Bush Told To Plan For Chavez Oil Shock

Bush told to plan for Chávez oil shock

http://msnbc.msn.com/id/14001903/

By Andy Webb-Vidal in Caracas
Updated: 12:42 a.m. ET July 24, 2006

Richard Lugar, chairman of the US Senate foreign relations committee, has urged the Bush administration to adopt specific "contingency plans" for a potential disruption to oil supplies from Venezuela.

In a letter sent to Condoleezza Rice, secretary of state, last Friday, a copy of which has been obtained by the Financial Times, Mr Lugar warned the US that it needed to "abandon" reliance on a "passive approach" to energy diplomacy.

Mr Lugar's warning follows the release last month of an investigation by the Government Accountability Office (GAO) that the US was ill-prepared for an oil embargo by Venezuela, the world's fifth largest ex­porter. President Hugo Chávez, whose government has been emboldened by a torrent of oil revenues, has several times warned that he would "cut off" oil supplies to the US if Washington persisted in allegedly plotting his overthrow.

"Venezuela's leverage over global oil prices and its direct supply lines and refining capacity in the US give Venezuela undue ability to impact US security and our economy," Mr Lugar wrote in his letter to Ms Rice.

The GAO study, commissioned by Mr Lugar, a Republican, estimated that a Venezuelan oil boycott would raise oil prices by $11 (€9, £6) per barrel over a six-month period and reduce US economic output by $23bn.

Bernardo Alvarez, Venezuela's ambassador to the US, dismissed as "absurd" the GAO study's premise that Mr Chávez would purposefully shut off oil supplies, citing the economic impact it would have on his own country.

Venezuela ships two-thirds of its oil to the US, or about 1.5m b/d and oil accounts for about 80 per cent of export revenue and half of fiscal revenue.

Mr Lugar, while acknowledging that an embargo seemed unlikely, said that it would be "negligent" of the US to rely on "ad hoc" responses, such as use of the Strategic Petroleum Reserve.

"However unrealistic Venezuelan President Hugo Chávez's repeated threats to disrupt oil supply may be, we have a responsibility to plan appropriate contingencies that protect the American people," he wrote.

Mr Lugar added that there was a "real risk" that Venezuela could "act in concert" with other countries to disrupt oil supplies. Mr Chávez is due to visit several countries in Asia over the next two weeks, including Iran.

Myles Frechette, a former US ambassador and now a consultant on Latin American affairs, said: "Lugar believes that when an opportunity presents itself, Chávez will try to break his oil links with the US."

Venezuelan oil exports to the US fell six per cent in the first four months of 2006 to 178m barrels, compared with the same period last year. One of Mr Chávez's policy goals is to reduce dependence on the US as its main market and send more oil to China.