Chavez: The Weakest Link

For a while I was watching the news out of Russia and wondering what sort of troubles Putin might have if the price of oil goes back below $40 / barrel, but after reading this I would say Hugo Chavez problems are actually worse.

While the diversion of oil exports to China for political reasons is at an early stage, analysts say that its expansion will damage Venezuela's credit rating because it will receive less income, especially if oil prices decline. The issue of Venezuela's creditworthiness was called in to question two weeks ago when Standard & Poor's, the ratings agency, dropped the country's debt rating to "selective default" after the country missed a $35m payment due in October.

Richard Francis, analyst at Standard & Poor's, said: "It was more for technical issues, we don't believe that the ability or willingness of the government is really in question, at least at this point."

Venezuelan officials said the payment was missed because of an "error", but other observers are concerned.

"The selective default reflects the state of disarray the public administration is in," said an investment banker dealing in Latin American debt.

Given the complete mismanagement of his country since he took power in 1998, it is hard not to see Chavez as the biggest long in the oil market. It will be interesting to see how the market trades tomorrow on the Opec meeting with expectations for a production cut in March and these odd headlines about Venzuela shipping oil to China. Part of me thinks it could goose the market through 50 but more likely we drop like a stone and get to see oil producers sweat for a bit.