Chavez Threatens to Sever U.S. Oil Trade

February 13, 2008 05:35 AM
by findingDulcinea Staff
Oil prices fell on Tuesday after a three-day climb. The rally had followed Chavez’s talk of cutting oil supplies to America.

30-Second Summary

On Sunday, Venezuelan President Hugo Chavez warned that he was prepared to suspend oil shipments to the United States.

The threat came in response to Exxon Mobile’s court victory against Venezuela’s national oil company, Petroleos de Venezuela SA (PDVSA). The court ruled in favor of freezing $12 billion of PDVSA’s assets. 

Exxon Mobile initiated arbitration against PDVSA in 2007, in response to Chavez’s nationalization of Venezuela’s oil industry beginning May of that year.

During the oil nationalization push, Chavez took control of the activities of six major oil companies, giving PDVSA at least 60 percent of the oil operations in the resource-rich Orinoco River Basin oil field. Instead of accepting a much smaller role in the operations, Exxon Mobile decided to withdraw from its contract and seek compensation. 

PDVSA will most likely appeal the court rulings. The company would be more likely to obtain a favorable decision if it revealed how much money it was directing to Chavez’s social programs. But doing so would also, “reveal the company's true rate of oil production—a closely guarded secret,” according to Business Week. The company’s oil production is expected to be lower than it advertises.

U.S. officials consider Chavez unlikely to follow through on his threat because the oil suspension would most likely hurt the Venezuelan economy; the United States is its biggest oil customer.

In addition, some commentators think the oil price increase could be attributed to other events, such as recent fighting in Nigeria, the largest oil producer in Africa.

Headline Link: ‘Oil Prices Fall After Surge’

Background: Nationalization and Exxon Mobile

Venezuela nationalizes oil industry

Exxon Mobile obtains freeze on assets

Opinion and Analysis: Chavez’s threat rings hollow

Reference: Venezuela and Hugo Chavez


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