Venezuela’s Chavez ill - Possible Energy Consequences

According to recent reports in the Venezuelan press, President Hugo Chávez is currently undergoing medical treatment in Cuba. Beyond that, little is certain.

The right-wing Latino press of southern Florida reports that Chávez is terminally ill, citing unnamed American intelligence specialists. Their track record of predicting the demise of various progressive Latin American political figures up to now has been less than impressive, most notably in the case of Cuba's Fidel Castro. Adding credence to reports about the seriousness of Chávez's condition however, Spain's EFE news service reported that his daughter Rosines and his mother, Marisabel Rodriguez were "urgently" flown to Cuba in an air force plane last week.

Chávez underwent an operation on 10 June in Cuba for what his government has said was a pelvic abscess. Lending credence to the reports from Miami however are the remarks last Friday by Venezuelan Foreign Minister Nicholas Maduro, who stated, "The battle that President Chávez is waging for his health must be everyone's battle: the battle for life, for the immediate future of our fatherland." On 12 June Chávez spoke to the Venezuelan state media after his operation to say he was well but has only been seen since in photographs issued to the media showing the Cuban leaders Fidel and Raúl Castro visiting him in hospital.

In May the U.S. imposed sanctions on Venezuela's state oil company Petróleos de Venezuela, S.A. (PVDSA), the country's state-owned oil company and the country's fiscal crown jewel.

According to the U.S. Energy Administration, the United States total crude oil imports now average 9,033 thousand barrels per day (tbpd), with the top five exporting countries being Canada (2,666 tbpd), Mexico (1,319 tbpd), Saudi Arabia (1,107 tbpd), with Venezuela in fourth place at 930 tbpd. What happens to PVDSA if Chávez is permanently incapacitated or dies is the source of intense speculation from washing to Beijing. Will the company proceed as before, or be opened up to foreign investors?

Chávez has used PVDSA as a cash cow for his social reform plans - between 2004 and 2010 PDVSA contributed $61.4 billion to social development funds. In April rising oil prices allowed Chávez to announce that Venezuela's minimum wage will rise by more than 25 percent.

According to PDVSA figures, Venezuela currently has 77.5 billion barrels of oil reserves, the largest in the Western Hemisphere. PDVSA has a production capacity, including its strategic associations and operating agreements, of 4 million barrels per day, the highest production capacity in the Western Hemisphere.

So, where from here? Adan Chávez, the president's brother, has indicated that he will return to Caracas before the presidential summit of the Commonwealth of Latin America and Caribbean on 5 July, - the two hundredth anniversary of Venezuela's declaration of independence from Spain.

Watch the date - and if Hugo Rafael Chávez Frías fails to return next month, expect a significant tussle from the Venezuelans who have benefited from his reforms versus those who would like to control one of the few Western Hemisphere's multi-million bpd assets.

By. John Daly of OilPrice.com