Weak Oil Undermines Venezuela Nationalizations

With the price of oil now estimated to average $50-$60 a barrel in 2009, Venezuela will be forced to re-evaluate its nationalization plans. “The government prepared its budget based on $60 per barrel for the Venezuelan basket,” says Fitch analyst Erich Arispe. However, he adds that during the past 3 years, it spent on average 30% more than budgeted. With prices for the Venezuelan basket currently worth $36 per barrel, according to Barclays senior economist Alejandro Grisanti, the government is going to have to decide what its priorities are. On one hand, cutting spending on social programs or political campaigns may hurt Chavez’s political ambitions, particularly that of amending the constitution so he can run for office indefinitely. “This will mean that the possibility of adjusting government spending to the new low oil price environment will be limited,” Arispe says. On the other hand, Chavez could try to delay announced nationalizations or reduce the prices for the nationalization of Banco de Venezuela and Cemex, citing their drop in valuations, Grisanti says. Banco de Venezuela alone could be worth around $1.5bn, according to a credit analyst who asks not to be identified.