February 10, 2008
Venezuela's President Hugo Chavez yesterday threatened to cut off oil sales to the United States if ExxonMobil pursues international court orders it has obtained against billions of dollars of Venezuelan state assets in a contract dispute.
"If you end up freezing [Venezuelan assets] and it harms us, we're going to harm you," Chavez said in his weekly radio and television show. "Do you know how? We aren't going to send oil to the United States. Take note, Mr. Bush, Mr. Danger."
Venezuela sells about 1.3 million barrels a day of oil to the United States, making it the fourth-largest source, at 14 percent, of U.S. petroleum imports.
While a cut in Venezuelan oil exports would drive up oil prices sharply, oil analysts believe it is unlikely that Chavez would carry out his threat. Venezuela, beleaguered by food shortages, depends heavily on oil exports for about 90 percent of its export earnings and about half of government revenue. The United States is its main market. In addition, Venezuela sells much of that oil through U.S.-based Citgo, which is owned by Petroleos de Venezuela. Some analysts said Chavez was trying to distract Venezuelans from his own political setbacks.
Still, Chavez said, "If the economic war continues against Venezuela, the price of oil is going to reach $200 [a barrel] and Venezuela will join the economic war." He added: "And more than one country is willing to accompany us in the economic war."
Chavez lashed out after ExxonMobil's recent success in obtaining court orders in Britain, the Netherlands and the Netherlands Antilles freezing up to $12 billion in Venezuelan state assets.
The U.S. oil giant also convinced a New York federal court to freeze $300 million in funds held by a joint venture formerly shared by ExxonMobil and the Venezuelan state oil company, Petroleos de Venezuela. Court hearings are scheduled over the next couple of weeks.
Exxon filed its arbitration cases after Chavez ordered Petroleos de Venezuela in May to seize control of two Exxon-operated ventures in the Orinoco region as part of a campaign to nationalize key industries. Exxon and the government could not agree on compensation for the expropriated portion of the venture.
But while other international firms in the same position accepted less favorable deals with Venezuela, Exxon walked away from its venture, which accounted for a small percentage of its worldwide production, and filed suit. Although the company took a $750 million write-off, analysts believe the heavy oil venture could be valued at two or three times that much.
"Hugo Chavez foolishly thought he could get away with it," said Fadel Gheit, oil analyst at Oppenheimer & Sons. "You just cannot go unilaterally and confiscate assets at will like that especially when your largest customer is the government of the company you're seizing assets from. Obviously Exxon is going to have the last laugh."
Exxon executives say they hope to return to negotiations with Venezuela, but Chavez did not sound a compromising tone over the weekend. "I speak to the U.S. empire, because that's the master: Continue and you will see that we won't send one drop of oil to the empire of the United States," Chavez said.