Cutting Oil Supplies to US Would Harm Venezuela, Analyst Says

By Leandro Prada | July 7, 2008 | 8:18pm EDT

Buenos Aires ( - Venezuelan President Hugo Chavez' threats to cut oil supplies to the United States should not be taken seriously, because doing so would hurt the Latin American country as much as, or even more than, it would harm the U.S., an industry analyst said.

"I do not believe that it would make any sense for Mr. Chavez to follow through on his threats," Tom Kloza, chief analyst at the Oil Price Information Service told Cybercast News Service .

"The heavy sour crude that he exports can only go to refineries configured to run such difficult blends," he said, adding that any interruption would sabotage Venezuela's state-owned PdVSA's investment in the refineries run by its Citgo subsidiary in the U.S.

Kloza said that Chavez could, in the future, withhold gasoline or diesel produced in Venezuela, rather than crude oil. Such a move could cause prices in the U.S. to rise.

"But the bottom line is that a follow-through on the threats would hurt Venezuela as much or more than it would hurt the U.S." he said.

Kloza was asked to respond to a threat, made on Chavez' weekend television and radio show, when the anti-U.S. leader was reacting to an attempt by ExxonMobil, the world's largest oil company, to have PdVSA's assets frozen.

"ExxonMobil is the spearhead of the empire," Chavez declared. "This is just the tip of the iceberg headed towards Venezuela. Go on with the conspiracy and we will not send a drop of oil into the empire."

"If you freeze [our assets] and hurt us, we will respond," the official ABN Venezuelan news agency quoted him as saying. "If war goes on, Venezuela will enter the economic warfare and several countries are willing to back us up."

Backing up the comments, Foreign Minister Nicolas Maduro told a press conference, "Venezuelans are ready, trained and have the strength to face any attack from the American empire in the last months of the George Bush Administration."

In recent weeks, Exxon has obtained court orders in various countries freezing more than $12 billion in Venezuelan assets, as it seeks a resolution to a dispute.

After PdVSA last year seized control of four heavy-oil projects, Exxon and ConocoPhillips abandoned their operations projects rather than accept lower profits and terms set by the Chavez government.

Venezuela is fourth in the rankings of nations selling oil to the U.S., accounting for 14 percent of the U.S. oil market. Oil provides 70 percent of Venezuela's export earnings.

State Department spokesman Sean McCormack played down Chavez' threats, noting that they were not new. He also referred to the Venezuelan petrochemical industry's dependence on refining capacity based in the U.S.

Andres Malamud of the Institute of Social Sciences at the University of Lisbon said Chavez' future was closely tied to oil prices.

"The higher the price, the more Chavez advances," told Cybercast News Service . "If prices drop, his tactics will be slowed down."

U.S. crude oil prices hit $95 a barrel on Monday, but later dropped below $93. Analysts have attributed the rise to the Venezuela issue but also to new instability in Nigeria and shortages in the northern hemisphere caused by freezing weather.

U.S. Rep. Connie Mack, Chavez' leading critic in Congress, said he congratulated the courts "for standing against Hugo Chavez's march on freedom and free markets."

The Florida Republican said the threats were a reminder of the need for the U.S. to ensure it has "proactive policies in place - such as increasing the Strategic Petroleum Reserve."

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