The following editorial appeared in the Chicago Tribune:
When Venezuelan President Hugo Chavez announced that his government was taking a 60 percent stake in oil operations in the country's Orinoco Basin, the foreign companies running those projects had two choices: Take it or leave it. Most of them stayed, but ExxonMobil and Conoco Phillips walked away.
Both companies are seeking international arbitration to recover their investments. This week, Exxon won court orders freezing $12 billion in overseas oil assets owned by Venezuela, a move intended to keep Chavez from selling those assets during arbitration.
That's perfectly reasonable, but we're dealing with Hugo Chavez, who is anything but. The president, who professes to live in constant fear of being assassinated by U.S. agents, insists Exxon is trying to destabilize his government, and that the plot is backed by the Bush administration.
If the conspirators don't back down, Chavez says, he'll cut off oil sales to the U.S. and wage an economic war that will lead to oil prices of $200 a barrel.
"I speak to the U.S. empire, because that's the master," Chavez said on his weekly radio show, "Hello president. Continue and you will see that we won't send one drop of oil to the empire of the United States. ... Take note, Mr. Bush, Mr. Danger."
A board member of Petroleos de Venezuela, the state-owned oil company, acknowledged that cutting off imports to its No. 1 customer, the U.S., would hurt Venezuela at least as much as it hurt the U.S.
The U.S. gets 12 percent of its oil from Venezuela, but if Chavez won't sell it to us, we'll find someone else to, and he'll have to find someone else - or several someone elses - to buy his. But we will, and he will. The economists would say this is because oil is a fungible commodity. To put it another way, threatening to cut us off is like saying we can't have any of the water from one end of the bathtub. Not much of a problem.
Chavez, on the other hand, has big problems. Historic high oil prices have masked Petroleos de Venezuela's worsening cash flow situation, which is caused by high overhead, low production and Chavez's practice of siphoning off earnings to fund social programs and buy friends throughout Latin America. The oil company is the government's largest source of revenue, and Chavez needs more and more money to offset food shortages and rampant inflation. This might be a good time to sell some assets and pump some cash into the company, which is exactly what ExxonMobil is guarding against.
Chavez says the "bandits" at Exxon are trying to rob Venezuela. From where we sit, it looks like the other way around.