Chavez Halts Exxon Oil Exports

Venezuela said it will suspend oil shipments to Exxon Mobil Corp. in an escalating dispute that pits the world's biggest oil company against a country with one of the planet's biggest reserves of oil.

State-run oil company Petroleos de Venezuela SA, known as PDVSA, said it would halt shipments to Exxon and suspend commercial ties. It said the one exception would be joint ventures overseas -- an apparent reference to a Chalmette, La., refinery owned by the two.

Exxon, of Irving, Texas, has refineries in the U.S. Gulf Coast that can handle Venezuela's sulphur-heavy crude, which can be difficult to process into fuels like gasoline. But Exxon is expected to have little trouble getting similar crude oil from sources such as Canada and Mexico.

Venezuela would likely sell its heavy crude to third parties, who could then sell it to Exxon, said Ruchik Kadakia, associate director of global oil at Cambridge Energy Research Associates, an energy consulting firm. "There are very limited markets [where] that crude can go and there's a very high [Venezuelan] dependence on the petrodollars," he said.

Exxon spokeswoman Margaret Ross said its refineries "are capable of processing a variety of different crudes," but declined to comment on supplies.

Still, the dispute is shaping up as a key battle in an era of resource nationalism, when high oil prices have prompted some resource-rich countries like Venezuela and Russia to increase the share of the lucrative oil industry that goes to government coffers at the expense of oil firms.

Exxon last week said it won court orders in the United Kingdom and other countries freezing some $12 billion in PDVSA overseas assets stemming from a dispute over a move by Venezuela last year to take a majority stake in four Western oil company ventures.

Most other foreign oil firms operating in Venezuela accepted minority positions in the four oil projects, which upgrade the country's sludge-like crude. But Exxon and ConocoPhillips walked away. Yesterday, ConocoPhillips Chief Executive James Mulva said his company was still trying to negotiate over compensation with Venezuela rather than focus on a legal battle. "We do not intend to focus on the same path as ExxonMobil," he said.

Exxon's move prompted Venezuela President Hugo Chavez to vow to suspend oil shipments to the U.S. -- a move he has threatened before and which analysts consider unlikely. Still, the price of oil rose in part on his threat, a reminder of the effect of geopolitical tensions on world supplies.

Earlier yesterday, Exxon seemed to send a conciliatory message to Venezuela. "We do remain interested in getting into a substantive discussion with PDVSA about the fair market value of the assets that have been expropriated," said Mark Albers, Exxon senior vice president, at a conference in Houston.

The Venezuelans, however, were sending mixed messages. Bernard Mommer, a key advisor to Mr. Chavez on oil policy, said curtailing supplies to the U.S. would hurt both nations' economies. But PDVSA chief Rafael Ramirez reiterated the threat and said Venezuela was ready to cut off oil to the U.S. if Exxon won its case.

Most analysts think Mr. Chavez will not back down amid a recent slide in his popularity at home. "This is a golden opportunity for Chavez to present himself as a victim abused by the big bully," said Jose Vicente Leon, head of Datanalisis, a polling firm that is conducting a study on how people perceive the Exxon dilemma.

Copyright (c) 2008 Dow Jones & Company, Inc.