Political tension, violence in Venezuela raise oil price pressure

Bob Williams
Executive Editor

HOUSTON, Mar. 17 -- Political tensions remain high in Venezuela, and the threat of violence there will linger, with continuing upward pressure on oil prices this year the likely result.

In the latest development, opposition to Venezuelan President Hugo Chávez got a boost Monday when the electoral branch of the Venezuelan Supreme Court essentially validated enough referendum signatures to allow a recall referendum election to proceed. The court's surprise decision rejuvenated the campaign to oust Chávez, after the National Electoral Council earlier had refused to confirm more than 876,000 referendum petition signatures, thereby putting the opposition short of the 2.4 million required.

Earlier today, however, the court's constitutional branch—seen as friendlier to the regime—vacated the decision. Now the full 20-magistrate court must settle the issue.

Therein lies the likelihood of a protracted legal wrangle that is likely to underpin simmering tensions and higher oil prices in the months ahead.

Chávez, meanwhile, continues to bait the US government and demonize the Bush administration as the alleged source of a possible coup against him. He ratcheted up the dispute last week when he offered political asylum to ousted Haitian President Jean-Bertrand Aristide. Chávez claimed his government will not recognize the new, US-supported Haitian administration, and he reiterated Aristide's claims that US troops forced the Haitian leader into exile—even going so far as to claim that US troops "kidnapped" Aristide. The Venezuelan leader also has threatened to cut off oil supplies to the US should he perceive US attempts to remove him from office—even as state oil company officials seek to improve relations and reaffirm oil supply commitments to the US (OGJ Online, Mar. 16, 2004).

Even if the referendum proceeds, that doesn't mean the unrest would ease. Under the Venezuelan constitution, having a successful recall vote after Aug. 19 allows the current vice-president to fill out the recalled president's term. That would keep Chávez's party in power until the next scheduled election in 2006—an outcome anathema to the opposition.

If the recall referendum election is allowed to proceed, it could come as early as next month. But there is no guarantee that Chávez even would lose the referendum; while some polls in Venezuela show support of as much as 70% for his recall, he remains popular with Venezuela's poor, still a majority in the country. And if Chávez is recalled, he has vowed to defy what he deems an illegal, US-orchestrated ouster of his regime.

So civil strife is likely to continue in Venezuela no matter what shakes out in terms of the recall referendum.

A complete halt to Venezuelan oil production and oil exports—as with last year's strike—is unlikely this year. That's because the mass firings that were the government's response to the strike amounted to a "political cleansing" of state owned Petroleos de Venezuela SA. Although the remaining PDVSA staff is stretched to the limit after the loss of 18,000 employees, or nearly half the company's workforce, the state company insists its production and exports have recovered to nearly normal levels (OGJ, Dec. 22, 2003, p. 18). Those claims are disputed by the opposition and not supported by outside data-gathering agencies.

But remaining staffers also warned of continuing sabotage attempts targeting oil facilities. As the opposition's frustration mounts over the stymied recall referendum election, efforts from outside PDVSA to cripple the country's oil sector may not prove as successful as last year's strike but could bedevil production and exports enough to add yet another risk premium to oil prices this year.