Venezuela Says Unilateral Oil Cutoff to the U.S. is “Absurd”

A letter from Bernardo Alvarez, Venezuela's Ambassador in the U.S., to U.S. Senator Richard Lugar, Alvarez explains that the recent report by the General Accounting Office on a possible unilateral disruption of Venezuelan oil to the U.S. is an "absurdity."

Caracas, Venezuela, July 17, 2006 —Venezuela’s embassy in the U.S. responded to the U.S. government’s speculation that Venezuela might cutoff its oil supply to the U.S. by saying that the possibility of this happening unilaterally is “absurd.” Venezuela’s Ambassador to the United States, Bernardo Alvarez, gave the response in a letter written to U.S. Senator Richard Lugar, who had commissioned the U.S. Congress General Accounting Office (GAO) to make an analysis of a potential Venezuelan oil cutoff.

The GAO study, which was released in June, indicates that the U.S. is more vulnerable now to a disruption in Venezuelan oil production than it was during the December 2002 to January 2003 opposition-led shutdown of its oil industry. Venezuela is the fourth largest oil importer to the U.S., supplying approximately 1.5 million barrels per day.

The GAO says that a six month disruption of production, would “lead to a reduction of up to $23 billion in U.S. gross domestic product.” Similarly, a Venezuelan oil supply embargo against the U.S. would mean an increase in the price of oil. The report also noted that, “These disruptions would also seriously hurt the heavily oil-dependent Venezuelan economy.”

Ambassador Alvarez’s July 6th letter to Senator Lugar, which was posted on the embassy’s website last Friday, laments that the GAO study embodies a “serious logical inconsistency.” On the one hand the report notes that in the event of an involuntary disruption of oil production, Venezuela would try to restart production as rapidly as possible, just as it did during the 2002/2003 oil industry shutdown because oil is so crucial to Venezuela’s economy. “Oil exports provide the revenues to the Venezuelan government that are vital for its programs and essential to its very viability,” says Alvarez in his letter.

On the other hand, the report does not give any consideration of what a voluntary disruption of oil supply to the U.S. means for Venezuela. “Yet, the GAO does not even make a reference to the absurdity of a unilateral action by the Venezuelan government purposefully to cut off oil exports given the GAO’s analysis of the importance of such exports to Venezuela, and its government, whoever may be president,” continues Alvarez.

Both the GAO report and the Ambassador’s letter suggest on several occasions the Venezuelan government’s commitment to supply oil to the U.S. According to Alvarez, this shows that Venezuela does not want to politicize this economic relationship. However, as the GAO report highlights, there are several instances in which the U.S. has discontinued cooperation between on energy related issues between the two countries.

The report mentions and Alvarez’s letter restates that, “it was not Venezuela but the U.S. government, solely for political reasons, that has discontinued the bilateral technology and information energy exchange agreement between our two countries that had been successfully ongoing for over 20 years.” For Alvarez, this is “a strong indication of the imposed prohibition on U.S. agencies, like the Department of Energy, to engage effectively with Venezuela.”

This example and others show that while Venezuela wants to “ remove politics from the energy equation, the United States, unfortunately, has acted in ways more apparent than real in this regard.”

Also, the report speculates about the current level of Venezuelan oil production and suggests, on the basis of outside oil analysts, that it has declined from 3.1 million barrels per day (mpd) to 2.6 mpd since the 2002 oil industry shutdown. Alvarez’s letter, just as Venezuela’s state owned oil company PDVSA, denies this to be true. However, even if it were true, the fact, which the GAO acknowledges, that Venezuela is currently supplying just as much to the U.S. as it did before the oil industry shutdown, shows Venezuela’s commitment to the U.S. market.

Finally, with regard to speculation that Venezuela is seeking to replace the U.S. market with that of China and/or India, Alvarez’s letter clarifies, “As any sensible supplier, we are constantly looking for new customers, as we continue to serve existing, and especially long-standing, customers. This should be no cause for alarm,” says Alvarez.

Venezuela plans to double its oil production by 2012, and officials at the state oil company PDVSA have argued that the country needs to find  additional customers.