Venezuelan economy vulnerable after US terrorist attacks

Sep 12, 2001 02:00 AM

The Venezuelan economy looks particularly vulnerable if the terrorist attacks in New York and Washington DC further erode investor confidence in the US As one of the top four suppliers of crude oil and refined products to the US, Venezuela's economic prospects would take a hit if the US slips into recession, experts say. Oil revenues account for a third of Venezuela's gross domestic product, half of government income and 80 % of export revenues.
"There's one thing you can say about all this: oil demand will be affected because the world economy is affected... demand will go down," oil analyst Alan Viergutz said. Meanwhile, Oil Minister Alvaro Silva said that, "An event of this magnitude will have a profound impact on all aspects of the world economy" and Venezuela's economy.

Venezuela's economy grew 3.2 % last year and 3.4 % in the first half of 2001. But while government officials predict a 4.5 % expansion this year, private analysts expect to see slowing growth due to lower than anticipated oil prices. For now, however, the government maintains its economic growth target of 4.5 % for the year 2001, the nation's Planning Minister Jorge Giordani told.
Venezuela's current production level stands at 2.67 mm bpd. The country is in favour of cutting oil production to prop up world oil prices. Local critics, however, have said Venezuela and OPEC eventually will face lower oil prices and lose market share as new oil production from non-OPEC members is expected to come on line.

Oil demand in 2001 has been sluggish as the US and world economy already were on the verge of a recession. According to the Centre for Global Energy Studies in London, the increase of global oil demand is seen in 2001 at a meagre half a million bpd, 1 mm less than foreseen a year ago. OPEC, excluding Iraq, produced 24.8 mm bpd, against a target of 24.2 mm bpd, according to August figures provided by the International Energy Agency.
Oil ministers are set to meet in Vienna to review their latest oil output cutof 1 mm bpd which took effect Sept. 1. Oil prices are likely to remain volatile for the coming weeks, but long-term market fundamentals such as tight crude and product stocks ahead of the winter indicate prices could go further up. And high energy prices could hamper the recovery of the US economy.

But despite the difficult outlook for demand following the terrorist attacks, Venezuela could benefit if the US decides to shift its policy towards the Middle East in a search for nearby and politically-safe suppliers of crude oil and products.
"Over a century, Venezuela has been a secure supplier of crude oil to the US It's possible that this event will increase Venezuela's role as secure supplier," oil minister Silva said. "Venezuela's loyalty has been proven. We are a country you can rely on in times of crisis," he added.
According to June figures provided by the US Department of Energy, Venezuela was the third largest oil exporter to the US, at 1.28 mm bpd, up slightly from 1.264 mm bpd in May and 1.207 mm bpd a year ago. Saudi Arabia, the world's largest crude oil producer and exporter, traditionally has pole position in the US market, followed by Canada. Mexico also ranks among the top four suppliers.

Source: Dow Jones
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