Stratfor.com's Global Intelligence Update - 17 May 2000 __________________________________________ Today's intelligence is tomorrow's news. http://www.stratfor.com _________________________________________ This week on Stratfor.com: Washington Debates Free Trade; Beijing Calls for Greater Party Power Over Business The U.S. Congress may be debating free trade with China, but the country's president is at home calling for greater Communist Party involvement in the country's private businesses. http://www.stratfor.com/asia/commentary/0005170055.htm __________________________________________ Venezuelan Politics Threatens OPEC Effectiveness Summary In another challenge to Venezuelan President Hugo Chavez, the government coalition party Patria Para Todos (PPT) May 15 voted to discontinue its support for him, and some PPT members at important government posts have resigned, according to Venezuela Online News. Speculation has been raised over the political future of Venezuela's Energy and Mines Minister Ali Rodriguez, who is a founding member of PPT and who was recently elected president of the Organization of Petroleum Exporting Countries (OPEC). PPT's discontinuation of support will not only affect Venezuelan politics but also may have serious ramifications for OPEC's ability to maintain cohesion and influence oil prices. Analysis Patria Para Todos (PPT) recently voted not to bolster President Hugo Chavez in his May 28 bid for re-election. The move jeopardizes the political future of Energy and Mines Minister Ali Rodriguez, a founding member of PPT, recently elected president of OPEC. Uncertainty about his future presence in OPEC will damage his critical influence as well as the cartel's ability to successfully influence oil prices. According to the report, some PPT leaders said unofficially that Rodriguez would not be asked to resign. However, PPT head Pablo Medina said there was a possibility that Rodriguez would resign over the coalition split, according to ABCNews.com. Also, no guarantee exists that Chavez will keep Rodriguez in his government. ___________________________________________________________________ Would you like to see full text and accompanying articles? http://www.stratfor.com/SERVICES/giu2000/051700.ASP ___________________________________________________________________ Ultimately, the damage is already done - whether Rodriguez resigns, remains or is replaced by Chavez. Speculation about his longevity in OPEC is rife, and his credibility has been damaged. His replacement would disrupt OPEC just as the organization is about to make an important production decision. As president of the cartel and oil minister of a key member country, his resignation or replacement would create a dual crisis in OPEC. In late 1998, oil prices fell to less than $10 per barrel, partially because of overproduction and a decreased demand caused by the collapse of Asian economies. The lack of cohesion among OPEC nations hindered the cartel's ability to remedy the crisis. The commitment of Venezuela - OPEC's third largest producer - to the cartel was, and still is, critical to OPEC's success. In addition to being the current OPEC president, Rodriguez has played a key role in maintaining OPEC's cohesion regarding production cuts. He, along with his counterparts from Saudi Arabia and non-member Mexico, was the driving force behind the cartel's decision to shave 2.1 million barrels per day (bpd) of OPEC oil production in March 1999. The production cuts resulted in the oil prices topping $30 per barrel in March 2000 - the highest prices since 1991. With Rodriguez' future presence questioned, OPEC members will be more reluctant to cut critical deals with the Venezuelan oil minister. Additionally, it was Rodriguez who proposed the price band for crude oil, to which fellow OPEC members reluctantly agreed in April 2000. In October 1999, the Petroleum Economist reported that Saudi Arabia, the United Arab Emirates and Mexico opposed the price band, designed to keep oil prices between $22 and $28 per barrel. Once Rodriguez' influence in OPEC diminishes, fellow member countries will be much less inclined to maintain the price band policy, setting the stage for additional fraying of OPEC unity. Venezuela's current political situation, in addition to affecting OPEC unity, is likely to have an immediate impact on oil prices, slowly pushing $30 per barrel. On May 16, the U.S. Energy Information Administration listed Arab Light crude at $22.54 per barrel, Brent crude at $28.44 and West Texas Intermediate crude at $29.93. OPEC's weekly basket price has risen to $26.28 per barrel. Perception of OPEC unity can certainly affect the volatile oil market. A fractured cartel is less likely to make critical changes in oil production. Such a decision must be made at OPEC's upcoming meeting in June. If the cartel does not or cannot agree on increasing oil production, oil prices may hit $30 per barrel during the summer, when the driving season increases the global demand. In the longer term, an extended period of OPEC discord could lead to every member fending for themselves - scrambling to increase output for quick individual monetary gains - which would ultimately drive oil prices down. _______________________________________________ Would you like to know more about Latin America? http://www.stratfor.com/latinamerica/default.htm?section=4 Would you like to know more about the Middle East? http://www.stratfor.com/meaf/default.htm?section=5 _______________________________________________ (c) 2000 WNI, Inc. _______________________________________________ SUBSCRIBE to the free, daily Global Intelligence Update. 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