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Quick jump to below stories:
The 75% solution
Trends in Oil & Gas Prices Point to China
U.N. adviser: West killing Africa with gun sales
Kraft to cut up to 8,000 more jobs
Plans for Raising Gasoline Production - $14b Investment Needed
Iran's really big weapon
Chavez Threatens to Jail Diplomats, Shut Refineries
Chavez steps up oil threats against U.S.

[This site rocks! – MCR]

The 75% solution

By Byron W. King
Energy Bulletin
February 2, 2006

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

In his State of the Union speech, President Bush said "America is addicted to oil" and set a goal of replacing 75 percent of the nation's Mideast oil imports by 2025 with ethanol and other energy sources.

Replace 75% of US oil imports from the Mideast by 2025? Viewed in another way, this is not a "goal," it is a prophesy. There is no way that the US will be importing as much oil from the Mideast in 2025 as it imports today. And there is no way that the nations of the Mideast will be exporting as much oil in 2025 as they are exporting today.

Whether or not the Bush statement is a "goal," in 2025 the US will not be importing much in the way of petroleum from the Mideast, nor from anyplace else. The oil just will not be there for one side to export, nor for the other side to import. Welcome to the future.

As for what is happening in the Mideast, Kuwait has announced that its main oil field, the super giant Burgan, has entered the phase of irreversible decline. At current depletion & decline rates, by 2025 Kuwait will be exporting negligible amounts of oil, and at prices that most nations of the world will be unable to afford.

Saudi's Ghawar field is close to being in irreversible decline. The Saudis are only managing to maintain current oil production volumes by virtue of a massive seawater injection program that pumps more than seven million barrels of salt water per day into its oil fields. This pumping helps to maintain production pressures in the oil reservoirs, but is also the source of formation damage due to the presence of oxygen and bacteria in the seawater. By 2025, Saudi will still export oil, but far less oil than now and each tanker will be of such value as to require its own armed escort.

Iran is not quite at its production peak, but within 20 years even the most optimistic estimates forecast that Iran will cease to be a net oil exporter. (This may also have something to do with Iran's desire to develop a nuclear program.)

And Iraq? By 2025 Iraq may be an oil exporter, not to mention an eastern province of Iran. But considering the looming and inevitable decline in daily world oil production, who will be able to afford whatever gets exported? (Hint, do you speak Chinese?)

The point is, on the other side of Peak Oil the US will be fortunate to receive any oil at all from the Mideast, let alone the Bush goal of only 25% of current (let alone forecast) imports. The planners who are connecting the dots of the past, and mechanistically extrapolating out into the future with no allowance for Peak Oil, are living in a fantasy land. They are planning, if anything, for the failure of the American economy and the attendant decline of American civilization.

Still, our Mr. President raised the subject. To recall an old phrase, "What does the President know, and when did he know it?" If GW Bush is onboard with Peak Oil, he failed to bring up the subject with specificity in his State of the Union speech and give the concept the publicity and credibility that such a speech would merit. Then again, maybe the President saw the movie A Few Good Men. Maybe he is imitating Jack Nicholson's character, the colonel of Marines, who said "You want the truth? You can't handle the truth." Maybe, to Mr. Bush's way of thinking, he is just doing the best that he can.

But if you are reading this, you are probably one of the initiated. We are the few, the proud, the Peak Oil people.

Byron W. King has worked as a geologist in the exploration and production division of a major international oil company. He has followed developments in the oil and gas industry for almost three decades. He is currently a practicing attorney in Pittsburgh, Pennsylvania.

For more of King's essays, see The Saga of Oil.

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Trends in Oil & Gas Prices Point to China

By Jon A. Nones
16 Jan 2006

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

ASPEN ( – In a presentation at the International Oil & Gas Investor Forum in Aspen, Colorado, Chief Investment Officer Frank Holmes of U.S. Global Investors, Inc. said the key to analyzing the price trend in natural resources lies in the East. For investors to take full advantage of booming oil and gas prices, Holmes frankly said “it’s important to recognize what’s taking place in Asia.”

“The results are a lot of luck because the wind is at our back,” he began.

