Venezuela’s War Talk Suggests More Trouble For Andean Oil

Venezuela’s President Hugo Chavez raised the possibility of a war between Andean neighbors Sunday in a heightening of political tensions that may spell trouble for the oil industries of two OPEC member nations.

Venezuela and Ecuador, Latin America’s members of the Organization of Petroleum Exporting Countries, could end up in a war against Colombia, Chavez warned, as he broke diplomatic relations with its neighbor and sent troops with tanks to guard the border.
Military and political tensions in the region may mean difficult days ahead for Venezuela’s and Ecuador’s embattled oil industries, in need of attention. State oil company Petroleos de Venezuela or PdVSA, is now facing a battlefront of its own in a multibillion dollar compensation dispute with Exxon Mobil Corp. (XOM), one of the world’s most powerful oil companies.

For Ecuador, the spat comes days after the country was forced to declare force majeure for part of its oil exports, following the failure of a state-run pipeline. Under force majeure, an oil producer notifies clients that orders will not be fulfilled because of a problem that goes beyond the producer’s control.

An official for Venezuela’s oil ministry declined to comment. Ecuador oil industry officials could not immediately be reached.

Oil production in both nations has problems that need to be addressed. Venezuela’s industry continues to struggle with underinvestment, as PdVSA devotes billions of dollars of company funds to finance Chavez’s social spending plans. Venezuela’s aging infrastructure, coupled with higher production costs, have constrained PdVSA’s ability to raise output.

Rigzone