Rising US-Venezuelan tensions raise oil supply concerns
Industry analysts and some US government officials worry that the tense relationship between the US and Venezuela is deteriorating to a point where key US crude imports could be jeopardized in the not too distant future.
"One can speculate that concerns in the US government about [Venezuela President Hugo Chávez]'s regime must be growing," noted Luis Giusti, formerly head of Petroleos de Venezuela SA (PDVSA) during 1994-99.
Giusti now is a senior energy analyst with the Center for Strategic and International Studies in Washington, DC.
"In the shoes of [President George W. Bush's] administration, I would be thinking of having alternative channels for covering the 1.3 million b/d imported from Venezuela, just in case."
White House policy shifts
US government and industry sources said the White House's National Security Council met during the third week in January to mull a more aggressive policy direction, including possible economic sanctions aimed at state-owned PDVSA.
Such an action also would likely impact US-based refiner-marketer subsidiary Citgo Petroleum Corp.
An NSC spokesperson would not confirm or deny the meeting took place.
But others familiar with ongoing White House discussions said a meeting was held among top-level Bush administration officials.
Industry and US government sources said that at present the White House appears to be divided on what the US should do next if Chávez continues to embrace policies that are seen as a threat to US interests in the region.
Nearly from the start of his ascension to power in 1998, Chávez has drawn US criticism with regard to his domestic and foreign policy choices.
Yet US policymakers, in this administration and under former President Bill Clinton, stayed clear of linking Chávez's perceived political crimes with economic punishments.
That now could change.
Industry and US government sources say some key decisionmakers within the White House now think there's a lot more to worry about when it comes to Venezuela.
Some of these more-hawkish policy advisors within the Bush administration point to the fact that over the past several months Chávez has deepened diplomatic and trade ties with communist Cuba.
This in turn has triggering renewed concerns that Chávez and his Cuban counterpart Fidel Castro are working harder then ever to undermine their democratically elected neighbors.
And in the environment following the Sept. 11, 2001, terrorist attacks on the US, the nation can ill-afford further instability, especially so close to its shores, some US officials say.
So far, the US has been unimpressed with Chávez's efforts to promote antiterrorism activities in the region, for example.
Venezuela rejects that charge, saying it "rigorously" cooperates with the US to counter terrorism.
But some US officials still worry that unless the US at least threatens to change its trading relationship with Venezuela, Chávez may become increasingly emboldened in pursing an agenda the US finds subversive to US interests.
Some Bush administration officials fear Chávez will successfully undermine a possible recall referendum election that may be held as soon as May. If Chávez stays in office, his term officially ends in 2006.
But some hardline US officials note that, given that there are no presidential term limits, Chávez could possibly remain in power indefinitely, especially if he succeeds in his bid to gain political control over the country's Supreme Court and legislature.
Not everyone in the administration, however, views the threat of sanctions or other punitive trade actions as a productive policy tool.
US energy-policy experts caution that it could be economically perilous, especially in an election year, to antagonize an important short-haul supplier, especially at a time when US refinery turnarounds loom and inventories remain snug.
Further, some administration officials argue that trying to impose sanctions on a country such as Venezuela may seem inconsistent, considering that the White House is at least mulling the possibility that US companies may be allowed to make investments in two other oil-rich and far more politically problematic countries—Iran and Libya.
Past strains
Washington's relationship with Caracas became strained following a short-lived April 2002 coup attempt against Chávez.
After the failed coup a series of widespread strikes within and outside PDVSA temporarily crippled production for a 2 month period last winter.
At the height of the strike some US officials implied that the civil unrest showed that Chávez's policies could hurt the country's reputation as a reliable oil supplier.
PDVSA officials strongly denied the insinuation then and continue to fight it now.
Over the past year, Venezuela has largely succeeded in returning its exports to the US back to historical levels. But its efforts to court foreign investment face formidable challenges, at least in the short-term (OGJ, Dec. 22, 2003, p. 22).
PDVSA says it now is producing its Organization of Petroleum Exporting Countries quota of 2.8 million b/d, although opposition leaders, including former PDVSA managers, say the figure is more like 2.5 million b/d.
According to the most recent data from the US Energy Information Administration, Venezuela supplied 1.65 million b/d of crude and products to the US in November, representing about 15% of total US crude imports.
EIA estimates Venezuela initially lost nearly 3 million b/d of crude oil production following the strike; that action, combined with uncertainty over a possible military action in Iraq and civil unrest in Nigeria, helped drive up world crude oil prices.
In the short term, the volume loss probably affected the US more than most other areas, EIA said in a September 2003 analysis. That's because the US receives more than half of Venezuela's crude and product exports, and replacing the lost volumes proved difficult.
And according to EIA analyst Joanne Shore and agency consultant John Hackworth, some refineries struggled harder than others to replace the lost heavy crude oil volumes.
Of the 11 US.refineries that use most of the Venezuelan crude oil imports, the five that imported mainly intermediate and lighter crude oils lost more volumes of imports in January and February than did the six heavy-crude oil-oriented refineries.
"Finding replacement [lighter] crude oils took them longer because their alternative sources of supply were farther away than alternative sources of heavy crude oil. That is, losing short-haul barrels had a greater impact than losing heavy crude oil barrels," the two said.
"During the Venezuelan supply loss period of December 2002 and January 2003, the 11 refineries with high dependence on Venezuelan crude oil likely did not replace heavy-crude imports with as much light and intermediate crude oil as they could handle with their process facilities. Economics dictated by the lower demands of the first quarter and high current crude oil prices may have persuaded the affected refineries that the best option was to limit lighter crude oil purchases and reduce crude runs."
