oil supply and its prices.

As for Venezuela, a main source of U.S. imported oil, Mr. Chávez has been raising his profile within OPEC, having presided in Caracas in late September over a summit of that organization. Late in November, Mr. Saddam showed on two occasions what he can do to the oil market when he briefly threatened to halt the shipping of oil, a move Mr. Chávez knew about beforehand.

The Iraqi link is one aspect of Mr. Chávez's international involvements that the United States must not underestimate, with Cuba playing a central role. Since he took office in February 1999, Mr. Chávez has proclaimed his "identification" with the Cuban revolution. He visited Havana and entertained Mr. Castro in Caracas for five days last October. Mr. Castro treated Mr. Chávez as a son, an attitude seldom displayed by the Cuban leader toward any young people. During that same visit, Mr. Chávez granted Cuba large crude-oil price discounts, as he has done selectively elsewhere in the Caribbean, and agreed to help complete building a Cuban oil refinery. ***December 2000

Gaddafi's bid for Africa*** Mugabe has been increasingly isolated by the world in the wake of his controversial victory in last month's presidential election amid reports that Zimbabwe is virtually mortgaged to Libya in exchange for oil and money. The Libyans are said to have been allocated farms by the government. No official comment could be obtained from the Libyan ambassador, Mahmoud Azabi, who was said by his office to be out of the country. Reports in the State-controlled Herald yesterday said Libya was now providing 70 percent of Zimbabwe fuel imports. A 12-month US$330 million (Z$18,15 billion) oil deal signed by Mugabe and Gaddafi last year for Libya to supply Zimbabwe with oil expires in two months' time and Mugabe was reportedly anxious to secure an extension to avert another crisis in the tense period after the presidential poll.

"The bottom line is that Libya has been unable to get the products promised by Mugabe when the deal was sealed," another source said. "That is why Mugabe had to go and plead with Gaddafi." The deal, under which Gaddafi supplied oil in exchange for land, agricultural produce and stakes in key enterprises in the tourism sector, helped Mugabe reduce the magnitude of the crippling fuel crisis which started in October 1999. With the exception of Gaddafi, the rest of the world's suppliers had stopped oil supplies to Zimbabwe due to non-payment. ***

Libya pulls Zimbabwe's fuel plug***Libyan demands that the Mugabe regime hand over valuable farms as part of the deal have yet to be met, prompting fears from fuel-hungry consumers that the north African country will soon grow impatient with Zimbabwe. It is understood that groups of Libyan businessmen have been to Zimbabwe and visited vast commercial farms around the country. Libyan leader Muammar Gaddafi also toured some big commercial farms and identified some for his country's expropriation last year. However, the mechanics of delivering this land to the Libyans seem to have been delayed, prompting cries of impatience from the Libyans. Zimbabwe is now so heavily reliant on the Libyans that the country will cease to function if Gaddafi puts brakes on oil supplies. Mugabe has paid a dozen visits to Libya in the past year to maintain Gaddafi's patronage. Opposition leader Morgan Tsvangirai says Zimbabwe has virtually become a "colony of Libya". Libya's cut supplies have only

***Venezuelan Energy and Mines Minister, Alvaro Silva Calderon, was appointed the Opec secretary-general last month. "The fuel situation is getting worse and with the Libyans reportedly turning a cold shoulder after amassing land in Zimbabwe, there is a pressing need to take the begging bowl to other oil-producing countries like Venezuela to avert the crisis," said the source. "Why would the President honestly spend a week in Cuba when he has been there before?" he said. Last week, parts of the country were hit by fuel shortages triggered by hoarding amid reports that the commodity was in short supply.*** Source July 2002

Now look at who's the latest beneficiary of Gaadafi's largess -- Source: Central Bank of Venezuela -Caracas proposed an emergency fiscal adjustment package May 30 that was designed to cut government spending and raise revenues. So far, this package has been a dismal failure. Proposed tax hikes are languishing, and multilateral agencies have refused to lend, forcing Chavez to seek a $5 billion bridge loan from Libya, sources say. Attempts to refinance Venezuela's debt have been equally unsuccessful, primarily because domestic and foreign investors are wary of the risk. Caracas was able to raise only around $4 million, or 10 percent of its goal, in a late-June auction of two-month treasury bills.***

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