Hugo Chavez Cuts His Own Throat

Venezuela president Hugo Chavez says he will not send anymore crude to Exxon (XOM). The most profitable US company has frozen $12 billion assets from the Latin American country’s state owned oil operation to offset assets which the government nationalized.

Exxon can get oil elsewhere, at least for the time being. It is likely to be supported in its fight by other large oil companies who have also been bullied by Chavez. OPEC members are also likely to help Exxon’s crude supply moving. They do not want to be seen as aiding and abetting a rise in the price of oil, even if it might benefit them for a period.

Chavez cannot be certain that the oil he does not send to Exxon will find a place somewhere else. Doing business with Venezuela has not exactly taken on the dressings of stability. He can turn to China as a buyer, but the Asian country is likely to drive a hard bargain if it sees Chavez has excess crude. That will tend to drive the price lower, which works against Venezuelan interests.

The most important barometer of whether the Chavez move is working is the price of oil. It has not gone up much in the last two days. And, certainly not to the $200 level that the president-for-life predicted.

Douglas A. McIntyre