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Possible Re election of Chavez in Venezuela and its Impact on Worldwide Oil Markets

Hugo Chavez, the president of Venezuela won a 3rd mandate, beating the other contestant Henrique Capriles with over 54 percent of votes. Venezuela is one amongst the biggest oil exporters in the world and the 4th biggest supplier of petrol for US. With Chavez ready to roll out his populist policies, called “XXI Century Socialism,” it is expected that inflation will rise to almost 48 percent and production of oil, which has dropped drastically over the previous decade, could persist to fall. Now, analysts anticipate devaluation and firm spending slashes, in addition to constant export limitations, which has the possibility to worsen the collateral consequences of his populism.

In the most fiercely competed Venezuela elections in over 10 years, Chavez managed to widen his regulation over the biggest oil reserves holder in Western Hemisphere for six more years. The previous paratrooper who earned fame following a failed coup in the year 1992 being in power for fourteen years, during which the central government size almost doubled to 37.8% from 21.4% of GDP.

Inspite of its aggressively anti-American oratory, the most significant business partner of Chavez is in fact the United States. The production of crude oil in Venezuela is between 2.5 to 3 barrels per day (bpd). Caracas exported roughly 1.7 million bpd in the year 2010, with around 40 percent of sales going to United States, as per Energy Information Administration.

In the year 2011, United States imported around 350 million barrels of oil from Venezuela, being the 4th largest supplier following Canada, Mexico, and Saudi Arabia. Chavez had made use of these oil resources to fund massive investment and subsidy programs during his earlier fourteen years in power; however, budgetary pressure will persist to increase.  

During his term, he had faced decline of oil production by approximately 25 percent. He has signed agreements with the likes of Argentina’s YPF and Brazil’s Petrobras, while he has scared away several of the big global oil producers.

With the declining production, Chavez will need to toil hard to stop running out of funds. As states by Francisco Rodriguez from Bank of America, Carcas is anticipated to fall short of off-budget finance deposit by 2013 end if the prices of oil keep steady or even earlier if crude persists to fall. With a overhauled and fixed exchange rate, Chavez will depend on tough investment slashes and devaluation, which would behave as de facto tax increase.  

Chavez would supposedly attempt to increase production, but the lack of international funding and spending cuts has made it a complicated and very difficult task.

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