/ 13 February 2008

Venezuela halts oil supplies to Exxon Mobil

Venezuelan President Hugo Chávez stopped oil exports to Exxon Mobil on Tuesday, escalating a multibillion-dollar fight with the United States company two days after threatening to cut off all supplies to America.

The anti-US president’s retaliation for Exxon’s legal offensive, which froze $12-billion in Venezuelan assets, pushed oil prices higher in late trading.

State oil company PDVSA said it broke off commercial ties and halted the supply of crude and petroleum products to America’s largest company in a fight over Exxon’s demand for compensation after Chávez seized a crude project last year.

”Faced with the legal-economic harassment started by Exxon Mobil against PDVSA and as an act of reciprocity, PDVSA has decided to suspend commercial relations,” the Venezuelan company said in a statement.

Venezuela is the number four energy supplier to the United States, which is its biggest customer.

Washington has played down Chávez’s threat, industry analysts say it is unlikely he will carry it out and even his deputy energy minister said Venezuela wanted to avoid a general cut-off because it would be costly for the Opec nation.

But after regularly issuing conditional warnings over ending exports to what he calls the evil superpower, Tuesday’s albeit limited move was the first time Chávez has taken any concrete action over supplies in a dispute.

PDVSA said it would not break certain contracts with Exxon, an apparent reference, analysts said, to the jointly owned Chalmette refinery in Louisiana.

Venezuela’s other sales to Exxon in November were about 90 000 barrels per day, a drop in the bucket for the world’s largest oil company.


Jim Ritterbusch, president of Ritterbusch & Associates oil consultants, said Chávez’s move was ”sabre-rattling”.

”It is to Venezuela’s interest to keep oil prices high and its response to the Exxon Mobil asset freeze orders has done just that,” he said.

With two-thirds of Venezuela’s oil exports going to the United States, industry analysts believe Chávez is unlikely to carry out his supply threat because it would slash revenue he uses to fund the social programmes that underpin his popularity.

The Exxon battle pits Chávez, a leading proponent of resource nationalism who calls capitalism an evil, against one of a giant company seeking access to increasingly restricted oil deposits around the globe.

Chávez, a self-styled socialist revolutionary who clashes with Washington over everything from oil prices to democracy, says Exxon is a proxy in a US economic war against him..

Venezuela’s Oil Minister, Rafael Ramirez, said fellow Opec members had expressed solidarity with the South American nation in the fight and consulted with the oil producers group’s lawyers on a defence strategy.

But an official of the Bush administration, which has distanced itself from the Exxon action, said the United States had lined up allies in the spat too.

Other major oil producers have assured Washington they would make up for any interruption to Venezuelan supplies, said the official who declined to be named, adding a cutoff would hurt ordinary Venezuelans.

And the head of the International Energy Agency, which coordinates the release of global crude oil and refined product stockpiles in the event of a major supply disruption, said the group was willing to act if needed.

It was not immediately clear whether PDVSA would still supply some crude to Chalmette or what it would do with the excess crude that would normally go to the US company.

Exxon Mobil said it will act to ensure supply to its clients.

”It is our long-standing practice to take appropriate steps to meet our customer needs,” spokesperson Margaret Ross said. – Reuters