Analysis: Venezuela nixes dollars for oil

by Carmen Gentile
Miami (UPI) Nov 28, 2007
Venezuela is calling for oil to be sold in other currencies besides the U.S. dollar because of the greenback's declining value.

"The dollar has devalued and it is distorting the oil market because there is a financial crisis knocking on the U.S. door," Venezuelan Energy Minister Rafael Ramirez said in an interview with Venezuelan state television Tuesday.

"The oil price is $100 a barrel. But what dollar are we talking about? It's a dollar that makes you laugh," he said.

The remarks by Ramirez follow Venezuelan President Hugo Chavez's recent remarks about the "fairness" of a barrel of oil being priced at $100 on the world market. Speaking at the OPEC Conference in Saudi Arabia earlier this month, Chavez told members of the Organization of Petroleum Exporting Countries that the cartel should no longer trade in U.S. dollars, saying that "with the fall of the dollar, the deviant U.S. imperialism will fall as soon as possible."

Chavez's remarks are not new; the Venezuelan president often publicly criticizes U.S. policy, though the United States is by far Venezuela's best customer.

His latest comments, however, come as Venezuelans prepare to vote in a referendum on numerous constitutional reforms that, if approved, would give him greater executive authority to use the country's oil revenue to fund his social agenda. Among the 69 "reforms" proposed is an end to presidential term limits.

Oil prices reaching $100 a barrel does not necessary guarantee a greater revenue stream for Venezuela's state-run energy firm PDVSA, note some analysts, as the country faces a potential economic slowdown.

Gross domestic product growth that reached 8.4 percent in 2007 could slow to 2.3 percent by 2010, according to the New York-based Latin Source think tank.

At the same time, inflation is forecast to go up from 22.8 percent in 2007 to 83.2 percent in 2010, said the group, a prediction Chavez could be mindful of while calling for world oil prices to remain high.

"A hard landing (for Venezuela) looms on the horizon," said Latin Source in a report released earlier this month. "It could be triggered both by external shocks caused by falling oil prices and by internal shocks caused by radical implementation of Chavez's agenda. Its likelihood increases as vulnerabilities mount."

The Venezuelan president's call for high prices could also be considered a stopgap measure for compensating -- in the short run -- for what some consider chronic shortcomings in oil production levels in recent years.

According to remarks by a high-ranking PDVSA official, Venezuela suffered from equipment shortages responsible for waning production levels.

PDVSA's independence could take even longer considering Venezuela's oil output is believed to have slipped by more than 250,000 barrels per day from a year ago, according to the Paris-based International Energy Agency. Production has reportedly decreased from 2.6 million bpd to 2.37 million bpd.