The U.S. being Venezuela's # 1 (and "effectively" only) Customer = (U.S.) Strategic Advantage, i.e. U.S. Leverage over Venezuela.

As any Economics course will state, whenever any one customer/buyer (U.S.) dominantly controls product from any producer/supplier (Venezuela) to the degree the U.S. does I this scenario, that buyer possesses unique power (leverage) to act effectively on that supplier. As in if the buyer suddenly changed suppliers overnight, that current supplier effectively loses its entire market base and/or revenue source. Not a good situation for the supplier to be in. In fact, quite painful, at best.

Being Venezuela's primary and effectively only real buyer is the U.S.' (current) leverage. Mr. Chavez (currently – see China notes) accordingly needs the U.S. If the U.S. changed suppliers overnight, Venezuela would be at least and at best, short term paralyzed, having no major immediate replacement buyer. The U.S. on the other hand, does not need Venezuelan oil, as it can not only readily re-source elsewhere, but too for better quality crude too.

On that specific global supply/demand (i.e. re-sourcing ability) point:

Current global oil production capacity (i.e. "supply" potential) is hovering around 100 million barrels per day. Current global "demand" is approximately 85 million barrels per day. Therefore, there exists alternative production sourcing the U.S. can immediately tap into.

While on the subject, analysts project at current estimated global oil demand growth rates, that sometime around 2012 will be when that 85 million barrels per day demand grows to match the 100 million barrels per day production capacity. As a sidebar comment, at that point, if production capacity has not substantively increased, oil prices are expected to soar (i.e. $100 per barrel oil will look cheap).

Bottom line, re-sourcing (replacing) Venezuelan "heavy" crude with surplus global "light" crude capacity is relatively easy for the U.S.. However, for Mr. Chavez, finding "immediate" new buyers for his significantly "less desirable", high sulfurous (special refinery required) "heavy" crude will be a hug(o)e challenge, and take time.

Evidence that Mr. Chavez acknowledges superior, if not total U.S. leverage (note however seemingly by its inaction, the U.S. has yet to realize the fact itself), he's recently embarked on an aggressive buyer diversification plan, already shifting some production/distribution to China (see prior article for detailed discussion/facts on transferring all current U.S. supply). His "best defense is a good offense" tactic, as in bluffing loudmouth fashion, threatening to cut off U.S. oil supply, is another big indicator of feeling not powerful but rather powerless, to potential U.S. leverage.

Simply stated, Mr. Chavez is and knows he's highly vulnerable to the U.S. and won't leave the U.S. in a strategically advantageous position over him much longer. He knows the U.S. has more (all) leverage on him than he has (if any) on the U.S. He's understandably very uncomfortable with that, and precisely why he's aggressively diversifying his customer base.

Mr. Chavez is rapidly dis-enfranchising the U.S. from his crude oil supply, shifting that current U.S. distribution to China and other aligned parties - and why the (window) time to make an economic and political impact (i.e. exercise that leverage – U.S. terminate its Venezuelan oil supply contracts) on him is now - before he's fully re-distributed and the U.S. has no leverage.

Bottom line, re-sourcing Venezuelan "heavy" crude with surplus global "light" crude capacity is easy for the U.S.. However, for Mr. Chavez, finding immediate new buyers for his high sulfurous (special refinery required) heavy crude will be a significant challenge, and take alot of time.

In other words, U.S. leverage (currently) dwarfs Venezuela's. Not vice versa.
The real and only question then is: When will the U.S. use it?

Why did Mr. Chavez Not Contest the Referendum Results?

Analyst Answer:

The key understanding or premise here being that while "gracious" in defeat (short term), Mr. Chavez did not "acknowledge and/or accept" defeat (long term)". He left the door wide open going forward.

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