Chavez Says He May Cut Off Oil to U.S.

• Facebook
• Twitter
• LinkedIn

WASHINGTON -- Venezuelan President Hugo Chavez's latest threat to cut off oil sales to the United States produces sensational 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, reported the Associated Press.

Chavez's threat was in retaliation to Exxon Mobil Corp.'s efforts in U.S. and British courts to freeze billions of dollars of assets belonging to Venezuela's state oil company to resolve an oil-production contract dispute.

The threats also [image-nocss] follow an escalation in the war of words with Washington after he accused neighboring Colombia and the United States of plotting military "aggression" against Venezuela, added a report by The Financial Times.

"If you end up freezing [Venezuelan assets] and it harms us, we're going to harm you," 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 on Monday, sending crude futures prices up by nearly $2 a barrel. Violence in Nigeria, refinery outages and colder weather in the U.S. also propelled prices higher.

If Chavez actually cuts off supplies the United States, the impact would be mostly symbolic, oil analyst Peter Beutel of Cameron Hanover, New Canaan, Conn., told AP. Any short-term supply disruption would dissipate as other nations make arrangements to take the Venezuelan crude and the United States makes up its shortfall by purchasing 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, Tom Kloza, chief oil analyst at the Oil Price Information Service, Wall, N.J., told AP. If Venezuela's crude was low in sulfur content, making it more valuable on the global market, he might have a better hand to play, Kloza added.

"We've heard it before,'' Sean McCormack, state department spokesperson, told The Financial Times, pointing out that Chávez had often threatened to stop exporting oil to the US, but had never actually done so.

Pietro Pitts, editor of the Caracas, Venezuela-based Latin Petroleum magazine, said: "I don't see Venezuela cutting off oil exports to the U.S., simply because they don't have anywhere else to send it in the short term, and Chávez needs the money to finance his socialist revolution. It's just a big poker game."

The United States remains the No. 1 buyer of Venezuelan oil, purchasing more than 41 million barrels in November, accounting for approximately 10% of all crude-oil imports that month, according to AP, citing the most recent U.S. Department of Energy data available.

With oil prices hovering above $90 a barrel, Chavez relies largely on U.S. oil money to stimulate his economy and bankroll social programs that have traditionally boosted his popularity. Nevertheless, 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.," Patrick Esteruelas, Latin America analyst at the Eurasia Group, New York, told the news agency.

This is not the first time Chavez has tried to use the oil weapon. He has repeatedly threatened to cut off shipments to the United States if Washington tries to oust him, but many analysts have dismissed that scenario as highly unlikely. Chavez, meanwhile, has been vague about precisely what actions by the U.S. government could constitute an attack against his government worthy of halting oil shipments.

ExxonMobil has gone after the assets of Petroleos de Venezuela SA (PDVSA) in U.S. and European courts as it challenges the nationalization by Chavez's government of four heavy oil projects in the Orinoco River basin, one of the world's richest oil deposits. Other oil companies, including Chevron Corp., France's Total, Britain's BP PLC, and Norway's StatoilHydro ASA, have negotiated deals with Venezuela to continue as minority partners in the project, but ConocoPhillips and ExxonMobil balked at the tougher terms and have been in compensation talks with PDVSA.

While the Organization of Petroleum Exporting Countries (OPEC) nation maintained its conditional threat and vowed to get tough with ExxonMobil in the dispute that sparked Chavez's anger, the official's pragmatism reinforced analysts' views the anti-U.S. president is unlikely to follow through.

Still, the threat from the No. 4 oil exporter to the United States—reiterated by Oil Minister Rafael Ramirez—remained a concern in the world oil market where prices steadied after earlier declines on Tuesday.

Washington played down the threat, which Chavez has delivered in different forms for years but never carried out.

Other major oil producers have confirmed that they would make up for any interruption to Venezuelan supplies, a U.S. official who declined to be named said, adding a cutoff would hurt ordinary Venezuelans.

Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.