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Venezuela's State-Owned Oil Company Opens an Office in Cuba

In April, Venezuelan President Hugo Chavez opened an office of his country's state-owned oil company in Cuba. As VOA's Greg Flakus reports from Caracas, this is part of an overall Chavez strategy to distance Venezuela from its traditional ally, the United States, and broaden the market for the nation's rich deposits of oil and gas globally.

President Chavez said the opening of the office in Havana is one more step towards regional integration free of what he referred to as the "colonial" control of Washington. Venezuela already provides Cuba with a lifeline in the form of 80,000 barrels of petroleum a day, for which Cuba has paid practically nothing in cash.

Back in Venezuela, Chavez critics questioned the logic of opening an office in Cuba to serve the Caribbean, when Venezuela itself has a Caribbean coast. One opposition congressman suggested this move was just one more favor President Chavez has done for Cuba's communist leader, Fidel Castro.

But some experts disagree. Mazhar Al Shereidah, an Iraqi by birth who has lived in Venezuela 38 years and is one of the nation's top petroleum analysts, says Cuba has a logistic advantage because of its location and may also have significant resources to develop.

He says that waters off the coast of Cuba, like waters in the South China Sea near Vietnam, have long been neglected because of political considerations, as well as technological barriers. He says that the Venezuelan oil company, in partnership with Brazil's Petrobras, which has extensive experience in deep-water operations, could strike it rich in Cuban territorial waters.

But Mr. Chavez tends to mix political strategy into his energy policy, according to the editor of the Caracas-based "Petroleum World" online magazine, Elio Ohep.

"He uses oil as a political weapon. He goes to the Caribbean countries and says, 'we are going to help you. I see you have a lot of traders selling you all this fuel oil at high prices. We are going to give it to you at cheap prices. We can do it, we are the producers.' But then, when the time comes at the Organization of American States, he will say, 'Hey, listen, give me a hand here and support my candidate for Secretary-General of the OAS,'” says Mr. Ohep.

Politics may also play a role in the Chavez government's move to expand markets in Latin America and Asia. Venezuela is working with neighboring Colombia to build a pipeline to the Pacific coast where tankers could load oil for delivery to China and other Asian nations where demand is rising. Mazhar Al-Shereida says this makes perfect economic sense.

He says to have only one customer is to put yourself at the mercy of that one customer. He notes that the United States has also avoided having just one supplier, buying oil from a number of other countries. He says, Venezuelan oil represents about 12 percent of total U.S. petroleum imports, but the United States currently represents around 70 percent of Venezuela's export market.

At the same time, the Chavez government has moved to increase royalties and tax payments from foreign companies working under lease agreements in Venezuela.

Mr. Ohep says the companies raised little fuss about the changes, because they see big potential here. He says, "The companies did not say anything, except for one company, Exxon-Mobil, which said, 'Look, you are changing the rules, without consulting us.' The government says, 'Yes, we changed the rules, but this is in the contract. Look at the fine print, you signed it.' The other companies said, 'Okay, we are making a lot of money, much more than projected, all right, fine. Plus, we want to get more capacity.' "

Venezuela is currently the world's fifth-largest petroleum producer. With the development of methods to extract crude from heavy tar-like deposits in the Orinoco belt in the eastern part of the country, Venezuela could be considered to have the largest reserves in the world.

As oil prices go higher, the Chavez government will have money to fund the president's political agenda both inside and outside Venezuela. Still, in spite of his antagonistic relations with Washington, Hugo Chavez has maintained the supply of oil to U.S. refineries and analysts see little short-term threat to the commercial relationship on which both countries currently rely.