Chavez's terrorist ties raise oil prices

Venezuelan President Hugo Chavez takes part in a meeting of the leaders of the Bolivarian Alternative group at the Miraflores presidential palace in Caracas on April 23.

TEXT OF STORY:

TESS VIGELAND: Another day, another record price for oil, $126 a barrel and counting. Today's pain comes courtesy of Venezuela, or rather news that leftist president Hugo Chavez may have closer ties than initially suspected with the Colombian terrorist group FARC. Reports in the Wall Street Journal raised fears of US sanctions on oil-rich Venezuela.

From the Americas Desk at WLRN, Marketplace's Dan Grech reports.


DAN GRECH: The US buys more than a million barrels of oil a day from Venezuela, 11 percent of US daily consumption. If it were to label Venezuela a "state sponsor of terrorism," that could lead to economic sanctions and halt this critical flow of oil.

PATRICK ESTERUELAS: Well, unfortunately the timing couldn't be worse.

That's analyst Patrick Esteruelas with the Eurasia Group. He says the stalled US economy simply can't afford to provoke higher oil prices.

ESTERUELAS: It's neither in the US's economic interest, nor is it in its political interest, to take as hard a measure as imposing sanctions against Venezuela.

A Senate Foreign Relations Committee report last week drew a similar conclusion.
It said unilateral sanctions on Venezuela could backfire, hurting US commercial interests and isolating the US in Latin America. Sanctions are just the latest concern as record oil prices rattle US consumers. Just in time for the summer travel season, the three biggest US airlines have raised roundtrip fares by $20 to cover higher fuel costs. The fuel surcharge now exceeds the ticket price on some cheaper routes. Richard Aboulafia is an analyst with the Teal Group.

RICHARD ABOULAFIA: People are going to travel less and demand is going to go down. The broader economic term is basically "stagflation," stagnant demand and inflated costs.

Fuel buyers aren't the only ones feeling the squeeze. Oil giant Chevron is laying off 1,100 workers because of shrinking margins in its refinery business.

I'm Dan Grech for Marketplace.

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