A New Dance--South American Proxy Wars

Colombia, a United States satellite and illicit drug source since the Polk Administration (1845-49), invaded Ecuador to kill some harbored FARC leaders; what at first blush seems a routine violation of a weak nation's sovereignty is on deeper reflection more serious. A domino's track of consequences is likely to tip, the most immediate of which is that Ecuador and Venezuela have withdrawn their ambassadors, and Hugo Chavez just ordered Venezuela's armored forces to the Colombian border. These actions must be considered a challenge to a long-established sphere of northern influence.

The background of US-Colombia relations may be obscured or even hidden from most Americans, but US interventionism has been a direct, violent, and frequent feature of Colombian life for over 150 years. Polk signed a treaty with Colombia in 1846 to control access to the railway across the narrow isthmus separating the Atlantic and Pacific, preparing for the vision of a trans-oceanic canal. And before 1900, US troops were called in to crush native rebellions six times.

In 1903, the Hay-Herran Treaty granted the United States renewable 99-year leases to a promising swath of land in return for $10 million plus a yearly stipend. The amount was considered insultingly small and Colombian senators refused to ratify the treaty, so US commercial interests found it expedient to support a rebellion in a region of Colombia known as Panama. The region broke away as a protectorate under the New Panama Canal Company, becoming a de facto US territory and a tremendous strategic asset. Goods and vessels of any offending nation could be barred passage through the portage, and eventually the Canal. The only alternative was the long journey around Cape Horn, a squally, ice-berg ridden graveyard with strong winds, currents, and notorious 100-foot high rogue waves dreaded by mariners to this day. As Panama's right-hand anchor, controlling Colombia has been a steady necessity.

Successfully upholding pro-US policies contrary to the interests of Colombia's majority, dictatorships have been beset by its by-products: chronic government weakness, a steeply stratified society, cartel combinations, violence, a golden parachute mindset amongst elites, popular resistance, kidnapping, and persistent forms of organized rebellion. The Fuerzas Armadas Revolucionarias de Colombia (FARC) is a usual enemy of Colombia's para-military dictators, President Uribe a latest incarnation. Roughly 40 years old, FARC is a somewhat anachronistic Marxist-Leninist guerilla organization with upwards of 10,000 troops, and it was their international spokesman Raul Reyes and a reported 14 others who were killed yesterday in Ecuador.

In the past 7 years, the situation in South America has changed dramatically, to the extent that merely breaking the FARC will not tilt the balance in North America's favor. In 2001, the Bush Administration consciously shelved plans to nip a budding Hugo Chavez in favor of focusing on greater Iraq's transformation. The intervening time has allowed the ghost of Simon Bolivar to haunt. Ecuador elected its first native President, a government which naturally favored the FARC and its sentiments, Chavez has been piling up abundant oil revenues and parceling out anti-imperialist favors across the region in which China is replacing an ejected Exxon, and undersea oil has been discovered just north of Cuba. Chavez has bought Russian arms, munitions, training, and the world's best fighter jets.

Chavez is a man with an exquisite sense of the hour, a master of anti-imperialist positioning, and his timing is impeccable. Now, in the twilight of a distracted and frustrated BushCo, a retrograde threat of retaliation, and the coming regime change in the US, he knows it's an excellent time to up ante. His tanks will probably not cross the border into Colombia, but he can credibly claim active US aggression, real or imagined, and Venezuela is the closest and biggest foreign supplier of oil to North America. If he shuts off the spigot, anyone else in the world will pay the same (rather higher), and the resulting temporary supply disruption would serve his domestic and foreign diplomatic needs nicely.

Any incoming Administration would have to negotiate with Chavez, validating his approach and giving leverage to Simon Bolivar's pan-American agenda. Colombia's position is tenuous in terms of American support, low down on the priority list; Venezuela and Ecuador could probably embarrass it in a border war. That may not fully develop, but we should expect a Venezuelan oil embargo, its price going to $125 per barrel in May or June.

The Smell Of Sulphur

Chavez, the dictator and Devil, was finally defeated by the forces of democracy. I mean Hugo in Venezuela, not my dance instructor Emilio in Ballard, though they both have faces only a Mayan could love. (Curse you, Emilio: I will learn to Merengue yet!)

While glorious, victory was a close-run thing, righteousness out-pointing Chavez by 51-49. Even the Devil can overreach when he's possessing you, and that's when you can push him over the cliff while he's taking refuge in the bodies of pigs. As the Good Book says, behold, my name is Legion, for I am many. (Luke 8:30) Praise be to God and USAID!

You know what I don't get, though? Why Chavez lost the election. I mean, nothing else but divine retribution makes sense. No self-respecting dictator loses an election! Augusto Pinochet (Chile), god rest his Christian soul, never lost an election, at least not until the unwashed, misguided heathens voted him into exile in 1998. Alfredo Stroessner (Paraguay), the hardest working man in smuggling, never lost an election in 45 years. Tacho Somoza (Nicaragua), winning his first contest by the resounding score of 107,201 votes to 100, never lost an election to a living opponent, and even passed the baton on to his sons after he was killed by a commie poet. Rafael "Medals" Trujillo (Dominican Republic), the great patron of self-sculpture, never lost an election in 31 years. Not even to his own family!

