Caracas rejects US probe into its oil policy

Venezuela has rejected as “absurd” a recent US congressional investigation that warned of the risks posed by President Hugo Chávez’s threats to “cut off” oil supplies to America.

Bernardo Alvarez, Venezuela’s ambassador to the US, dismissed the findings of the Government Accountability Office (GAO) in a letter to Richard Lugar, the Republican chairman of the Senate foreign relations committee, on Friday. Mr Alvar­ez’s letter, a copy of which was obtained by the FT, is the first official response to the report, published last month, 18 months after its commissioning by Mr Lugar.

Venezuela supplies 1.5m barrels of oil a day to the US. Mr Chávez has threatened to “cut off” those exports if Washington continues, as he alleges, to “plot” his overthrow.

US officials say Mr Chávez is using Venezuela’s bumper oil revenues to undermine democracy in Latin America, but Venezuela maintains it is merely helping communities impoverished by US-backed economic policies.

But Mr Alvarez insisted Caracas had never contemplated using oil as a “political weapon”. He called on Mr Lugar to encourage “dialogue” between Venezuela and the US administration, a stance seemingly at odds with Mr Chávez.

“Oil exports provide the revenues to the Venezuelan government that are vital for its programmes and essential to its very viability,” Mr Alvarez said. “The GAO does not even make a reference to the absurdity of a unilateral action by the Venezuelan government purposefully to cut off oil exports.”

The GAO investigation estimated that a Venezuelan embargo on oil exports to the US, if executed, would lead to an immediate $11 per barrel surge in oil prices, or about 15 per cent.

But other analysts have said that Venezuela, which depends on oil for 80 per cent of export income and half of fiscal revenue, would plunge into chaos if it ceased oil shipments to the US.

Venezuela has recently increased the level of taxes it levies on oil multinationals and extended majority state control over some projects, a decision that could cut future investment needed to maintain output.

Mr Alvarez also said the GAO failed to describe the “unmitigated success” with which the Chávez government restarted oil output at state-owned Petróleos de Venezuela in 2003 after an opposition strike.

“This success stands in stark contrast with the situation, for example, in Iraq where the Iraqi oil industry, under the supervision of the US …still has not reached the Iraqi prewar levels of production some three years after President Bush announced cessation of major hostilities,” Mr Alvarez said.