It hasn’t been a good week so far for the US corporate sector. The big Wall Street bank Bear Stearns was gone like a puff of smoke on Monday morning, absorbed by a rival, JP Morgan in the midst of the squeeze on credit generated by some particularly irresponsible mortgage lending in New York. Worth $18,000 million in April last year, Bear Stearns went for $236 million, a pittance. Rumours circulate that the same fate awaits other former big beasts in New York’s financial jungle.
On Tuesday morning the unprepossessing surroundings of the basement of the Royal Courts of Justice, Court 22 were the venue for the final main round in a battle royal between the US company Exxon, the world’s biggest private sector oil giant, and PDVSA, the state oil company of President Hugo Chávez’ Venezuela which last year took control of its operations.
The Venezuelans were seeking to lift an embargo on assets worth $12,000 million that Exxon’s subsidiary Cerro Negro had obtained from the British courts in January so as to ensure it would be compensated for any loss. The oil company had obtained it as part of its fight against the nationalisation by Chávez. In the event the Venezuelans won their legal fight on Tuesday and Exxon took a big hit.
The court was littered with ungainly packing cases full of documents, the public gallery had clearly been transformed into a temporary store room and had not room for onlookers. The public and journalists ended up squashed awkwardly into whatever space in the court they could find. The proceedings went ahead with the judge Mr Justice Walker, the court officials, the barristers and the solicitors unrobed: they had laid aside their wigs and gowns for the drabbest of business clothes. Solemn and imposing it was certainly not. But it have been worse. “Sometimes the judge allows the lawyers to take off their jackets”, commented one experienced observer
Whatever the inelegance the import of Paul Walker’s judgement will have widespread international repercussions, as Samuel Moncada, the Venezuelan ambassador who was present in court in the final stages, was quick to point out. “This judgement is a good one for Venezuela, a good one for OPEC and a good one for countries which want to control their own natural resources”, he explained with quiet jubilation in the Victorian Gothic spendour of the main floor of the building above Court 22 before he went off for television and radio interviews. The media in this home country which had been agog to get the verdict which had been expected a week ago. The lawyers representing Exxon limited themselves to a tight-lipped “no comment”.
Venezuela had come to an agreement with other international oil firms which had been nationalised but claimed that Exxon exaggerated the value of its property which the Venezuelans put at no more than $750 million. President Hugo Chavez has accused the US government of being involved in the dispute as part of its general offensive against him.
The British judgement is not quite the end of the affair. Courts in the Netherlands and in the Netherlands Antilles also froze PDVSA’s assets and will have to make their own decisions about whether to continue such measures. Nevertheless it is clear that Tuesday morning’s judgement in London will is likely to have a big influence on what they decide. Thereafter it is expected that the arbitration will continue between the two sides.
It will also be a boost to the cohesion of OPEC itself, much criticised by the oil-importing countries at a time of high prices. A motion was adopted unanimously at this month’s OPEC meeting in Vienna which expressed its support to Venezuela "in the exercise of its sovereign rights over its natural resources, in accordance with international law". It had, moved by Galo Chiriboga, the OPEC representative and minister for petroleum and mines Zambrano of Ecuador. The South American country, whose leader Rafael Correa is an ally of Chávez, rejoined the Organisation last October after a rather mysterious, politically motivated absence of fifteen years.
Britain will gain a small benefit from the case. British diplomats in Caracas have been worrying that the fact that Exxon was suing PDVSA in London was throwing a dark shadow over British relations with Venezuela.