Venezuela's Presidente Loco, Hugo Chavez, rattled his plastic sabre this week and briefly sent oil markets into a tizzy by cutting off supplies to Exxon Mobil. The action was spurred by Exxon Mobil's success in freezing overseas Venezuelan assets after Mr. Chavez expropriated its properties last year.

Other companies, too, were given the strong-arm treatment by Mr. Chavez, but only Exxon has challenged him legally. ConocoPhillips also pulled out, but is proceeding via the "diplomatic" route. France's Total and Norway's StatoilHydro rolled over and decided to stay, and as a reward were offered "compensation," but at much less than market value.

By vigorously asserting its property rights, Exxon Mobil has struck a blow for freedom. The nattering nabobs of corporate social responsibility are always pecking at multinational corporations to pursue social(ist) objectives, but the best thing that Western corporations can do for the wretched of the earth is to make sure that their rulers understand the importance of property rights and contracts.

Mr. Chavez's decision to cut off supplies to Exxon Mobil is mostly sound and fury, signifying nothing. He must sell the oil somewhere, and it will likely find its way back to Exxon anyway. Apart from his Soup Nazi gesture-- "No oil for you!" --Mr. Chavez will inevitably use Exxon Mobil's move to stir up the same old anti-Yanqui sentiment in an attempt to bolster his flagging domestic popularity.

The president's political hero is Fidel Castro, and Mr. Castro has survived for almost a half century by invoking a demonic image of American capitalism. Last weekend, Mr. Chavez called Exxon Mobil "an imperialist bandit" and accused it of waging "legal war." Ho hum. But times have changed since the world's chattering classes cheered on Mr. Castro's expropriations in the 1960s, and even Cubans no longer buy this guff.

Mr. Chavez nevertheless imitates his hero by imposing whatever barmy whim crosses his mind. Short of cash? Slash payment terms for oil shipments! Problems with the paving of rural roads? Stop asphalt exports!

Ironically, the company coming under the most pressure from Mr. Chavez's manic governance is his own state concern, Petroleos de Venezuela, PDVSA. Venezuela's Maximum Leader regards PDVSA as a combination of cat's paw and piggy bank. The Venezuela oil giant has lost huge numbers of skilled staff since Mr. Chavez came to power nine years ago. Given the food shortages created by Mr. Chavez's meddling, he has even asked PDVSA to set up a food distribution arm. Last year, PDVSA had to tap international capital markets. Mr. Chavez's actions will make further borrowings more expensive; yet another consequence of a cavalier attitude towards property rights.

Venezuela's production will continue to decline due to crumbling infrastructure and an unwillingness by private companies to invest or drill there. Mr. Chavez's targeted production of 5.8 million barrels a day by 2013 is considered, under the present regime, to be a pipe dream.

Close