On February 13, 1959, Rómulo Betancourt took office as president of the Republic of Venezuela, a position to which he had been elected by popular vote on December 7, 1958, after returning from a long exile.
Betancourt was no stranger to power. As the maximum leader of the Acción Democrática party, he had been president of the civic-military junta that served as executive power after the military coup that overthrew President Medina Angarita on October 18, 1945. On February 15 In 1948, after a popular election, the civic-military junta transferred executive power to the writer and politician Rómulo Gallegos, a fellow party member of Betancourt.
In November of that same year, President Gallegos was deposed by a military coup led by his own defense minister – General Carlos Delgado Chalbaud, thus beginning a military dictatorship that would end in January 1958, putting an end to what today it is known as the “adeco triennium”: 1945-1948.
That same February 13, 1959, Juan Pablo Pérez Alfonzo took office as Minister of Mines and Hydrocarbons, a position he would hold until his resignation in 1963. Pérez Alfonzo was also no stranger to power and to oil, having held during the “adeco trienium”, the position of Minister of Fomento (Industry), which at that time was the ministry that dealt with the oil issue in the Venezuelan public administration.
Juan Pablo Pérez Alfonzo is one of those civil heroes that Venezuela as a society is not given to celebrating, but who contributed in a very significant way to the construction of the oil policy of a republic that today seems distant, blurred. On the other hand, Pérez Alfonzo is also a “rara avis: a politician who is seldom criticized by his contemporaries or by posterity, almost untouchable, despite having been a protagonist in the most controversial of Venezuelan political issues, oil.
That October 13, 1959, we can say that both Betancourt and Pérez Alfonzo, in particular the latter, had a running start on the issue of oil policy. During the exile that both suffered for 10 years, both studied and wrote on the subject. In particular, Pérez Alfonzo had dedicated much of his stay in the United States to analyzing the operation of the Railroad Commission of Texas. Despite what its name indicates, this state agency was in charge (and is in charge) of regulating the production of oil and gas in Texas in order to give stability to the oil prices– the germ of what would be the foundation of OPEC, perhaps the event for which Pérez Alfonzo is most remembered.
The background of the ideological position of Pérez Alfonzo and Betancourt in relation to oil must be understood from two important viewpoints. In the first place, the true fact that in the relationship between oil companies and the state, the former, due to their experience and knowledge of the business, had the upper hand, which historically was reflected in a rather asymmetric distribution of rent in favor of the operators.
On the other hand, and no less important for Betancourt in his analysis, the logical assumption that no matter how little the income received by the state was, it was the main support base for the regimes that Betancourt and his party ideologically opposed historically – let us not forget that both Betancourt and Pérez Alfonzo were born in the 1900’s and began their political career opposing General Juan Vicente Gómez and his cadre, from 1928 onwards.
As an example, in 1943, during the discussion in Congress of the draft Hydrocarbons Law proposed by the government of General Medina Angarita (a moderately democratic government), Pérez Alfonzo, then a deputy for Acción Democrática, opposed it, objecting to the article 41 of the law where the reference price of the barrel was established, based on which the distribution of income was calculated – needless to say, Pérez Alfonzo's arguments, although correct, were ignored and the law was approved by the government majority in Congress.
It is significant to point out that when the revolutionary government of Romulo Betancourt was installed in 1945, Betancourt and Pérez Alfonzo, far from ignoring the 1943 law, ratified it to the operators and recognized that in general it was a good law – the law will govern the industry for all that remains of the 20th century and the beginning of the 21st. However, they made it clear to the operators that the restating of the distribution of oil income will be done by modifying the fiscal conditions, but that is another story - it is during that period that what we know today as the “ fifty-fifty ” distribution is established, which would be followed by a higher tax burden in the following decades, by successive governments.
But let us go back to the Betancourt government period, 1959-1964. With Pérez Alfonzo as minister, and despite the anxieties that the oil companies might harbor with the new government, the growth dynamics of the industry continues. In 1958, the average production of crude oil had been 2,605 million barrels per day, while by 1964 it was 3,395 million barrels per day, levels that would be maintained until the beginning of the 70s, in the 20th century.
