Chavez Retaliates

He won't sell oil to ExxonMobil.

Oil is a fungible commodity in a global market, so even if Chavez stops selling to the U.S., he will presumably still sell to others. The oil that those others would’ve bought will still be on the market for the U.S. to buy; they may even flip the very same crude to the U.S. In other words, this is a fairly empty threat from Chavez. Remember how well the Arab oil embargo worked?

It may raise oil prices a bit, but the U.S. economy has endured a quadrupling of oil prices in the past 5 or 6 years without much disruption. It can surely absorb the small amount of increase that Chavez’s withdrawal would cause. Put frankly, the worst Chavez could do is stop about 50,000 barrels from getting to the U.S. … which isn’t a very big deal. Our strategic reserves could cover that for longer than Chavez could go without the revenue.

Like it or not, Chavez needs the U.S. — and our refineries, which are among the few in the world that can handle his high-sulfur crude — much more than we need him. Chavez has to know this, which is why he’s made this rather empty threat. He knows that if he sells his oil to somebody else it will likely end up in the U.S. anyway. I would imagine that he is counting on the political gains which would come from ramped-up anti-U.S. rhetoric, while still selling to the U.S. (through an intermediary), thus keeping the coffers full enough to continue funding his social programs.

But imagine the shape he’d be in if the U.S. called him on his bluff and stopped purchasing any oil which originated in Venezuela. We won’t do that, because there is no need to, but if we did that it would give us a minor headache but kill Chavez.