Chavez Will Ignore the Arbitration Panel's Compensation Award
He may be in a tough reelection battle and in even a tougher fight against cancer, but Venezuelan president Hugo Chavez is determined to bait the West, primarily the United States, to the very end.
Yesterday, Chavez announced that Venezuela would not respect a ruling by the World Bank's International Center for Settlement of Investment Disputes in favor of Exxon that is seeking compensation for Venezuela's (i.e. Chavez') decision to nationalize the Cerro Negro oil project in 2007.
A brief explanation is necessary here. When a country nationalizes foreign property, it is expected to pay prompt, full and effective compensation. When Libya in the 1960s, under its new leader Qaddafi, began nationalizing oil companies, other Third World countries refused to honor that formula and made only a token compensation if at all.
This policy eventually boomeranged against Third World countries, because no company was willing to make huge investments in oil exploration which could go unrewarded, simply to lose these assets if it struck oil, gold or other valuable deposits. Therefore they insisted that their investment be safeguarded by an arbitration clause. The World Bank has a more than favorable disposition towards third world countries and the Exxon judgement was a billion dollars lower than expected.
The trouble is that in this election year, Hugo Chavez wants to put the voters in a good frame of mind by liberally spending. This means he does not have money to spare for Exxon or anybody else.
With some justification, he may believe that for every oil company refusing to invest in oil exploration there will be others eager to take their place. Chevron of the United States and Repsol of Spain are 2 recent examples of companies who have signed on to new projects.
A withdrawal from the World Bank tribunal could trigger additional lawsuits because Venezuela would then be violating a standard clause in many agreements.
Chavez coupled his defiance for the Western tribunal with a warm welcome for Iranian president Mahmoud Ahmedinejad. The Iranian leader is making his 5th visit to Venezuela (Chavez is made 9 visits to Iran, but then he has been in office since 1999) and he will continue his trip to Chavez' Latin American allies – Nicaragua, Cuba and Ecuador. Chavez told his guest to ignore American pressure on the nuclear policy"What the empire does is make you laugh, in its desperation to do somethingthey won't be able to do: dominate this world,"