In 1960, Venezuela, Saudi Arabia, Iraq, Iran and Kuwait founded the Organization of Petroleum Exporting Countries (OPEC), led by Pérez Alfonzo and Abdullah Tarik (the Red Sheikh), with the idea of defending the interests of exporting countries against the companies that controlled the oil market – Pérez Alfonzo's fundamental legacy, with all its pitfalls. It is also in 1960 that the first version of the Venezuelan Petroleum Corporation, CVP, is created.
Pérez Alfonzo was without a doubt a fundamental element in the development of the political and geopolitical thinking of the oil and gas business, almost always hand in hand with Betancourt. That understanding is reflected in his actions as member of the opposition, as a minister, and at his departure from the ministry as a voice of warning about the dangers that a growing oil revenue would have on the republic.
His central ideas for oil policy were summarized in 1967 as follows:
“The nationalist oil policy can be framed within
what has been called the Pentagon of Action with five corners, of which one, the one constituted by the Organization of
Petroleum Exporting Countries (OPEC), extends its lines
outside the scope of national jurisdiction. the other four
corners of the Pentagon of Action are fully under the
sovereignty of Venezuela, constituted by the guiding principles
of: 1) Reasonable participation 2) Coordinating Commission for the
Conservation and Trade of Hydrocarbons 3) The Corporation
Venezuelan Oil Company 4) No more concessions”.
The oil pentagon. Caracas Venezuela. Political Magazine Editions.
However, I think it is not very bold to say that his understanding of oil as an industrial activity and its potential impact as a multiplier of economic activity was limited or at least considered secondary; of course, we are judging it in light of what we understand today.
Pérez Alfonzo thought that the oil reserves in Venezuela were scarce and that sooner rather than later they would run out. This belief, otherwise very widespread in the Venezuelan political sector, would be reflected in its position of wanting to limit production and manage reserves to extend its life, as well as in the policy of no more concessions – this is today seems anachronistic to us in an environment where just looking away from his OPEC friends and competitors would have allowed Pérez Alfonzo to show how they continued to grow their production until they surpassed us and ended up making us less relevant.
Why did Pérez Alfonzo/political world want the state to be the only investor in an industry that he considered in decline and short-lived? That is something that we can only speculate about, but I imagine that it is more associated with controlling oil revenues than with an understanding of the investment risks of the activity. Again, I think that the lack of understanding of the oil industry as a technological activity and its ability to add more reserves, develop new products and penetrate markets, among other short-sightedness, led him to wrong conclusions.
In 1963, Pérez Alfonzo had a televised debate with the intellectual Arturo Uslar Pietri, a candidate for the presidency, where they discussed their visions in a such a civilized way that will shame today's warriors of the internet.
On the one hand, Pérez Alfonzo defended the policies of "No more concessions" and "conserving" oil for the future. On the other, Uslar Pietri proposed expanding production with more foreign investment and investing the income to create a new economy for the future. This is just one example that even then there were different visions to those of Pérez Alfonzo, but they did not have the traction that would have made a difference in oil policy.
The ideas that Betancourt, Pérez Alfonzo and many of their contemporaries developed about oil were appropriate to the world in which they grew up and acted, but today many of them are anachronistic. Even so, they continue to resonate in Venezuelan society and especially in political sectors.
The oil operators as adversaries and political support of the regime in power, the need for the state to control sectors considered "strategic", oil revenue as a perverting factor in society, are all archetypes that we can still identify in the conversations that about the subject take place, even though we are in the third decade of the 21st century; making it difficult for venezuelans to migrate towards new and more productive models.
Pérez Alfonzo was undoubtedly a visionary in his ideas about managing the politics of oil, and judging by his personal life, a man of bulletproof honesty. Like most revolutionaries, the world he helped create ended up leaving him behind, while he clung to the ideas he had once made relevant. It is his ability to imagine a better Venezuela and his intellectual honesty that we must emulate.
On February 13, 1959, history knocked on the door of Juan Pablo Pérez Alfonzo and presented him with a challenge for which he was very well prepared and which he faced with courage, professionalism, and great success. That February 13 was not just any day, neither for Juan Pablo Pérez Alfonzo, nor for Venezuela.
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