CARACAS (Reuters) - Exxon Mobil’s move to freeze billions of dollars of Venezuelan oil assets around the globe adds new complications to President Hugo Chavez’s crusade toward socialism, which is already facing growing obstacles.
Fresh off a 2007 nationalization drive that led to a takeover of a large Exxon oil project in Venezuela, the leftist leader is struggling with the fallout over a December poll defeat, growing economic problems and discontent among supporters.
Chavez faces a potentially huge legal battle with one of the world’s largest companies after Exxon’s gambit, which freezes some of Venezuela’s cash and blocks it from selling billions of dollars worth of assets.
But paying a settlement to the Texas energy giant could mean sacrificing millions of dollars needed for the social programs and suffering a humiliating defeat to a transnational company the anti-U.S. leader has described as “imperialist.”
News of the court ruling prompted a sell-off of Venezuelan debt.
“It makes the actions you took a year ago fairly pricey,” said Dino Barajas, an expert in energy law at Paul, Hastings, Janofsky & Walker LLP.
Exxon XOM.N court filings revealed on Thursday show the company won rulings preventing Venezuelan state oil company PDVSA from selling assets such as refineries while also preventing Venezuela from withdrawing more than $300 million in cash from a U.S. bank account.
It was unclear exactly what the impact would be on the day-to-day operations of PDVSA, which critics say is weakened by government’s demands it work on social projects, road repairs and food imports.
“Nobody really knows what is the real reach of these decisions, but it doesn’t look good for PDVSA, or for the country, which depends on the company for everything, even importing food,” said one Venezuelan investor, who asked not to be named.
Chavez launched a broad energy sector nationalization campaign in 2007 as part of a drive to create a socialist society.
Exxon is suing Venezuela for its takeover of the multibillion-dollar Cerro Negro heavy oil project, arguing the OPEC nation violated its contract and illegally snatched complete control.
Venezuela’s Information Ministry said it could not comment on the information.
The news comes only months after Chavez lost a referendum that would have let him run indefinitely for re-election. He is now facing growing criticism over nagging shortages of basic groceries like milk and chicken.
The leftist government is also seeing a growing cash flow crunch at PDVSA, which finances the social programs that keep Chavez popular among the nation’s majority poor.
A new obligation to pay billions of dollars in compensation to Exxon would put further strain on the finances of the company, which saw its debt rise by $13 billion in 2007 to reach $16 billion -- largely driven by the nationalization crusade.
Court papers suggest the move came as a surprise to PDVSA.
In the court documents, PDVSA’s law firm complained that Exxon’s lawyers had been “feigning continued cooperation in good faith while another law firm was working behind the scenes preparing this attachment.”
Additional reporting by Ana Isabel Martinez and Frank Jack Daniel; Editing by Christian Wiessner
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