Tight oil markets and little spare production capacity worldwide make the United States more vulnerable today to a cutoff of Venezuelan oil than three years ago when a strike curtailed Venezuelan supplies, a congressional study warns.
The report by the Government Accountability Office says a Venezuelan oil embargo against the United States would cause oil prices immediately to jump by $4 to $6 a barrel and increase gasoline prices at the pump by 11 to 15 cents a gallon.
A six-month loss of 2.2 million barrels a day of Venezuelan production — about what was lost during the strike by Venezuelan oil workers during the winter of 2002-03 — could cause a price spike of $11 a barrel and cut U.S. economic output by $23 billion, the report said, citing an Energy Department computer model analysis.
Venezuela, the world’s fifth-largest oil exporter, ships 1.5 million barrels a day of oil and petroleum products to the United States, accounting for 11 percent of U.S. imports. Most of Venezuela’s oil that is not domestically consumed is shipped to the United States. Venezuela’s government oil company owns or partly owns nine refineries in the United States.
Diplomatic relations between the two countries have been strained. Venezuelan President Hugo Chavez occasionally has threatened to cut off oil shipments to the United States and pursue other customers including China.
That caused Sen. Richard Lugar, R-Ind., chairman of the Senate Foreign Relations Committee, to ask the GAO, Congress’ auditing agency, to examine the impact of a potential Venezuelan oil cutoff.
U.S. officials have minimized the likelihood of such a cutoff because Venezuela relies heavily on oil revenues from the United States to pay for its domestic programs.
Administration officials told the GAO investigators that “they do not have contingency plans to deal with oil losses specifically from Venezuela or any other single country” other than tapping the U.S. Strategic Petroleum Reserve or using diplomacy to get other countries to boost production, the draft report, obtained Wednesday, said.
When a strike by Venezuelan oil workers in the winter of 2002-2003 reduced the country’s production by some 2.2 million barrels a day, the U.S. succeeded in getting other producers, especially Saudi Arabia, to fill the gap, the GAO study said.
“However, such diplomacy may be less effective today because there is currently very little spare production capacity” worldwide, and most of what there is — about 1 million barrels a day — is in Saudi Arabia.
The GAO report noted that Venezuela has continued oil imports into the United States at about the same level averaging 1.5 million barrels a day since the 2002-03 strike.
But it also cites U.S. government estimates that Venezuelan production has fallen from about 3.1 million barrels a day in 2001 to an average of 2.6 million barrels a day. Venezuela disputes those numbers and maintains that production has increased.
Nevertheless, the GAO report says that the United States has no long-term strategy to address a permanent drop in Venezuelan supplies.
“Although the U.S. government has options to mitigate impacts of short-term oil disruptions on crude oil and petroleum product prices, these mitigating actions are not designed to address a long-term loss of Venezuelan oil from the world market,” said the report.
Some details of the GAO draft were first reported Wednesday in The Wall Street Journal and The Financial Times.