CARACAS Dec 2 Uncertainty about President Hugo Chavez's recovery from cancer, stuttering oil output that could slow economic recovery, and political positioning ahead of next year's election are the main risks to watch in Venezuela.
The 57-year-old socialist has declared himself free of cancer following four sessions of chemotherapy and five months after surgery to remove a malignant tumor from his pelvis.
Doctors, however, say it is impossible for the former soldier to be considered out of danger until at least two years after treatment has finished.
A former U.S. assistant secretary of state, Roger Noriega, said sources told him Chavez's cancer was accelerating and that he was not likely to survive more than six months. Government officials angrily rejected that as right-wing propaganda.
With support in two opinion polls rising to around 60 percent after 12 years in office, Chavez stands a good chance of being re-elected at the election set for Oct. 7 next year if he can beat the illness.
The panorama changes if his health deteriorates, since he has no obvious successor in his ruling Socialist Party. Wall Street investors have pushed Venezuelan bond prices higher as they consider the possibility of a more market-friendly replacement for the tough socialist.
In the past, Chavez's electoral success was underpinned by tireless campaigning and face-to-face contact with supporters across the OPEC nation -- and that may not be possible now.
The opposition senses its best chance to unseat Chavez at the 2012 election. It will hold a primary vote in February to pick a single candidate to face him, posing a big test to the fragile unity of the coalition.
That race will heat up further, with a second televised debate scheduled for Dec. 4, and one high profile contender, former Caracas mayoral candidate Leopoldo Lopez, vowing to run despite the Supreme Court upholding a ruling that bans him from holding public office.
What to watch:
-- Further twists and turns in Chavez's health saga.
-- Opposition candidates' positioning ahead of primaries.
ECONOMY AND DEBT
Venezuela's widely-traded bonds initially rallied on the news of Chavez's sickness, with renewed interest from traders assuming a weakened president raises the chances of the opposition winning next year's election.
Expect to see Venezuela debt trading on new developments in the health saga with prices also supported by a government program to buy back sovereign bonds and notes issued by state oil company PDVSA.
PDVSA said last month it will issue $2.394 billion in new bonds maturing in 2021 to be sold to the central bank, ramping up the total debt issued by the country this year to more than $17 billion.
Risk indicators such as JP Morgan's EMBI+ and CDI spreads consistently rate Venezuelan bonds as the highest default risk in the world, so investors will remain focused on whether the government can keep paying.
While some analysts feel Venezuela has been issuing too much debt too quickly, its overall debt burden is relatively low and its repayment schedule is manageable.
The government says it sees no risk of debt default due to the stability of oil prices.
Only the most pessimistic observers predict a serious cash crunch any time soon, although falling crude production means South America's biggest oil exporter needs a higher crude price than in the past to balance its books.
After two years of shrinking GDP, Venezuela moved out of recession and the government predicts about 4 percent growth this year. According to the official budget forecast for next year, growth will accelerate slightly in 2012 while inflation is seen staying above 20 percent.
The government also announced a near 50 percent increase in spending, with cash flowing into Chavez's signature programs to support housing and agriculture ahead of the election.
What to watch:
-- State spending ramped up before the 2012 election.
-- More controversial economic announcements by Chavez.
-- Movements in global oil prices which are significant to Venezuela's income and overall economic picture.
OIL AND PDVSA
PDVSA remains one of the world's largest oil companies, but exports and production are falling, partly because of the heavy load Chavez has put on the company as the main economic motor of his socialist "revolution".
Joint venture projects between PDVSA and foreign companies are feeling the squeeze of a tax hike earlier this year that they say has made finding funding more difficult.
PDVSA is required to hand over so much revenue to the state that it has neglected investment in older oil fields.
A wave of nationalizations in 2009 has also hit production, with PDVSA struggling to take on wells and drilling services previously carried out by private companies.
In the latest scandal for the company, it has been hit by the loss of more $500 million to a U.S.-based hedge fund manager who admitted running a Ponzi scheme.
Venezuelan oil exports fell 6 percent to 2.32 million bpd in 2010, and output dropped even faster to 2.78 million bpd. Thanks to the Orinoco projects, the government aims to boost production to 4.03 million bpd by 2014.
The target for next year is 3.24 million bpd.
Some executives involved in the Orinoco projects remain concerned, however, that uncertainties about infrastructure shortages -- and doubts about government assurances that new windfall taxes will not apply to them -- could still put the brakes on ambitious early output schedules.
Last month, PDVSA said Chinese companies will join another four joint ventures in the Orinoco Belt.
A ruling could come soon in the arbitration case between Venezuela and Exxon related to the nationalization of oil projects in 2007. A high compensation bill could weigh negatively on bonds.
What to watch:
-- More details of investments in projects to exploit the huge reserves in the Orinoco belt.
-- Unscheduled maintenance, stoppages and outages at Venezuela's refineries and heavy oil upgraders.
-- Possible ruling in the Exxon arbitration case.