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It is hard to imagine that a swaggering Latin strongman has more strategic vision than U.S. diplomats, but the facts suggest that Venezuelan dictator Hugo Chávez has managed to build a powerful alliance of U.S. rivals and rogues right under our noses.

The U.S. strategy toward the irascible Chávez--beginning in the last several years of the Bush administration and continuing today--has been to ignore his rhetoric and not get in the way of his self-destruction. While Washington sleeps, Chávez is consolidating broad and deep alliances with China, Cuba, Iran and Russia that threaten our long-term economic interests and security.

Today in Venezuela, thousands of Cuban intelligence operatives--including a key Fidel Castro chieftain--ensure internal security by sniffing out disloyalty and suffocating the democratic opposition. Iran is harvesting uranium and evading international sanctions through $30 billion to $40 billion in joint ventures managed by shadowy Iranian firms and banks operating in Venezuela. Russia is selling $9 billion in arms to Chávez and plans to build a satellite launch facility in Venezuela.

As troubling as these relations may be, China's decision to bankroll the cash-strapped Chávez and substitute the United States as a customer for Venezuelan oil should stir particular concern in Washington.

Underestimated at home and in Washington, Chávez laid the foundations of a strategic relationship with Beijing soon after his election over a decade ago. His intent was clear: Find an alternative market for Venezuelan oil so he could gradually end dependence on sales to the United States. To achieve that goal, he needed deep pockets to finance the construction of refineries that could distill the unusually viscous Venezuelan crude and the ships to transport the product to more distant markets. Enter China.

Initially, China was careful not to antagonize Washington by aligning itself with Chávez's radical, anti-U.S. agenda. But by 2005, Beijing began to expand its footprint in Venezuela. A series of recent investments and loans totaling over $44 billion will expand China's consumption of Venezuelan oil imports from 39,000 barrels a day in 2005 to 1 million barrels a day by 2012.

China is building several multibillion-dollar refineries and "Suezmax" oil tankers that will allow Chávez to gradually replace the U.S. market. The trend already is clear: In 1998, U.S. purchases of Venezuelan crude amounted to about 1.7 million barrels a day; that number is running only about 950,000 per day this year and heading downward.

Although few Western companies are prepared to sink billions of dollars of new capital in Venezuela as the regime attacks property rights, China has no qualms about dealing with the Chávez regime in exchange for precious oil.

A 50 percent drop in the state-run oil company's profits last year has put the squeeze on Chávez's spending, just as crumbling infrastructure, electricity blackouts, food shortages and crime are taking a serious toll on his popularity heading into the Sept. 26 national assembly elections.

Under a $20 billion loan-for-oil agreement signed between the two countries in May, China made an initial payment of $4 billion to Chávez last month that he will use to hold on to power.

U.S. petroleum companies are hoping they can hang on in the Venezuela, despite evidence of Chávez's hostile intentions. As a result, we are unprepared for the economic displacement in store for U.S. interests as China's shadow grows in our own neighborhood.

On the security front, Washington turns a blind eye to Chávez's support for narcoterrorists, his alliance with the nuclear rogue Iran and his feverish arms race, hoping that he will keep the oil flowing while his hostility burns itself out.

Wishful thinking and willful ignorance is not a policy. The sooner Washington recognizes the threat posed by Chávez's regime and his cadre of supporters, the sooner we will put an effective, proactive policy in place to protect our economic and security interests.

Roger F. Noriega, a senior State Department official from 2001 to 2005, is a visiting fellow at AEI and managing director of Vision Americas LLC, which represents foreign and domestic clients.

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