Oil trade seen cushioning US-Venezuela spat

CARACAS, Venezuela (Reuters) - A barrage of insults and two foreign staff expulsions have knocked U.S.-Venezuelan relations to a new low, but the pair's mutually vital oil trade should act as a collision buffer, analysts say.

Already icy relations worsened last week after the U.S.-bashing Hugo Chavez expelled a U.S. naval attache on spying allegations and the State Department responded by ordering out a Venezuelan diplomat. Exiled diplomat Jeny Figueredo arrived back in Caracas to cheering crowds on Monday.

"Relations are probably at their lowest point. Things have gotten very bad. The two governments are on a collision course," said Michael Shifter, a Latin American analyst at the Inter-American Dialogue, a Washington-based think tank.

"But relations have hit a low before, and so far oil dependence on both sides has been a check. Chavez tends to go up to a line and then pull back, and the oil question prevents things going completely off track," he said.

Chavez, a blunt-speaking, self-styled revolutionary who has become a regional standard-bearer for anti-American sentiment, upped the ante over the weekend when he warned he could halt oil shipments to the United States and close Venezuelan-owned refineries there.

Nervous about the stability of Middle East oil, the United States needs every barrel of the crude it gets from Venezuela, supplier of some 15 percent of U.S. imports. Other suppliers like Canada and Mexico are already pumping at full capacity.

Likewise, left-wing Chavez is reliant on the roughly $80 million a day he gets from U.S. oil sales to fund sweeping social programs introduced since he took office in 1998.

The United States swallows more than half of Venezuela's oil, and analysts doubt that far-off importers like China could emerge as buyers of Venezuela's heavy crude any time soon. Chavez's past threats to cut off U.S. oil never materialized.

"Markets will keep an eye on the situation but I haven't heard anything to suggest people are giving it more credence than usual," said Jed Baker, head of Latin American research at think tank Cambridge Energy Research Associates.

"It's not something they could do for a sustained period. Venezuela needs the U.S. as much as the U.S. needs Venezuela."

ELECTION IN VIEW Continued ...

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