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Venezuela goes for broke

IF YOU thought the fall in the oil price had dented the petro-nationalists' verve, think again. Last month President Hugo Chávez launched a new assault on private-sector and foreign energy firms in the country, seizing the assets of oil services companies and publishing a new expropriation law. "To God what is God's, to Caesar what is Caesar's," said Chávez, paraphrasing the word's of Jesus to announce the latest offensive against investors in the country's oil sector. "Today we say: to the people what is the people's."

Oil services companies had endured a rough time in Venezuela even before the new law, giving the state majority control over their operations, was promulgated last month. The national oil company, PdV, is thought to owe as much as $12bn in back payments to the companies, which include Wood Group, Schlumberger, Halliburton and Helmerich & Payne. Some suspended operations in the country last year.

PdV has relied on services companies to maintain production ever since Chávez's government sacked almost 20,000 engineers and other oilfield workers in 2003. Those purges on the company have been disastrous for the country's oil production, which has fallen from around 3.5m barrels a day (b/d) in the late 1990s to just over 2m b/d, according to Opec. (PdV claims production capacity is now around 3.7m b/d, a figure analysts dismiss as fanciful.)

Having already forced foreign and private-sector oil producers into contracts many of them consider punitive, the move to seize services companies' assets seems a logical next step. But the effect on oil production could be disastrous. Already, analysts say the stand-off with the services firms over late payments could see 100,000-150,000 b/d of production lost.

That could leave Venezuela, whose oil-revenue-dependent economy has been hit hard by the collapse in crude prices, deeper in the mire – just as energy markets begin a slow recovery. Chávez's latest move could also undermine the country's efforts to lure investors back to the heavy-oil Orinoco basin, one of the world's largest oil reserves, but fraught with technical – and now increasingly political – risk.

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