Holmes said the supply side of the world cannot keep up with China’s 2% growth. He said there are three critical drivers to the market:

  1. Economic growth
  2. Regulatory issues
  3. Geopolitical concerns

China’s Economic Growth

Holmes said it’s especially important to track and follow China’s gross domestic product (GDP).

Official statistics released in December showed that China's GDP figure in 2004 had been undervalued by $284 billion, or 16.8% - thus revising its economic expansion rate to 10.1% from 9.5%. China's revised GDP figure was $1.98 trillion. The new figure makes China the world's sixth largest economy, behind the U.S., Japan, Germany, the U.K. and France.

The first-ever economic census, conducted by the National Bureau of Statistics (NBS), found that China’s service sector had been understated by around $262 billion, Li Deshui, head of China's NBS, said at a press conference in Beijing.

According to an economic survey, China’s service sector accounted for 40.7% of the country's 2004 GDP, up from the previous figure of 31.9%. The country's agricultural sector accounted for 13.1% of GDP last year, while the manufacturing industry accounted for 46.2%.

China's GDP growth rate

Revised figure after economic census

Original figure





































Source: National Bureau of Statistics

Holmes added that last year China installed an additional 50 gigawatts of power – equalling Spain’s entire energy production. He said China plans to increase 50 gigawatts each year until the Olympics.

Regulatory Issues

Concerning the second driver, regulatory issues, Holmes did not delve too deeply into this, but said that it is becoming increasing difficult to obtain permits for drilling oil and gas in foreign countries. This will, of course, affect the ready supply of resources.

Speculation concerning natural resource policies continues to surround countries such as Peru, Mongolia, Tanzania, Venezuela and now Bolivia. Obviously, these countries want to cash in on the oil & gas boom, which brings us to Holmes’ third indicator – geopolitical concerns.

Geopolitical Concerns

Lastly, Holmes pointed to geopolitical concerns fuelling the oil & gas market. After the newly elected Bolivian president said he wanted to nationalize the oil & gas sector, this without a doubt created concern in the market. Not to mention Russia’s falling out with Ukraine over gas supplies – while natural gas prices remain at all time highs.

Holmes also said that the Iran situation is a major geopolitical concern for the oil & gas market. As tensions increase with the U.S. over nuclear energy, the struggle over valuable natural resources will only heighten between the two countries.

“We need to be cautious” of the situation in Iran, he said.


To conclude, Holmes said that despite high oil prices, demand continues to rise - largely fuelled by China. IEA forecasts call for 2% growth in 2006, according to Holmes.

The February contract for benchmark for light, sweet crudes are still above $60 at $63.92 per barrel Friday on the New York Mercantile Exchange. The March contract was last at $64.58 per barrel. The February natural gas contract traded at $8.79/Mmbtu, still at relative highs.

All this means growth for oil & gas companies.

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[This is pure scorched earth. If the US and Western economies can’t extract oil and cut deals in Africa then arm sales and fomenting unrest virtually guarantee that nobody will. So much for the value of human life. – MCR]

U.N. adviser: West killing Africa with gun sales

February 2, 2006

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

GENEVA, Switzerland (Reuters) -- A senior United Nations aid official called on Thursday for a halt to arms sales to Africa, saying it would be more effective in addressing the continent's poverty than charity rock concerts or debt relief.

Dennis McNamara, special U.N. adviser on internal displacement, slammed world powers for neglecting some 12.5 million Africans uprooted within their countries, who form half of the world's internally displaced persons (IDPs).

He accused the West of supplying the weapons fuelling African conflicts which leave civilians homeless -- and prey to war crimes, hunger, disease and rape -- while greedy companies exploit the oil and mineral wealth.

"Guns are at the heart of the problem ... There is one slogan I would like to suggest for 2006: No Arms Sales to Africa. Zero. Not an embargo, not a sanction, a voluntary cessation of all arms sales to Africa," McNamara told a news briefing.

"The kids on the streets of Nairobi, Khartoum, Abidjan and Monrovia have guns in their pockets or up their sleeves ... We provided the arms. We the West, we the G8," he added, referring to the Group of Eight industrialized nations.

