Venezuela Squeezed by Lower Output, Lower Prices; Only UK Paper Seems to Care

Matt Drudge learned long ago that jumping across the pond in the late evening and perusing the British press is a way to get a head start on the news, and in some cases to get news that the American press is ignoring.

The situation with Hugo Chavez in Venezuela is an example of the latter.

If it happens, call it The Caracas Crackup -- The UK Telegraph is reporting that the inevitable inefficiences of a state-run enterprise and falling oil prices appear to have the potential to do serious damage to Venezuela's economy:

Venezuela's daily oil production has fallen by a quarter since President Hugo Chavez won power, depriving his "Bolivarian Revolution" of much of the benefit of the global boom in oil prices.

To win allies and forge an anti-American front, Mr Chavez sells oil to friendly countries at low prices. Ironically, the only big customer buying Venezuelan oil at the full market price is the United States, which the president routinely denounces as the "Empire".

..... The state oil company, PDVSA, produced 3.2 million barrels per day in 1998, the year before Mr Chavez won the presidency. After a decade of rising corruption and inefficiency, daily output has now fallen to 2.4 million barrels, according to OPEC figures. About half of this oil is now delivered at a discount to Mr Chavez's friends around Latin America. The 18 nations in his "Petrocaribe" club, founded in 2005, pay Venezuela only 30 per cent of the market price within 90 days, with rest in installments spread over 25 years.

The other half - 1.2 million barrels per day - goes to America, Venezuela's only genuinely paying customer.

It doesn't take a math genius to calculate that the US is providing Chavez about 75% of his oil-related cash flow. Venezuela's take from the US's 50% of the pie at full price is over three times what it gets from the other 50%, for which it only receives 30% up front.

It's also not difficult to see that, at a current price of about $80 a barrel, the country's 800,000 barrel a day decrease in output is costing it $64 million daily, or over $23 billion a year. This is a staggering sum in a country whose gross domestic product, according to this quick Google Search on "GDP of Venezuela," is $186 billion.

A serious effort to revive offshore drilling in the US could greatly add to Venezuela's misery if oil prices don't head back up, and soon. Even if the country could find substitute buyers at its non-US terms, a 50% reduction in US imports from Venezuela would lead to a dangerous revenue drop of over 25%.

This is all the more reason to drill offshore and elsewhere, even before considering the many billions of dollars that would come in annually to cash-strapped Uncle Sam and the state from royalties on production.

The potential damage to Chavez may be a heretofore overlooked reason why the opposition to US offshore drilling among many Democrats is so fierce.

Cross-posted at BizzyBlog.com.