His threat to cut oil to the US over the weekend was yet another example of posturing by the Venezuelan leader.

I have noted before in this column that resource wars were going to be more and more likely – especially if the population issue is not sorted out. Well, they are actually already happening…

I’m not referring to the neo-con oil war that has decimated Iraq. I’m referring to what Chavez is annoyed about – America’s economic war against his country.

This followed on from events last week when British and US courts froze assets belonging to the state energy company last week. Exxon Mobil is trying to get compensation from Venezuela's state oil company because it feels it was ripped off when the country nationalised some of its assets. It probably was…

According to the dear leader, Exxon's management are imperialist bandits who form part of a US government-backed campaign to destabilise Venezuela. “The outlaws of Exxon Mobil will never again rob us,” he said.

Of course, Chavez will not carry out his plan to cut US oil. He is merely posturing. The US is the country’s largest customer and he would be cutting off his nose to spite his face.

Venezuela has an oil economy. It is the world’s fifth-largest oil exporter and its oil reserves are among the top ten in the world. Oil revenues account for roughly 90% of export earnings, more than 50% of the federal budget revenues, and around 30% of GDP.

Mutual dependence

Venezuela supplies about 1.5 million barrels per day of crude oil and refined petroleum products to the US market, according to the Energy Information Administration. Venezuelan oil makes up about 11% of US crude oil imports, which amounts to 60% of Venezuela’s total exports.

A nationwide strike between December 2002 and February 2003 had far-reaching economic consequences - real GDP declined by around 9% in 2002 and 8% in 2003 - but economic output since then has recovered strongly – this has been fuelled by high oil prices.

One worrying thing for the US, however, is what Chavez will do with his US refineries. That is the real issue.

Venezuela’s state oil company Petroleos de Venezuela owns Citgo Petroleum. Citgo is not only a gasoline retailer in the US, but it also owns SEVEN oil refineries across the country, which constitutes 6% of the country’s refining capacity.

Hugo Chavez has said that he ultimately planned to sell off these refineries and build more in Asia. These refineries are likely to be bought by the current big players in the industry such as Valero or Tesoro, but Hugo may try some political shenanigans with their sale. How about a sale to Gazprom...?

I have always found it amusing that a company that is effectively controlled by Hugo Chavez owns 6% of US refining capacity, as well as a significant amount of petrol stations.

One thing is for sure, Chavez will use these to score political points when ever he can. But, as for bringing the US to its knees, I doubt that will ever happen. Venezuela depends on its main trading partner to keep its own creaky economy moving forward. Chavez can’t cut off his nose to spite his face. He’d be an utter fool. P.S. If you enjoyed this article then sign up for Smart Commodities UK. It’s dedicated to searching out the investment trends that could provide our biggest profit opportunities for the next decade…

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