McNamara dismissed large rock concerts -- such as the Live 8 series held worldwide last July under the slogan "Make Poverty History" to pressure the G8 -- as focusing short-lived attention on starving babies while distorting deeper problems.

"The pop concerts save the kids for a short period of time. They do nothing about the underlying problems," McNamara said.

"Twenty years after Live Aid, the farms of the Ogaden of Ethiopia are as impoverished and likely to have famine as 20 years ago. Nothing has changed on the ground, in fact it has gotten worse," he added.

He said debt relief was a good idea but only one part of a much bigger issue.

"The rape victims of eastern Congo don't give a damn about debt relief. They want to know who is raping them, who has provided the guns and can they get HIV tests," he added.

Yet refugees or ex-combatants returning to post-war areas ranging from Angola, southern Sudan to former Zaire find that basic services such as water, health and education are lacking amid massive unemployment, he said.

"It is all very well to have these important slogans, but it is not enough. The food aid and humanitarian aid is often a substitute for real political, economic and security action.

"This is the danger of humanitarian aid. It is a palliative, a necessary palliative, but we should stop kidding ourselves that it is a solution ... In fact, it detracts from solutions."

Copyright 2006 Reuters. All rights reserved.This material may not be published, broadcast, rewritten, or redistributed.

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[Is another American brand name getting ready to bite the dust?
 – MCR]

Kraft to cut up to 8,000 more jobs

Food firm gouged by weakening sales, commodity costs, says it also expects to close up to 20 additional facilities.

January 30, 2006: 5:09 PM EST

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

CHICAGO (Reuters) - Kraft Foods Inc. said Monday it would cut up to 8,000 more jobs, or 8 percent of its work force, through 2008 as the food company, hammered by higher commodity costs and sluggish sales volume, looks to save more money.

Shares of Kraft (Research) jumped over 3 percent in after-hours trading Monday after closing at $30 on the New York Stock Exchange.

The job cuts are part of the second major restructuring announcement Kraft has made in two years and will add $2.5 billion in restructuring charges to a plan first announced in 2004, the company said.

The announcement came as the maker of Oreo cookies, Jell-O gelatin and a host of other well-known brands, posted a 23 percent increase in net income, though part of the increase came because the company had an extra week in the 2005 quarter.

Kraft, like many packaged food companies, has been struggling with a range of commodity cost increases in recent years and is still being pressured by high fuel and packaging costs.
Price increases have only been able to match part of the higher costs and in some instances also chased consumers to less expensive brands, especially in Europe, the company said.
Kraft said it expects to close up to 20 additional facilities under the expanded restructuring, generating an additional $700 million in annual cost savings.

The company posted a profit of $773 million, or 46 cents a share, for the fourth quarter, compared with $628 million, or 37 cents a share, a year earlier.

Revenue rose 10 percent to $9.7 billion, but would have been up only 3 percent without the extra week, the company said.

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[I’ll bet that the possibility of Iran importing oil has crossed few people’s minds. The reason, the problem and the common thread with the whole world is summed up by one word: growth. As billions of investment dollars pour into Iran, the ruling theocracy can afford, at least for a while, to improve domestic living conditions. The fact that Iranian gasoline is ultra-cheap at 11 cents/gallon is nowhere near as important as the fact that such growth in demand stretches the rubber band of supply even tighter. Iran is caught in the same trap as every other nation. Until we change the way money works, we change nothing. – MCR]

Plans for Raising Gasoline Production

$14b Investment Needed

Iran Daily
January 30

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

TEHRAN, Jan. 30--Iran’s gasoline production capacity will rise to 140 million liters a day in five years, once the projected $14-billion investment in refinery construction and rehabilitation schemes is realized.

According to ISNA, Mohammad Reza Nematzadeh, deputy oil minister and managing director of National Iranian Oil Derivatives Production and Distribution Company further told a Seminar on Offering Plans for Constructing and Rehabilitating Refineries that the country is expected to face a huge 10.5-percent hike in gasoline consumption, underscoring the need to rectify consumption patterns and boost production.

