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It's all about the price of oil


The escalating attacks against the United States are not about the extradition of Luis Posada Carriles, Venezuelan sovereignty, or defense of the nation against an expected invasion or assassination. They are about the price of oil.

For years, the Chavez regime has done everything in its power to drive up the world price of oil. It does so for two strategic reasons, one internal and the other external. The internal requirement is for revenues reduced by PDVSA production shortfalls and corruption to pay for the political missions that prop up public support for the regime. The external need is for revenues to continue oil subsidies to Cuba and other states whose votes Venezuela has purchased at the Organization of American States, and to establish conditions in which the entire global economy can fall into an oil depression, which will hasten a new moral order run by -guess who?

It is no coincidence that the world oil price increased in parallel with Venezuelan preparations for war, invasion, and assassination, and unilateral edicts hostile to foreign oil companies. The market reacted to these hyperbolic, paranoid rants in predictable fashion, by raising the political risk premium for investments in Venezuela -which Chavez doesn't care about- and cranking Venezuela's insecurity into the volatile world oil price calculation -which was his intention.

It worked. Speculators in the market agreed that Chavez might do something crazy. In the last year, Wall Street analysts estimate that about $10 per barrel of the world oil price resulted from instability in the Middle East and Venezuela. Chavez, who knows a lot more about manipulating free markets than he puts on, must have collected those premiums with a horse laugh.

But in May, the oil price sustained a continuous drop totaling 7.2% in just two weeks. The fundamentals of the oil price -reserves, production, refining and global demand- did not justify a price of $50 per barrel. So Chavez tried to ratchet up the speculators again, by threatening to close embassies over the Posada affair, kicking the oil companies out of the country unless they paid him more tribute, and planning a nuclear program with Iran. While most people follow the Chavez horror show on TV news, he's tuned into the oil quote prices on the  Bloomberg channel to see if it worked.

Rowan's column is published every Tuesday.

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