I could go on, but let's skip over Haiti, Guatemala, Argentina, Panama, Honduras, Bolivia, El Salvador, and Brazil. And of course Cuba, the unholy mother of Miami. Dictators and devils should at least be reliable, and Chavez is a sorry, most untrustworthy dictator. It almost looks like he believes in democracy, which I find very disquieting. My faith is still strong, but in fact I can't decide whether to take comfort in the scriptures, or to sin by picking up that Harper's magazine that's been beckoning to me like a sway-hipped strumpet at the supermarket stand.

Venezuela: The Left And The Right

On the left side of the picture above, about 90% of people vote for Chavez. On the right side about 90% of people vote for someone else, form student unions to subvert the villainous paradigm, and get funding from shady US pro-democracy groups with intelligence ties.

The right side of the picture, on the whole, should consider itself lucky. Worse things could've happened than having to put up with a blowhard who gives three-hour long speeches and uses oil money to build schools.

Chavmadenijad: Disaster Is Seen As Catastrophe Looms

Pay some attention to the men behind the curtain:

At the third OPE summit in 47 years, held in Riyadh, Saudi Arabia, Venezuelan President Hugo Chavez said that the price of crude oil could reach $200 a barrel. "The basis of all aggression," said Chavez, "is oil." During a private meeting that was accidentally televised, the oil minister of Venezuela suggested to the oil minister of Iran that OPEC stop using the crippled dollar for pricing; the foreign minister of Saudi Arabia countered that public discussion of the weak dollar would cause US currency to lose value. "Kill the cable!" shouted a security guard as he ran into the meeting room. "Kill the cable!"

United Arab Emirates Announces Dollar Reserve Reduction

Geez. As if on cue, after I wrote the What Your Wallet Is Up Against post right before this, Matthew Brown at Bloomberg reported from Dubai that today the U.A.E. announced it will be reducing its dollar exposure by 8%. I'm just going to cut and paste his article in full:

Dec. 27 (Bloomberg) -- The United Arab Emirates will convert 8 percent of its foreign-exchange reserves to euros from dollars before September after the U.S. currency slumped this year, the country's central bank governor said.

The U.A.E. has started ``in a limited way'' to sell part of its dollar reserves, Sultan Bin Nasser al-Suwaidi said in an interview in Abu Dhabi on Dec. 24. ``We will accumulate euros each time the market appears to dip,'' as part of a plan to expand the country's holding of euros to 10 percent of the total from 2 percent today, he said.

The Gulf state is among oil producers including Iran, Venezuela and Indonesia, looking to shift their currency reserves into euros or sell their oil, which is currently priced in dollars, in the 12-nation currency. The total value of the U.A.E.'s current reserves is $24.9 billion, 98 percent in dollars and 2 percent in euros, al-Suwaidi said.

Gulf Arab energy producers will earn as much as $500 billion from oil sales this year, the International Monetary Fund forecasts. The region's central banks reserves represent a fraction of the currency holdings of state-owned investment firms such as Abu Dhabi Investment Authority which is estimated to have over half-a-trillion dollars under management.

The U.S. currency dropped to $1.3166 versus the euro from $1.3157 after al-Suwaidi's comments were published. It traded at 1.3160 at 12:05 p.m. in London.

``It is a recognition of the vulnerability of the dollar over the coming year,'' Simon Williams, economist with HSBC Holdings Plc in a telephone interview from Dubai, U.A.E. today.

Dollar `Vulnerability'

``This is not confined to the U.A.E. There's a general awareness across the Gulf of the benefits of diversifying currency holdings,'' Williams said.

The U.S. current account deficit widened to $225.6 billion in the third quarter, while oil producers in the Middle East and central Asia will run a surplus of $322 billion for all of 2006, according to the IMF. Total foreign holdings of Treasuries increased to a record $2.16 trillion in September, just under 50 percent of the $4.34 trillion outstanding.

China, the second-largest holder of U.S. debt, reduced purchases of U.S. treasuries by 1.7 percent in the first 10 months of the year, according to Treasury Department data.

The conversion of 8 percent of the reserves into euros will happen ``within 6 or 9 months,'' he said in his office at the central bank in the U.A.E. capital.

The share of foreign-exchange deposits held in dollars by OPEC oil producers, including Saudi Arabia and the U.A.E., fell to a two-year low of 65 percent during the second quarter, from 67 percent during the first quarter, Bank of International Settlements figures released earlier this month show.

Obviously the amount is only a small percentage from one place, but it denotes the tips of many icebergs. The last thing you're going to do as a foreign reserve banker is tell the market exactly what you're going to do. Sell high, buy low. Further, the percentage Treasuries held by foreign money is quite understated. It's impossible to know by how much, since that data isn't published anymore, but many hedge funds listed as US entities have a majority of their investment from overseas. Over the past few years, such loosely regulated funds are thought to have picked up the slack in the appetites of foreign central banks for US bond sales. Bottom line, there is plenty of unfulfilled demand for a Euro-based Oil Bourse in Iran.