US Oil Sanctions Against Venezuela May Help Chavez

By Ezequiel Minaya and Kejal Vyas

Of DOW JONES NEWSWIRES

CARACAS (Dow Jones)--U.S. sanctions against Venezuela's state oil company may benefit rather than hurt President Hugo Chavez's government by providing fuel for anti-U.S. rhetoric as the leftist leader rallies supporters ahead of next year's presidential elections.

Slamming Washington is a timeworn strategy for winning votes in many parts of Latin America, and it could provide a boost to the re-election bid by Chavez, who in his 12 years in power has become the region's loudest U.S. critic.

"Chavez is using [the sanctions] as a weapon to consolidate his base, to put the opposition in an uncomfortable situation and to rally support for his election campaign," said Anibal Romero, a Caracas-based retired professor of political science.

While analysts don't expect the recent sanctions to have much effect on Petroleos de Venezuela SA, or PdVSA, as the state oil company is known, the reaction from the Chavez government has generated unease among holders of Venezuelan debt, weighing on bonds trading in New York in recent days.

Last week, the extra yield that investors demand for holding risky Venezuelan bonds jumped nearly 0.9 percentage point to 12.25 percentage points over U.S. Treasurys, according to J.P. Morgan's Emerging Market Bond Index Global.

PdVSA is one of seven companies penalized by U.S. officials who say they provided gasoline and other refined petroleum products to Iran in violation of a U.S. law that aims to pressure Tehran into dropping its nuclear program. The State Department said PdVSA supplied Iran with "at least two cargoes" of a blending component used to improve gasoline.

The sanctions bar PdVSA from seeking U.S. government contracts, obtaining U.S. export licenses, and from obtaining financing from the Export-Import Bank of the U.S., but leave untouched the flow of an estimated 1.2 million barrels a day of Venezuelan crude oil to the U.S.

PdVSA's refining business in the U.S., represented mainly by Citgo Petroleum Corp., will also be unaffected.

"The relationship between the two countries is mutually dependent," said Bret Rosen, a Latin America sovereign-debt analyst at Standard Chartered. "The U.S. needs Venezuelan oil and Venezuela needs the U.S. export market."

The Chavez government has portrayed the U.S. penalties as an encroachment on Venezuela's sovereignty. The head of PdVSA, Rafael Ramirez, told a cheering crowd Sunday that in delivering the sanctions, U.S. authorities "hit us with everything they had."

Chavez, in a comment on social networking site Twitter, called it a "new aggression" by "the imperialist gringo government."

His government says Venezuela has grown less dependent on the U.S. because of growing ties with countries such as China and Russia, and has even hinted that a diplomatic break with the U.S. was among the options under consideration by Caracas. Venezuelan officials say they are "evaluating" what actions to take in response to the U.S., but haven't announced any specific measures.

"I think the response from [Chavez] is fairly typical, very anti-American and very tough. I think there's more bark than bite," said Terry Hallmark, director of political risk and policy assessment at the Houston office of IHS, an energy industry research firm. "I'm pretty sure Chavez is trying to make the most of it politically."

Venezuela's political opposition also denounced the U.S. sanctions.

-By Ezequiel Minaya and Kejal Vyas, Dow Jones Newswires; 58-414-120-5738; [email protected]

-Dan Molinski contributed to this report.