Civil Unrest in Venezuela Unnerves Foreign Investment

Civil unrest in Venezuela over the government's attempts to block a recall vote has not affected oil production so far, but ongoing political uncertainty could affect future investment decisions by private oil companies, industry sources told BNamericas.

State oil company PDVSA is down to about a third of the workforce it had before the strike in December 2002 and the fact that its new managers are mainly pro-Chavez makes it unlikely the company will strike again. PDVSA's financial resources plummeted along with the size of the workforce and the company now needs to attract more private investment in oil and gas projects.

However, Chavez's political maneuvering could jeopardize private sector involvement, oil chamber executive and CEO of engineering company RLG y Asociados, Mauricio Canard, told BNamericas.

PDVSA's new openness to foreign investment means there are important opportunities for oil and offshore gas exploration in Venezuela, with some of the best proposed projects from the US perspective being those to export liquefied natural gas (LNG) to the United States.

In line with a Venezuelan expression saying "a rough sea means more fish for the fisherman who go out," the rewards could be high for oil companies willing to risk Venezuelan business waters, Canard said. Oil companies "might say they are interested in investing, but between saying it and actually making the investment comes the confidence factor," Canard said. Companies are delaying investment decisions until the political situation calms down. Companies require "certain political guarantees" and the more Chavez threatens the US and his political opponents domestically, the rougher the sea for foreign oil companies which do not want to see their investments capsize later.

Local oil service and equipment providers are also worried about the current political instability, which has sent the local currency into a tailspin, directly hitting the pockets of companies that receive payment in bolivares, Canard said.

A major concern for foreign companies and Venezuelans alike is that with the government "continuing to play tricks" to prevent the recall referendum from taking place, Venezuela may be "losing its democracy," a lawyer at law firm Macleod Dixon told BNamericas.

For the time bring, production and fuel supplies are unaffected by the civil unrest in the streets of Caracas, but that could change if the situation deteriorates, the source said. Chavez has threatened to expropriate the assets of US oil companies in Venezuela, and while the sources agreed that the president's comments are more than likely without substance, they are not helping to improve the perception foreign oil companies have of Venezuela's political and legal reliability. "Venezuela depends on oil and you can't interfere with the industry. Whatever government is in power here has to remember that," Canard said.

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