In other words, if he loses the "2007" Referendum, it unfortunately "ain't" over, by no means. The Venezuelan and global community should save the celebrations, as it's not the end of Chavez' march toward permanent power.
Rather, it's just the beginning.
Venezuela to Brazil Shift Summary:
Seeing as how changing long term oil supply from Venezuela to anywhere else (but Iran) is a supply stability improvement for the U.S., the argument to do so with Brazil makes sound sense. The challenge with this swap however is there will be a lag in terms of replacing the canceled Venezuelan supply with Brazil's. Brazil is at a production level currently at or near domestic demand meaning self sufficiency. It must now make the significant investment in developing the Tupi field for full export production which will take several years. Of course, to sweeten or enhance the appeal of long term supply deal with the Brazilians, the U.S. might consider offering (making) a "strategic investment" in terms of capital and other resources to accelerate the field's time to production. Add it to the SWOOP Plan.
The fact that the Tupi supply will not be immediately available should not at all derail the U.S. from signing a long term contract with Brazil and "promptly" canceling the Venezuelan contract in full (Note a). The U.S. can absorb the penalties and short term hiccup in supply, with the lost Venezuelan supply quickly re-sourced elsewhere (Note b). The alternative sourcing being just temporary, to continue until the Brazil production comes on line in a few years. For Venezuela however, it would be devastating as this loss (currently) represents 50-60% of its daily output. While the U.S. can re-source quickly, the Venezuelans can't re-distribute quickly, given the nature of their heavy sulfurous crude product which requires unique refineries which the U.S. being among the few countries with that kind of refining infrastructure capability.
Analyst Note: In addition to contracting the Brazil oil supply to replace Venezuelan supply, as time goes on it will be even more strategically (national security) important to block China from it, as China sets its sights on Brazil's enormous and coveted treasure trove of energy, water, minerals and food resources.
Note a): With Venezuela aggressively redeploying that same U.S. distribution to China over the next 3-5 years, the "Venezuelan vulnerability window" will gradually close, meaning the U.S. should cancel all oil supply contracts sooner rather than later for maximum economic pain impact (and fallout) to Venezuela. With the U.S. effectively being Venezuela's only customer, it provides the U.S. (untapped) leverage over Venezuela dwarfing that which Venezuela "thinks (boasts) it has" over the U.S..
Note b): Current global oil production capacity (supply) is estimated to be approximately 100 million barrels per day. Current global "demand" is approximately 85 million barrels per day. Therefore, there is 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 around 2012 to be when that current 85 million barrels per day demand reaches the 100 milion barrels per day production capacity. At that point, if production capacity has not substantively increased, oil prices are expected to soar ($100 per barrel oil will look cheap).
NSS Actions: What to Do Next
A) The U.S. government, in conjunction with major domestic oil companies (and allies), should immediately reach out and seal a long term oil supply deal with Brazil/Petrobras.
Consider it akin to the Yankees and Boston going after 2 time Cy Young winner Johan Santana, and be willing to pay up (substantially) to seal a deal. Why, because an asset like that can win the World Series. An asset like Tupi, can win global power contests, on multiple fronts.
That U.S./Brazil deal should factor in Petrobras' future oil finds and ever increasing production capacity. In effect, a scaling up arrangement above and beyond the current 1.3-1.5 million barrel per day Venezuelan amount. In fact, given China's insatiable appetite for oil and its own sights set on these same Brazilian reserves, as an important "blocking" tactic, the U.S. should contract for Petrobras' "entire" future export production. It certainly won't get all of it, but it should aggressively seek as much as possible and encourage "green allies" to do the same, leveraging other quid pro strategic alliances with Brazil on other fronts to do so.
B) In parallel with A), "immediately" re-source the canceled Venezuela supply for the U.S. and affected allies (covertly and quickly as possible).
Note: Re-sourcing should be relatively easy as global demand is still below global production capacity. As noted earlier and for easy reference here:
Current global oil production capacity (supply) is estimated to be approximately 100 million barrels per day. Current global "demand" is approximately 85 million barrels per day. Therefore, there is 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 around 2012 to be when that current 85 million barrels per day demand reaches the 100 milion barrels per day production capacity. At that point, if production capacity has not substantively increased, oil prices are expected to soar ($100 per barrel oil will look cheap).
C) Then "immediately", no longer than 4 weeks after commencing B) above, whether alternative supplies in place or not (and they should easily be - see above note), cancel all Venezuelan supply arrangements, even with the penalty, retaliation (on allies) and the short term disruption (if any) to re-resource the Venezuelan oil supply. It will all be worth it in the long run. As a famous coach once said, no pain no gain. Here it translates to "(maybe some, maybe not) short term tactical pain for long term strategic gain".
Note: The U.S. must responsibly and publicly take an "allies view" in this and factor in smaller Latin American allies supply re-sourcing, assuming Venezuela retaliates on the U.S. vulnerable allies, once the U.S. terminates its own contracts. That support to the point of providing "disruption subsidization" if necessary. That likely won't be necessary however, given the re-sourcing situation (i.e. global supply/demand mismatch situation) noted above.
While Venezuela represents 11-12 percent of U.S. crude imports, it represents only about 6-7 percent of total U.S. daily demand (approx 21 million barrels per day). However, Venezuela is the principal or sole supplier to some of the U.S. allies.
