VENEZUELAN CRISIS RAISES QUESTION: WHO'S UNSTABLE?

Bob Tippee

Venezuela's crisis shines light on a common distortion of perspective in discussions about US energy policy.

Many recommendations for a reengineering of market patterns—produce more here, use less from there, and so forth—hinge on the perceived need to reduce dependency on supplies from areas deemed vulnerable to political disruption.

But the only area specified in most such discussions is the Middle East—the unstable Middle East, as the region so often is called.

Even now, with Venezuela approaching revolt, nobody talks about instability there as a chronic condition.

At this writing, a nationwide strike that began Dec. 2 had cut production by Petroleos de Venezuela SA to one third of its prestrike level and halted work at the country's three refineries.

Strikers wanted a midterm referendum on the mercurial leadership of President Hugo Chavez—an agent of instability if ever there was one.

For the US, the Venezuelan political crisis means interruption of crude and product imports recently averaging 1.3 million b/d.

Other suppliers can replace the lost volumes. But there will be quality problems, and Venezuelan-owned refineries on the Gulf Coast and in Europe will have to scramble.

Until the crisis ends, uncertainty about its duration will join anxiety about Iraq to keep markets unsettled.

And the other suppliers raising output to make up for lost Venezuelan oil will be—guess where—in the Middle East. Correction: the unstable Middle East.

Of course, Middle Eastern governments don't appear high on any list of stability. But they don't monopolize instability, either.

Among the world's top dozen oil exporters not in the Middle East are Nigeria, Algeria, and Libya—obviously unstable. With those omissions, the list includes only Russia, Norway, and Mexico.

If the US hopes to confine its oil sourcing to regions it considers politically stable, and if it applies the standard worldwide, it will discover that its options are painfully limited.

The consolation where security of supply is concerned is that, stable or not, most countries able to export oil have powerful economic incentive to do so.

(Online Dec. 13, 2002; author's e-mail: bobt@ogjonline.com)

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