“The ever-increasing gasoline consumption has prompted the government to take necessary measures to increase gasoline production capacity from the current 40 to 140 million liters a day over the next fiver years,“ he said, adding that a technological improvement in gasoline production processes will help decrease heavy derivatives output and increase production of petrol and other light derivatives.

He said with the implementation of refinery rehabilitation schemes, the production ratio of gasoline to other oil derivatives will jump from the current 16 to 35 percent.

Gasoline consumption has reached record highs in Iran.

Bahman Arman, a senior economist, told ISNA earlier that a 13.3 percent growth has been witnessed in gasoline consumption during March-December 2005 against the figure for the corresponding period a year earlier.

“This is unprecedented not only in Iran, but also in the whole world,“ he said, adding that once known internationally as a major exporter of oil derivatives, Iran has now turned into one of the world’s largest gasoline importers.

Iran has to meet its need for gasoline from countries such as China, United Arab Emirates, Kuwait or Saudi Arabia. The country is paying four billion dollars a year on petrol imports.

Arman said the parliamentary move to keep prices of goods and services unchanged is meant chiefly to keep people satisfied, blaming it for the high gasoline consumption.

Each liter of gasoline sells for about 11 cents in Iran, which has one of the cheapest petrol prices in world.

Oil industry experts warn that the country is expected to be forced to import not just gasoline, but also oil and gas for domestic use next year, if consumption continues to grow fast.

Some 40 percent of domestic demand for gasoline is met from imports. Gasoline consumption hovers around 67 million liters a day.

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Iran's really big weapon

UPI Editor
January 19, 2006

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

WASHINGTON, Jan. 18 (UPI) -- The prospect of a mushroom cloud rising from the Dasht-e-Lut, Iran's Desert of Stones, may not be Tehran's greatest threat to international stability. A successful test of an Iranian nuclear weapon at some point in the next few years may prove less destabilizing than a simple free market economic measure that Iran is said to be planning for March of this year.

Tehran is preparing to open a bourse, a mercantile exchange and potentially a futures market, where traders can buy and sell oil and gas, along the lines of the International Petroleum Exchange (IPE) in London and the NYTMEX in New York.

The differences are first, that this one would price its energy in euros, not dollars, and second, that it would not use West Texas Intermediate or Brent Crude (from the North Sea) as its standard oil for pricing. It would use a Persian Gulf-produced oil instead.

So what? This sounds like a minor change, and possibly even a useful one, broadening the choice among traders and consumers in the kind of way that Adam Smith, the 18th century father of modern capitalism, would have recommended.

Not so. This could be a far more profoundly punishing blow to American interests than Iran's ability to manufacture a crude atom bomb that would have little credibility until it became small and stable and reliable enough to be delivered on some putative target.

The relationship between the oil price and dollar is intimate and important, and very useful to the dollar's highly profitable status as the world's reserve currency. The prospect of a rival bourse and futures market opens the intriguing possibility, beyond hedging the future oil price, of profitable arbitrage between the euro and the dollar.

And if oil and gas are to be denominated in more than just one currency, why not open the trade to others? Why not denominate the price of a barrel of oil in Japanese Yen, or in Chinese yuan, the currency of the world's second biggest oil importer?

Why not, in short, end the monopoly rule of the almighty dollar?

Such a move would not be welcomed in Washington, which swiftly moved after the fall of Baghdad in 2003 to reverse Saddam Hussein's impudent decision to start selling Iraqi oil for euros, rather than dollars. After all, the great benefit of running the world's reserve currency means that if all else fails, the United States Treasury can just print more and more of the stuff and pay for its oil imports that way.

There are, naturally, limits to the degree to which the United States can debase its currency, as the world found with the first great OPEC price rise of 1973, when the price per barrel tripled. This is usually attributed to the political decision by Saudi Arabia and other Arab oil producers to punish the United States for its decisive support of Israel in the Yom Kippur War. That is partly true, but the crucial OPEC decision was as a direct result of President Richard Nixon's Aug. 15 decision to end the dollar's link to the gold standard.

