- The Washington Times - Saturday, January 11, 2003

The potential political contagion of the turmoil in Venezuela, where warring factions are killing each other in the streets, is cause for serious concern. However, much of the world also is focused on Venezuela's ability to affect a more tangible matter oil prices. A six-week-long oil strike, waged to oust Venezuelan President Hugo Chavez, sent prices up to two-year highs, to almost $34 a barrel last week. Prices have tapered off on news that Russia and Saudi Arabia will step up production, but continue to hover around record highs.

America has long depended on the world's fifth-largest oil exporter as a reliable standby in the market and a convenient counterweight to the oil-rich Middle East, getting more than 13 percent of its imported oil from Venezuela. The Venezuelan strike has reduced the flow of oil to world markets by about 2 million barrels per day and has caused U.S. oil companies' inventories of crude and petroleum products to drop to a 26-year low.

Plans by Russia and Saudi Arabia to bolster production are cushioning the blow somewhat, but oil from these countries takes more than a month to arrive to the United States, while oil from Venezuela arrives within five days. This gap in supply may be felt over the next four months. So, the Energy Department has allowed oil companies to sell on the open market the oil that was slated to go to the government's Strategic Petroleum Reserve in February. The reserve currently has about 598 million barrels of crude oil, which is comparable to the stockpile in the reserve leading up to the 1991 Persian Gulf War. Still, the reserve couldn't compensate for the worst case simultaneous supply disruptions from Venezuela and Iraq.

Venezuela is only outputting 200,000 barrels a day, compared to prestrike levels of 3 million, while the possibility of an oil crunch already is seen on the global market. Meanwhile, Mr. Chavez continues to take a hard line, saying striking oil workers will be fired and replaced with new hires from other countries, and the opposition refuses to deviate from its demands that Mr. Chavez hold a binding referendum or election amid the current chaos.

The Bush administration has reportedly been working behind the scenes to try to broker a deal that would restore stability and the flow of oil from Venezuela. The State Department has publicly called on both sides to show "maximum flexibility." If some kind of deal isn't reached soon, Venezuela will be the primary loser. Oil generates 80 percent of Venezuela's export revenue, and half of the government's revenue. The Venezuelan economy was tottering before the strike, with a contraction of 8 percent expected for last year and unemployment close to 20 percent. The government says it has lost about $2 billion as a result of the strike.

It is hoped that the White House and other parties move Venezuelans toward a truce sooner rather than later.

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