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US Military: Post-Chavez Venezuela 2002 to pour oil on troubled waters Venezuela

Venezuela’s Electronic News —

In an article published on a US military website significantly on April 12, 2002, the Pentagon analysts wrote: The oil markets — reacting to OPEC’s supply curtailments, threats of war, rising violence in the Middle East and political instability in Venezuela — have been on a roller coaster ride over the last month.

In reality, only the Venezuelan situation truly threatened to undermine market stability. With former President Hugo Chavez now removed from power, increased Venezuelan production should bring more stability to oil prices.

The analysis, which bears the hallmarks of a lengthy preparation in anticipation of the April coup d’etat but not its subsequent failure, continues: With former President Hugo Chavez no longer calling the shots in Venezuela following his resignation and arrest April 12, state oil monopoly Petroleos de Venezuela (PDVSA) will quickly increase oil production to both generate income and reassert its desire to become a major global energy player. This will provide enough additional supply to mitigate the recent instability in global energy markets.

Longer-term factors argue for broadly lower prices — and less OPEC cohesion — in the future as well. Since his inauguration in February 1999, Chavez transformed Venezuela from OPEC’s biggest oil-production quota-evader into its most stalwart quota-enforcer. As recently as December 1999, the country was overshooting its production quota by a million barrels; since Chavez came to power, it has been roughly in alignment.

During his presidency Chavez led the charge for numerous production cuts and toured the world last year to extract commitments from OPEC and non-OPEC states alike. Without his efforts, it is unlikely the cartel’s January 1, 2002, cut of 1.5 million barrels per day would have materialized. OPEC Secretary General Ali Rodriguez is a Chavez associate, and it is highly likely that he will soon either be out of a job or singing a radically different tune in regard to production cuts.

Without Chavez’s policies and personnel in place, the price spike created by his supply-restricting tendencies and the recent anti-Chavez strikes in the Venezuelan oil industry will quickly settle. Once Caracas revokes Chavez’s anti-investment laws — the new hydrocarbons law in particular — foreign cash should again flow into the country in earnest, giving PDVSA managers a chance to fulfill their corporate vision of becoming the single-largest oil supplier to the United States.

PDVSA managers have already drawn up a plan for restoring and expanding production that could bring Venezuela 300,000 bpd above its OPEC quota. This plan will certainly have the full backing of the United States. The Bush administration, quietly thrilled that Chavez is in handcuffs, is perfectly happy to let its “aid” to the new Caracas government consist primarily of oil investment. This both saves tax dollars and firms up an oil supplier that is conveniently several thousand miles away from the Middle East.

Elsewhere in the energy markets, standard fundamentals are beginning to reassert themselves. The end of the Chavez regime signals a resumption of steady and slowly increasing oil supply out of Latin America. The willingness of OPEC producers to comply with the January 1, 2002, cut is beginning to crack as well. There are even indications that Russian producers, in league with Moscow officials, are scheming to steal Iraq’s market share before the end of Baghdad’s 30-day oil export embargo, called earlier this week to protest Israel’s recent occupation of Palestinian territories in the West Bank. That leaves only the Iraqi embargo itself as a negative on the supply side.

And with the United States backing off its warlike rhetoric against Iraq in the aftermath of a disappointing summit between US President George W. Bush and British Prime Minister Tony Blair in Crawford, Texas, last weekend, it is only the Israeli-Palestinian issue (with all of its Hezbollah, Syrian, Jordanian and Egyptian side issues) contributing to the spike in oil prices.

This does not mean the oil markets will be either flat or weak. Demand in North America and to a lesser degree in Europe and Asia, sans Japan, is indeed picking up, and the oil markets are by definition volatile. But the reinstallation of professionalism in PDVSA management should provide enough wiggle room in the market to, pardon the expression, pour oil on waters that would otherwise be troubled by the Middle East. This article was originally published at on April 12, 2002 — just one day after the coup d’etat against Venezuelan President Hugo Chavez Frias

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