The dollar declined in value, which meant the OPEC producers received less value for their oil. So at their Beirut meeting on Sept. 22, OPEC adopted resolution XXV:140, which resolved to take "any necessary action ... to offset any adverse effects on the per barrel real income of member countries resulting from the international monetary developments as of Aug. 15."

That was also the time when Sheikh Zaki Yamani, the Saudi oil minister, first mentioned the possibility of deploying the ultimate weapon of an oil embargo.

Most of the financial world is currently awaiting another, similar devaluation of the dollar, in response to the monstrous scale of current deficit on the U.S. current account. Writing in the Financial Times last week, Harvard Professor Marty Feldstein suggested that on the basis of the 1985-87 Louvre and Plaza devaluations, the dollar could fall as much as 40 percent or even more.

The markets simply do not know when. But should it come after an Iranian bourse is up and running, some very tidy sums could be made by those playing a dollar-euro trade on Tehran's energy futures market.

The Tehran bourse is listed as an objective for this year in Iran's current five-year plan. The Tehran Times reported July 26 that the final authorizations had been received for the bourse to go ahead. Mohammad Javad Asemipour, the technocrat and former deputy petroleum minister who has been charged with launching the bourse, has made a number of discreet scouting trips to London, Frankfurt, Moscow and Paris. Just after Christmas, he was quoted by the Iran Labor News Agency saying "transparency in oil transactions would be one of the advantages of having such an establishment "(the bourse), and adding that this would "allow dealers access to related information and promote equal trade opportunities."

Asemipour is an elusive type, but one who seems convinced that Iran can play off the European against the Americans, the euro against the dollar. Just over a year ago, he was quoted in the quasi-official Iran Daily saying that the Europeans have played "a beautiful game" with the United States during the years of sanctions, when they actively participated in economic projects, particularly in the energy sector, across Iran.

"In this game, the Europeans have pretended to be siding with America, whereas they got involved in business here and developed a sort of competition with the Americans," he said. "But in practice, they (the Europeans) have pursued their own interests." There is no shortage of officials in the Bush administration who nurture such suspicions of the French and Germans, despite what seems at the moment to be a common concern about Iran's nuclear ambitions.

The question now is whether the world's traders will come to a Tehran Bourse if and when it opens, bearing in mind that a similar idea in Dubai failed to gain much traction. But that was before oil prices reached $65 a barrel, and before the Dubai's partners in the Gulf Cooperation Council decided it was time to stop glowering at Iran as a potential enemy, and started to invite Tehran to their meetings as an observer. Before, that is, the Arab world began to judge that whatever the American intentions, Iran had become the real winner of the Iraq War.

The world could be about to change much faster than we think, whether or not Iran tests an atomic device. There are other, possibly more devastating weapons available that could hit a financially vulnerable American where it hurts most.

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[Here is a pair of mainstream stories about the current positions of Venezuela’s President Hugo Chavez.  For our subscribers, there’s a bracing new piece that puts it all into perspective with Mike Ruppert’s characteristic insight and urgency. When Chavez talks about U.S. spying, he is talking about U.S. military aggression in Iran. When he talks about the international oil trade, he is talking about the dollar and the Euro. And when he talks about Venezuela’s goals, he’s talking about the hopes of his people, not numbers on a chart.

The merit of the Bloomberg story is its attention to the violent dimension of America’s stand-off with the world and Venezuela.  Machine guns and MiG 29’s and a million armed men and women simply don’t appear in Business Week’s AP story.  Its own strength, by contrast, is its attention to detail in the economic symbiosis between Uncle Sam and the Bolivarian Republic.  But Business Week sees the world through a capitalist prism that blinds it to human values.  If Chavez were to cut economic ties with the United States, we’re told, “the bigger loser likely would be Venezuela.”  This is only true in dollar terms.  –JAH] 

Chavez Threatens to Jail Diplomats, Shut Refineries

February 4, 2006
Peter Wilson in Caracas 

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

Feb. 4 (Bloomberg) -- Venezuelan President Hugo Chavez threatened to jail diplomats and close refineries belonging to the U.S. unit of the state oil company in an escalating war of words with the President George W. Bush.

