CARACAS May 25 Venezuelan President Hugo
Chavez wants to respond robustly to sanctions on oil company
PDVSA by his ideological enemy, the United States.
Yet if he goes too far, he risks billions of dollars of oil
trade and financing as the economy emerges from recession and
he prepares a re-election bid. (Full coverage [ID:nUSAPDVSA])
Here are some scenarios of possible consequences of
Washington's decision this week to punish Venezuela for sending
two shipments of a gasoline additive to Iran.
CHAVEZ LIMITS HIS RESPONSE TO STICK-WAVING
Quite likely. After a few days of angry rhetoric and
perhaps threats to limit oil shipments to U.S. clients, Chavez
could quietly drop the subject. The president has already been
in office 12 years, but is preparing a re-election bid for next
year and may want to avoid the distraction of a protracted spat
However, Chavez the candidate will take advantage of the
perception of aggression by the United States to bring some
people over to his side -- nobody likes to feel bullied. This
will help him sell the idea that he is the natural, nationalist
defender of Venezuela's sovereignty and independence.
CHAVEZ STOPS ALL OIL SHIPMENTS TO THE UNITED STATES
Highly unlikely. Although Venezuela has been diversifying
oil customers in recent years, the United States is still its
No. 1 client, and the Gulf Coast is home to many refineries
designed to process its sour crude. It also pays in cash.
Over the years, Chavez has made serial threats to "send not
one more drop" to the United States but for all his noisy
rhetoric, he knows who pays the bills of his socialist
The former soldier, who first sought power in a coup almost
20 years ago, has since won numerous elections, mostly because
of generous social spending that drives growth.
With an eye on the 2012 presidential vote, Chavez wants a
fledgling economic recovery to flourish and he knows public
spending of oil income is vital for that to occur.
CHAVEZ AVOIDS BREAKING U.S. SANCTIONS ON IRAN IN FUTURE
This is the billion dollar question. In the next few days,
we can expect a lot of rhetoric about Iran being a brother and
Venezuela's right to choose its own friends.
But PDVSA may well think twice before risking shipping
products to Iran that the U.S. sanctions prohibit.
Tuesday's measures were largely symbolic. Next time, U.S.
President Barack Obama will be under pressure to get tough and
could limit PDVSA's access to U.S. financial institutions. This
would especially hurt PDVSA's U.S. subsidiary, CITGO.
The Venezuelan company has issued about $6 billion in bonds
in the first six months of the year, and will likely issue more
as the year goes on, as much to help contain Venezuela's
exchange rate as for its financing needs.
With the election looming next year, Chavez will want to
steer well clear of a freeze on funds for his revolutionary
VENEZUELA MOVES CLOSER TO IRAN AND MORE SANCTIONS KICK IN
Possible. This is the worst-case scenario for both
Venezuela and the United States. Tuesday's measures were more
bark than bite, but the two countries are now playing a game
with very high economic stakes.
Venezuela and Iran have signed a pre-agreement to give
PDVSA a 10 percent stake in Iran's South Pars natural gas
A February 2011 report from the U.S. Congressional Research
Service concluded that the deal, if it happens, would "appear
to subject PDVSA to sanctions."
A second round of sanctions, which are already authorized
by the White House but not yet applied to Venezuela, could
easily affect PDVSA financing and exports. They could also
freeze CITGO's assets including three large refineries, with
serious consequences for oil markets.
Chavez's pragmatic streak is probably strong enough to stop
him taking this route, but he may well gamble that the United
States would never go so far as to risk its oil supplies and
that the political benefits of defiance outweigh the risk.
PDVSA LIMITS SHIPMENTS TO SOME CLIENTS
Possible. Oil Minister Rafael Ramirez said this is an
option being considered. Venezuela has joint-venture refineries
such as the 192,500 barrel-per-day Chalmette in Louisiana,
which it shares with Exxon Mobil Corp (XOM.N).
It also operates a 350,000 bpd refinery with Hess Corp
HESS.N on the Virgin Islands and the smaller Merey Sweeney
unit with ConocoPhillips (COP.N).
Relations are already very strained with Conoco and Exxon,
who have arbitration cases against Venezuela for the
nationalization of oil projects four years ago. PDVSA could
also try to sell more oil on the spot market to traders who
deal principally with Europe and Asia in a bid to squeeze U.S.
VENEZUELA IMPOSES SANCTIONS ON U.S. COMPANIES
Far-fetched. But not totally impossible -- Chavez could
choose to limit relations with certain U.S. companies who make
money in Venezuela.
Despite years of deteriorating relations, many U.S. firms
still operate in the South American OPEC member, including a
number of large oil service companies such as Baker Hughes and
It is hard to imagine PDVSA wanting to end its ties to
these companies, since they provide rigs and drilling vital to
Another option is a symbolic measure to prevent a company
such as Exxon Mobil from doing business with Venezuela. The
company has been particularly aggressive with PDVSA in the
past, seeking and briefly winning a $12 billion asset freeze a
few years back.
It is also seen by Chavez as essentially an extension of
the U.S. government. Such a move would be similar to the U.S.
measures against PDVSA, since Exxon does no business in
Venezuela and has no desire to do so while Chavez remains in
Companies such as Chevron (CVX.N), which is actively
investing in Venezuela's vast tar-like crude reserves near the
Orinoco river, are almost certainly safe from retaliation.
However, along with the service companies, they may be at risk
from the U.S. sanctions that some analysts believe limit the
use of American components in the Venezuela oil industry.
VENEZUELAN BONDS TAKE A HAMMERING
Depends on all the above. On Tuesday, prices for Venezuelan
debt briefly plunged after news of the sanctions broke. Once it
was clear the measures would not affect crude sales for now,
and Venezuela's ability to pay, the bonds recovered.
That could change if the conflict with Washington escalates
and the market senses tougher measures are imminent.
(Additional reporting by Marianna Parraga; Editing by Andrew
Cawthorne and Doina Chiacu)