U.S. and Venezuela escalate crisis

CARACAS/WASHINGTON (Reuters) - The United States on Friday imposed sanctions on Venezuelan officials it accused of helping Colombian rebels smuggle drugs, deepening a diplomatic crisis that raised the specter of an oil supply cutoff.

The U.S. Treasury Department said Venezuela's top two intelligence chiefs and a recently retired interior minister of had assisted Marxist guerrillas fighting the U.S.-backed Colombian government to traffic in cocaine and guns.

The United States banned U.S. citizens from having dealings with the officials and froze any U.S. assets they may own.

The sanctions were announced in Washington a day after Venezuelan President Hugo Chavez threatened to stop crude sales to the United States and expelled the U.S. ambassador, plunging relations to the lowest point in years.

Chavez acted after his ally Bolivian President Evo Morales threw out the U.S. ambassador, accusing him of stirring up protests against the leftist government.

Chavez, who calls Cuba's Fidel Castro a mentor and sees Russia as a counterbalance to U.S. power, had warned on Thursday that world crude prices would immediately double to above $200 a barrel if he cuts oil to the United States.

The clash was part of a long-brewing conflict between the United States and Latin America's bloc of left-wing leaders antagonistic to traditional U.S. dominance in the region.

Tensions were already high after Chavez allowed two Russian long-range bombers to land in Venezuela and took Moscow's side in disputes over Georgia and U.S. plans for a missile shield in eastern Europe.

Chavez ejected the U.S. ambassador to Venezuela in an expletive-laden tirade against "Yankees" on Thursday. Honduras weighed in on Friday, blocking a U.S. envoy from immediately taking up his post as ambassador.

INTERNAL CHALLENGES

Washington said on Friday it was expelling the Venezuelan ambassador.

State Department spokesman Sean McCormack denied the United States had done anything wrong in the countries and said their action "reflects the weakness and desperation of these leaders as they face internal challenges."

The Treasury Department accused ex-Interior Minister Ramon Rodriguez of being was Venezuela's main weapons contact for the Revolutionary Armed Forces of Colombia, or FARC, and had tried "to facilitate a $250 million dollar loan from the Venezuelan government to the rebels in late 2007."

It accused him and Venezuela's two top intelligence chiefs of "materially assisting the narcotics trafficking activities" of FARC. Washington considers the FARC, which uses drug money to fight Colombia's U.S.-allied government, a terrorist organization.

The United States has criticized the Chavez government for not doing enough to stop Colombian cocaine passing through its borders on the way to U.S. and European cities.

This year, laptops found by Colombia in a rebel camp were seized on by Washington as evidence of cooperation between Venezuelan officials and Colombian rebels.

Chavez said he would not restore normal ties before U.S. President George W. Bush leaves the White House in January.

It is unclear whether Chavez knew in advance that U.S. sanctions were coming against his officials, but Rodriguez resigned unexpectedly last weekend.

Chavez, an ex-soldier trained in a tank division, was briefly ousted in a 2002 coup initially welcomed by Washington. Even at that time, Chavez did not go so far as to expel the U.S. ambassador and has been a reliable oil supplier.

(Editing by Saul Hudson and David Storey)