Petroleum and Politics: A Combustible Mix in Venezuela

The result? The economy contracted a record 29% in the first quarter of 2003, and inflation is running in excess of 30%.

As Chavez seems to undermine the private sector, he's shoring up his political base by usurping key businesses. His administration has opened more than 100 government stores in poor neighborhoods and stocked the shelves with reduced-cost staples such as rice, beans and cooking oil. Cuban food brokers are helping the Chavez government with the procurement and bypassing established importers.

Thousands of employees who dissented or participated in last year's strike have also been fired from PDVSA, the nation's biggest employer, exacerbating the economic spiral. In short, Chavez's attempt to grab more power has made the already-volatile country a political powder keg, a situation that threatens U.S. oil and gasoline imports.

U.S. Connection

Venezuela -- along with Saudi Arabia, Mexico and Canada -- is one of the top suppliers of oil and refined products such as unleaded gasoline to the U.S. Before December's strike, Venezuela provided up to 17% of U.S. imports. The worsening social situation in Venezuela and its potential for disruption to U.S. supplies come not only at a time of increasing seasonal demand in the U.S., but also amid tightening domestic supplies.