Editor’s note: South America is increasingly important to the United States, not just as a trading partner, but as a source of concern in the arena of national security.

Two countries stand out as key factors, Venezuela and Mexico. The former provides a major portion of the U.S. oil supply, while the latter is a major diversified trading partner. 

At the same time, Venezuela’s president, Hugo Chavez, is a major opponent of the Bush administration, while the election in Mexico is a source of concern to the U.S. if a Chavez like candidate is elected.

The stakes are increasingly high for all players in the hemisphere, as in the rest of the world over the next few months, as elections in Mexico are scheduled for July.

In this geopolitical analysis, Dr. Duarte looks at both Mexico and Venezuela’s current political situation and the potential effects on energy, national security, and the financial markets.

May 17, 2006 

Chavez Backlash 

Ideologic Clash In The South 

Venezuela's president Hugo Chavez is increasingly visible, garnering headlines, and influencing public and energy policy around the world. But in South America, there is an increasing amount of heartburn with what some countries see as "meddling" in their internal affairs. 

If there is a rise in anti-Chavez sentiment, it is possible that the bull market in oil could see a significant price decline. 

According to Stratfor.com: "several Latin American leaders have issued statements criticizing Venezuelan President Hugo Chavez, while two presidential candidates have openly campaigned against the Chavez model for the region. " Stratfor suggests "the intensity of the anti-Chavez sentiment has grown since Bolivian President Evo Morales nationalized his country's energy sector May 1 -- a move that bears a strong Chavez imprint." 

The Bolivian nationalization may be the tipping point for something unexpected in Latin America, discord among the left leaning governments that are increasingly in power. According to the Washington Post, the situation "has created a serious rift between the region's center-left governments and the hard-left administrations of Morales and his mentor, the socialist Venezuelan President Hugo Chavez." 

According to the Post "The takeover threatens to cause energy shortages and price hikes that could seriously damage the economies of Bolivia's biggest customers, Argentina and Brazil." 

The countries hardest hit by the Bolivian nationalization are Brazil and Argentina. The Post noted the following: 

1. "Brazil, Latin America's largest economy, gets half of its natural gas from the Andean country, using it for industrial power generation, cooking and to fuel cars. In the nation's industrial heart of Sao Paulo, the figure is closer to 80 percent." 

2. "Argentina, Bolivia's second largest gas buyer, faces higher prices for drivers in a country with the world's highest number of vehicles running on compressed natural gas." 

This Time Is Different? 

According to Stratfor, this time may be different. The intelligence service notes that "although criticism from Venezuela's neighbors of Chavez's attempts to extend influence in the region is not a new phenomenon, the difference this time is that a larger number of countries -- Peru, Guatemala, El Salvador, Nicaragua, Mexico and Brazil -- all have openly criticized Chavez over the past three weeks." 

The key is that the countries criticizing Chavez are all in the process of expanding their free market economies, while Chavez is centralizing Venezuela's economy and attempting to expand the concept internationally. 

According to Stratfor, political candidates that are seen as being associated with Chavez are starting to lose their appeal. 

Especially noticeable is the decline in the polls of leftist candidate Manuel Lopez Obrador, whose opposition has started running advertisements suggesting that Lopez Obrador is a Chavez disciple. 

In other countries where there is a Chavez link to certain candidates, similar situations are emerging. 

According to Stratfor: "In Peru, where Chavez has openly called for the election of newcomer Ollanta Humala, President Alejandro Toledo Manrique and former president and current candidate Alan Garcia have both responded harshly to Chavez's meddling, especially after he compared them to one another. Garcia has invoked Chavez's name as part of his campaign strategy, saying Chavez is attempting to create satellite states and that he has the luxury of coming out against free trade and foreign investment because his country has plenty of oil. As a result, Garcia has jumped ahead of Humala by more than 12 points in most polls. Three weeks ago, polls had Humala and Garcia tied in a runoff scenario ahead of the June 4 election. The polls also show that more than 60 percent of Peruvians have a negative opinion of Chavez and only 17 percent have a favorable one. Meanwhile, 84 percent of those surveyed consider him an authoritarian leader." 

Conclusion 

We might be in the early stages of an interesting set of developments in South America. 

Mr. Chavez has expanded his influence by using oil as a calling card, yet may be paying a higher price than anticipated. 

South America has always been a volatile region, whose masses have known few periods of sustained prosperity, and Chavez' populism has yet to deliver on the promises that it made. 

With oil prices hovering near record levels, it is possible that those who expected improvement in their circumstances are wondering when the miracle, or even moderate improvement is coming. 

If the Bolivian nationalization is the catalyst that Stratfor and other analysts are suggesting, the next few months will be very important, especially if there is a change in governments, or a decrease in the influence of Mr. Chavez. 

