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Analysts Concerned Venezuelan Turmoil Affecting Oil Prices - 2004-09-09


Oil prices on the world market remain high compared to a year ago and some analysts believe they could move higher in the months ahead. Among the reasons for the price rise is the political turmoil in Venezuela, which has vast quantities of oil and gas yet to be exploited. Many experts believe the policies of Venezuelan President Hugo Chavez have limited the country's production.

Energy sector experts around the world have provided varying reasons for the past year's oil price increases, but one major reason cited is insufficient capacity. That means oil-producing nations are unable to increase production enough to meet rising demand. Amy Jaffe, the chief energy analyst at Rice University's James Baker Institute, here in Houston, thinks a political shift in Caracas six years ago set the stage for the recent market run-up.

"If somebody said you have to name one event that was most critical to the process of changing the outlook for the world, in terms of oil prices, I would have to say it was the change of government in Venezuela," she said. "That was the single biggest change."

Ms. Jaffe says the rise to power of President Hugo Chavez in 1998 cut short a plan to open the way for more private investment and joint projects with the state-run oil company, Petroleos de Venezuela. She says several large companies from Houston are doing quite well in Venezuela under license arrangements with the government, but that Petroleos de Venezuela has fallen behind the production goals it had in the 1990's.

[The oil industry] started out, when he came into office as an oil industry that was producing or had the potential to produce something like 3.7 million barrels a day and they were on the way to producing seven million barrels a day. Had they gotten there and stayed the course and everything had gone as planned, we would not be facing the kind of oil crisis we face today," he said. "Venezuela would have that extra capacity and if there was a problem in Iraq or someplace else, Venezuela would be sitting there with extra fields."

Petroleos de Venezuela did not respond to requests for a VOA interview, but the president and other officials have defended the policy of diverting money from the oil sector to social programs. Government supporters say this sharing of the oil wealth was long overdue in a country where more than half the population lives in poverty. The Chavez government also has support among many international oil companies which currently operate in Venezuela under rules established during the partial opening of the sector in the mid-1990's. Chevron-Texaco, for example, just finished upgrade work on one project and is now considering a $6-billion investment in a new project.

Venezuelan officials blame setbacks in the oil sector on an opposition-led strike that closed down most oil fields two years ago and caused damage to some wells. They say the nation's oil fields are now producing around three million barrels a day, although independent analysts say the real figure is 2.6 million barrels a day.

A former director of the state-run company and a prominent critic of President Chavez, Jose Toro Hardy, says Venezuela needs to boost production in order to play its traditional role as a stable provider.

"In the past, Venezuela has been considered a very safe, a very secure, oil supplier," he said. "Very few people know, for example, that during World War II, Venezuela supplied more than 60 percent of the fuel used by the Allied Forces. Then again in each and every crisis in the Middle East when oil supply from that region of the world was threatened, Venezuela increased its oil production and helped the market."

Mr. Toro Hardy says current high oil prices on the world market are, to a great extent, the result of uncertainties in the Middle East and elsewhere. He says Venezuela, as the only non-Islamic member nation of the Organization of Petroleum Exporting Countries, or OPEC, could have an even more vital role to play if political circumstances worsen in the Middle East.

"Can you imagine a Persian Gulf in which its eastern shore is controlled by the Shiite fundamentalists in Iran and the western shore of the Persian Gulf would, in the future, be controlled by the Sunni fundamentalists? Can you imagine what would happen to the oil markets if that happened? But, on the other side of the world, you have Venezuela, with the largest oil reserves and we only need investment to increase our oil production," he said. "We have a key role to play in the oil markets, as we played it in the past."

But President Chavez, who last month won a resounding victory in a recall election, has shown little interest in playing that role. While the United States remains Venezuela's biggest oil customer, Mr. Chavez has worked to expand markets in other parts of Latin America and around the world. Although relations with Washington have been strained, the Chavez government has continued to provide around 15 percent of the oil used in the United States. The question that haunts the markets, however, is how long Venezuela can keep up its production if President Chavez fails to make a bigger opening for foreign investment as well as major new contracts.

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