High Stakes Poker

Are the stakes about to be raised in the Exxon Mobil vs. Venezuela (read Chávez vs. the USA) story? Last week, buried amongst posturing and rhetoric from both sides that is more easily ignored, there were two small and seemingly unconnected stories that suggest things might get much hotter.

  Firstly there was a message from Bernardo Alvarez, Venezuela’s ambassador in the USA. In an official embassy letter to a leading member of the US Senate Foreign Relations Committee, Alvarez point out that although the present suspension of hydrocarbons sales from Venezuela to Exxon Mobil would only affect spot market purchases, he went on to say that “You must understand that the actions recently and abruptly taken by Exxon Mobil against Venezuela’s state-owned oil company might have a negative effect on global oil trade.”(1). Then the other story that was slipped into the mix: Galo Chiriboga, Ecuador’s minister for energy and mining, visited Venezuela last week, ostensibly to look into the possibilities for oil field investments there (2), but he surely spent some quality time with his counterpart in Venezuela, Rafael Ramirez. On Friday, Chiriboga said that OPEC would consider taking action to support Venezuela in its disputes with Exxon Mobil. “Any actions that the OPEC could take will come from a legal analysis from member countries’ lawyers,” he told Reuters (3).

  So we have the Venezuelan ambassador to the US stating via official protocol channels that the short-term spot market is one thing, but the global (and he did say global) oil trade is quite another. Then we have Ecuador (a country that recently joined OPEC on the behest of Venezuela) floating the idea of OPEC rallying round one of its key members.

  I’m the first to admit it might be too soon to jump to any conclusions here, but the OPEC angle is more than interesting. Although the body is at constant pains to deny it, the concerted actions of its members are almost certainly responsible for controlling the world oil price at any given time. Thus it would make sense to say that if OPEC suffered from a rupture, long-term world oil prices would probably drop as a result. By ‘asking’ Ecuador to float the idea of OPEC joining in to support Venezuela in this dispute, Venezuela is playing a mighty big card. I suggest a scenario where Venezuela seconds Ecuador’s proposal and then looks to the other OPEC members to play ball. And without beating around the bush or trying to disrespect other countries inside OPEC, the $64,000 question would be, “which way would Saudi Arabia jump?” as on the one hand it would not be in the Saudi’s interest to watch OPEC disintegrate under its de-facto command (for both profit and political reasons), but on the other hand (and to put this as diplomatically as possible), calling Exxon Mobil “well-connected” is a little like calling the Taj Mahal a nice bit of architecture or saying that China  has been going through a bit of a growth spurt recently.

 

So far, Exxon Mobil has certainly taken a harder line to the partial re-nationalization of the Venezuelan oil fields than other oil companies. Perhaps it wouldn’t be such a bad idea for XOM to follow the example of Conoco, Total, EPI-Agip, Statoil, BP et al and sit down to reach a negotiated settlement with Venezuela. In Texas Hold ‘Em, the world’s best poker players know the art of a ‘good lay down’. They also know there is always another hand to play afterwards.

  (1)http://www.chron.com/disp/story.mpl/headline/biz/5546659.html (2)http://www.plenglish.com/article.asp?ID=%7B07E9FBE3-BECB-4482-9975-D9DAD54A0E57%7D&language=EN (3) http://www.reuters.com/article/oilRpt/idUSN1557143320080215

2 Responses to "High Stakes Poker"

  1. Paul Escobar   February 19, 2008 at 1:18 am

    I don’t see any big conflict rising from this.The threat to Venezuela is not huge. No one forsees Exxon getting ownership of CITGO. Even the FT has reported that whatever Exxon gets is nowhere the amount needed to damage the Venezuelan economy (the objective of “the empire”, as Chavez sees it). Yet oil prices are going up.And as I type this, OPEC is hinting at new production cuts. The Venezuelan economy benefits from this.Exxon benefits from this.The U.S. government, in a strange way, benefits from this. As the Gulf states recycle more money back into the American economy.In a perverse way, they may all be on the same side!Maybe they’re not raising the left fist in unity, but they must be winking………..On a sort of related note…Venezuela doesn’t seem to follow the example of other Gulf states. They don’t recycle as many Petrodollars back into the American economy. If I’m wrong, please correct me.So a bigger headache (for the Americans) might be Saudi Arabia’s adoption of this troublesome Venezuelan policy. It would certainly mean real escalation from all sides.

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