For the oil markets, it could be a source of volatility. More specifically, a serious setback for Chavez combined with a slowing global economy, and a sustained decrease in oil demand, could lead to a major pullback in the price of oil, as one source of the fear premium gets removed or reduced.


May 18, 2006

Mexico: A State Of Confusion 

Loss Of Order 

Fifty percent of 1000 voters polled in Mexico, a few weeks before the upcoming presidential election "feared the government was losing control," according to wire services report. 

The situation, more than the illegal immigrant issue could be the reason for the deployment of national guard troops and the proposed fence building along the U.S. Mexico border. 

According to the Associated Press: "Security is the top concern for Mexicans, and Fox has struggled to reform Mexico's notoriously corrupt police. Meanwhile, drug-related bloodshed has accelerated, with some cities seeing killings almost daily. In April, suspected drug lords posted the heads of two police officers on a wall outside a government building where four drug traffickers died in a Jan. 27 shootout with officers in the Pacific resort of Acapulco." 

The rising wave of kidnappings and drug related crimes in Mexico is mostly left off the mainstream evening news, although local news in border states and the Spanish language media in the U.S. do cover the nearly daily events regularly, as well as providing in depth analysis and reporting. 

According to U.S.A. Today, Nuevo Laredo police posts armed guards outside restaurants where officers are having lunch. "In the shadow of the U.S. border, lunch has become a life-threatening proposition for Nuevo Laredo police. They increasingly are being targeted in an unprecedented surge of violence between warring drug cartels that has redefined life here and in Laredo, Texas, just across the muddy Rio Grande." 

The paper added: "Besides making this one of the deadliest places in North America, such brazen killings — and the inescapable sense that violence could break out at any moment — have underscored the challenge the U.S. government faces in trying to improve border security and limit the flow of illegal immigrants and drugs into the USA." 

The Return Of The Zapatistas 

Violence and the return of the Zapatista rebels to a higher profile are adding to the general feeling of unease. Led by a masked, pipe smoking, articulate spokesman, "Subcomandante Marcos," the Zapatistas became a high profile opposition group in 1994 when the North American Free Trade Agreement was signed. The group is against globalization and has had several periods of activity intemingled with long periods of silence. 

According to AP: "Last week, Zapatista rebel leader Subcomandante Marcos said Mexico was in a "state of rage," and warned that tensions were similar to those that preceded the Zapatistas' brief armed uprising in January 1994 in the southern state of Chiapas." 

Rising tensions between police and the general population are rising. "The masked leader said a May 3 clash that left a teenager dead and scores injured in San Salvador Atenco, 15 miles northeast of Mexico City, is an example of the growing tensions. Marcos has been leading nearly daily demonstrations in the town following the incident, which began when a radical group of townspeople kidnapped and beat six policemen in a dispute over unlicensed flower vendors. Police responded with rage the next day. Television crews captured officers repeatedly beating unarmed protesters, and several detained women alleged officers raped them. 

Much of the blame is being placed on current president of Mexico Vicente Fox. According to AP: "George Grayson, a Mexico expert at the College of William & Mary, said the violence reflects Fox's lack of leadership. "The state has become much weaker under his watch," Grayson said." 

The Nuevo Laredo-Laredo border crossing has become a sign of the current situation in Mexico. 

According to USA Today: "The instability in this city of about 330,000 (Nuevo Laredo) has made the USA increasingly attractive not just for Mexicans seeking a better life, but also for marijuana, cocaine and heroin traffickers who have begun to set up safe houses and makeshift weapons manufacturing sites on the U.S. side of the border, says Elias Bazan, the top agent in Laredo for the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF)." 

The paper ominously added: "The chaos in Mexico has "started to spill over here," says Bazan, whose agency formed an unusual working relationship with Mexican law enforcement and military authorities last fall to try to curb violence and weapons trafficking." 

Conclusion: A New Citadel Emerges 

Last year, in this space, after a visit to El Paso, we noted that Fort Bliss, the local army base was being expanded, and that the buzz around the city was that a water desalination plant being built in the area was part of an expected expansion of the base. 

At that time, we noted that local estimates in El Paso, were for at least 20,000 new troops to be added. 

On May 13, and El Paso local television station, KVIA, on its web site, KVIA.com reported: "The Borderland is close to getting hundreds of millions of dollars from Washington to prepare for the incoming influx of soldiers at Fort Bliss. The new funding is earmarked to ease the transition between the current base population and the expected explosion due to the Base Realignment and Closure (BRAC) measures bringing 20,000 soldiers to the post over the next few years." 

According to the report, the base is expected to receive $540 million for the expansion project. 

The illegal immigrant-border issue is multifaceted and complex. Aside from the economically related issues, there is the issue of national security, which is largely being washed over by the White House. 

If Mexico plunges into a state of disorder, there will be a need for more than 6000 national guard troops. 

In our opinion, El Paso is now being positioned to become the border security command center.

© 2006 Joe Duarte, M.D.
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