- The Washington Times - Tuesday, February 12, 2008


Venezuelan President Hugo Chavez’s latest threat to cut off oil sales to the U.S. produces tantalizing headlines and rattles some oil traders’ nerves.

But analysts say it presents no long-term danger to global oil supplies or prices and makes no economic or political sense for his own country.

Mr. Chavez’s threat was in retaliation to Exxon Mobil’s efforts in U.S. and British courts to freeze billions of dollars of assets belonging to Venezuela’s state oil company over the nationalization of four heavy oil projects in the Orinoco River basin, one of the world’s richest oil deposits.

“If you end up freezing [Venezuelan assets] and it harms us, we’re going to harm you,” Mr. Chavez said Sunday. “Do you know how? We aren’t going to send oil to the United States.”

His comments helped stir anxiety on oil markets yesterday, sending crude futures prices up by nearly $2 a barrel. (Violence in Nigeria, refinery outages and colder weather in the United States also propelled prices higher.)

If Mr. Chavez actually cuts off supplies the U.S., the impact would be mostly symbolic, said oil analyst Peter Beutel of Cameron Hanover. Any short-term supply disruption would dissipate as other nations make arrangements to take the Venezuelan crude and the U.S. purchases additional barrels from the Middle East, Africa and other regions.

“It makes no sense for Mr. Chavez to follow through on his threats” because the U.S. refining industry’s plants — some of which are owned by Venezuela — are customized to handle much of Venezuela’s high-sulfur crude oil, said Tom Kloza, chief oil analyst at the Oil Price Information Service.

If Venezuela’s crude were low in sulfur content — making it more valuable on the global market — he might have a better hand to play, Mr. Kloza said.

Indeed, the U.S. remains the No. 1 buyer of Venezuelan oil, purchasing more than 41 million barrels in November, accounting for roughly 10 percent of all crude-oil imports that month, according to the Energy Department .

With oil prices hovering at more than $90 a barrel, Mr. Chavez relies largely on U.S. oil money to stimulate his economy and bankroll social programs that have traditionally boosted his popularity. Nevertheless, Mr. Chavez in December lost a vote on constitutional changes that would have let him run for re-election indefinitely.

“It would be the worst time politically for Chavez to cut oil shipments to the U.S.,” said Patrick Esteruelas, Latin America analyst at the Eurasia Group.

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