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Analysis: Venezuela warns of oil inflation

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by Carmen Gentile
Miami (UPI) May 21, 2008
Following the discovery of a U.S. Navy fighter in Venezuelan airspace, President Hugo Chavez warned that oil prices could reach $500 a barrel were the United States to attack Venezuela.

The ever outspoken Chavez told Venezuelans that the country's state-run energy company PDSVA no longer would export oil to "anyone" in the event of a U.S. attack on South America's largest petroleum producer.

"Now we're at $120 (per barrel of oil on the international market), and it's continuing up," said Chavez in a national address. "If there's a war against Venezuela �� it won't depart from the Venezuelans, it won't go to anyone."

The Venezuelan leader's warning followed the recent admission by the United States that a counter-narcotics plane "briefly" entered Venezuelan airspace when it became disoriented.

According to Venezuelan defense officials, however, the plane flew nearly directly over the Venezuelan territory of the island of La Orchila in the Caribbean, where the Venezuelan military has a base.

"This is just the latest step in a series of provocations," said Venezuelan Defense Minister Gustavo Rangel in an apparent reference to increased condemnation of the leftist Chavez government by the Bush administration in recent years, despite the fact the United States remains Venezuela's largest oil customer.

While oil prices rose Tuesday to yet another record high, analysts contend that predictions of $500 per barrel prices, even in the event of a full-scale attack by the United States on Venezuela, were part and parcel of Chavez's anti-U.S. rhetoric.

"Even $200 a barrel, while not impossible, would need some kind of major disruption in the market to reach that level," said David Pumphrey, senior energy fellow at the Center for Strategic and International Studies.

Pumphrey did note that the U.S.-Venezuela oil relationship, though crucial to the long-term economic health of both nations, could be in jeopardy were Venezuela discovered to be directly involved in funding radical leftist rebel groups in neighboring Colombia, as has been asserted in recent months.

Last week Interpol announced after months of investigations that Colombian officials had not tampered with computer files that belonged to rebel leaders indicating rebel ties to Venezuela.

The files reviewed by Interpol indicated direct ties between the Revolutionary Armed Forces of Colombia, or FARC, and the leftist government of Chavez, who denied the allegation as an attempt by both Colombia and the Bush administration to undermine his authority.

Meanwhile, two U.S. representatives from Florida introduced legislation in March seeking to designate Venezuela a state sponsor of terror, a move that could hurt the country's oil sector and U.S. relations in the region.

Ileana Ros-Lehtinen and Connie Mack, both Republicans, made their request amid allegations Venezuela pledged $300 million in funding to the FARC.

"Evidence that the Venezuelan government might have given aid and comfort to violent extremists is reprehensible and must not be ignored," said Ros-Lehtinen, who is the ranking Republican on the House Foreign Affairs Committee. "The decision of Venezuelan leaders to support the criminal acts of these violent extremists has poisoned the region with instability and distrust."

A recent memo released by the lawmakers to the media also notes Venezuela's expressed "willingness to cooperate" with Iran on proposed joint nuclear-energy projects. Iran is already on the U.S. State Department's list of state sponsors of terrorism. Other members are Cuba and North Korea.

Interpol is investigating a laptop allegedly containing documents linking Venezuela to FARC that belonged to a rebel leader killed by Colombian forces. If those documents turn out to be true, it could set the stage for lawmakers to push through a terror-sponsor designation for Venezuela, effectively putting its multibillion-dollar oil industry in jeopardy.

For the Bush administration to push for sanctions, however, it first would need the legal framework to do so, said Jorge Pinon, a Latin America expert at the University of Miami and former president of Amoco Oil Latin America.

Proof of funding for FARC on the part of Venezuela would be a direct violation of U.N. Security Council Resolution 1373, of 2001, which says "states shall refrain from providing any form of support, active or passive, to entities or persons involved in terrorist acts."

"Calling Venezuela a terrorist state would give the United States a legal reason to impose sanctions," Pinon told United Press International.

But designating Venezuela a terrorism sponsor and imposing sanctions against one of the United States' largest oil suppliers could prove too damning to the U.S. economy, he added, noting oil prices likely would increase by $5 to $10 per barrel were oil shipments from Venezuela halted or curtailed.

(e-mail: [email protected])

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