U.S. diplomats continue to engage in espionage in his country, Chavez told hundreds of thousands of supporters today during a government rally commemorating the 14th anniversary of his abortive coup attempt in 1992 against former President Carlos Andres Perez. He said he would jail U.S. diplomats caught spying, while challenging the U.S. to break diplomatic ties.
The two countries exchange tit-for-tat expulsions of diplomats earlier this week. Chavez expelled the U.S. naval attache to Caracas on Feb. 2, which was followed the next day by Washington declaring a Venezuelan diplomat persona non grata.

``If the government of the U.S. wants to break relations with Venezuela, and they take the decision, it would cost me nothing to order the closure of the refineries we have in the U.S.,'' Chavez said. ``Then we will see where (the price of) oil will go, or a gallon of gasoline. It would cost me nothing to sell oil to other countries in the world.''

Sell Oil Elsewhere

State oil company Petroleos de Venezuela SA's U.S. unit, Citgo Petroleum Corp. owns shares in four U.S. oil refineries and two asphalt plants, with a combined daily crude processing capacity of 756,000 barrels. The company also operates a 265,000 barrel-a-day refinery in Houston that's a joint venture with Lyondell Chemical Co. and has more than 13,500 U.S. retail fuel outlets.

Houston-based Citgo sells 8 billions gallons of gasoline every year, according to the company's Web site.

``We now sell 1.5 million barrels a day of oil to the U.S.,'' Chavez said. ``We have never missed our commitment.''

Venezuela could sell oil now going to the U.S. to India, China and Latin America, said Chavez, who said his government has proof of spying by U.S. diplomats.

During his speech, he read several e-mails that he said proved U.S. staffers were engaged in espionage.

Chavez, who was dressed in a red shirt and wearing his trademark red beret, said the South American country, which is the world's fifth-largest oil exporter, will also seek to build up its defenses by purchasing arms from other countries.

Arms Purchases

Venezuela earlier purchased 100,000 Russian AK-47s, and Chavez said he wants to buy enough weaponry to put 1 million men and women under arms in the case of an U.S. attack. The government will shortly submit a bill to Congress, seeking funds for the purchase, Chavez said. Beside more rifles, Venezuela will also buy rocket launchers, he said.

``We are in contact with countries where the U.S. can't do a thing,'' said Chavez. Chavez didn't name the countries.

The U.S. has attempted to block Venezuela arms purchases from Brazil and Spain.
Chavez, a former paratrooper, also accused the U.S. of trying to influence the outcome of December's presidential vote. Chavez said he hopes to win 10 million votes in December. Venezuela has 14 million registered voters.

To contact the reporter on this story:

Peter Wilson in Caracas

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Chavez steps up oil threats against U.S.

The Associated Press/CARACAS, Venezuela
AP Business Writer
February 6, 2006

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

FEB. 6 5:40 P.M. ET President Hugo Chavez has stepped up threats to sell off Venezuelan oil refineries in the United States, but some oil experts argue a quick break with the key U.S. market would hurt Venezuela.

Long-standing tensions between the U.S. and Venezuela have escalated with the expulsion last week of a U.S. Embassy official accused of spying. Washington expelled a Venezuelan official in return.

Chavez threatened over the weekend to sell off all of Venezuela-owned Citgo Petroleum Corp.'s refineries and divert U.S. oil exports to other countries.

"I could easily order the closing of the refineries that we have in the United States," Chavez said Saturday in a speech to supporters. "I could easily sell the oil that we sell to the United States to other countries in the world ... (to) real friends and allies like China, India or Europe."

Chavez's threat comes amid jitters about a disruption in world oil supplies: Iran, OPEC's second-largest producer, has been referred to the U.N. Security Council over its nuclear intentions, while Nigeria has been wracked by violence.

"The United States doesn't face many alternatives at this moment" and could face a hike in oil prices if forced to find replacements for Venezuelan imports, said Carlos Rossi, an economic adviser to the Venezuelan Hydrocarbons Association.

But he and other experts said the bigger loser likely would be Venezuela.

The South American country says it exports about half of its official production of 3.2 million barrels per day to the United States -- much of that refined by Houston-based Citgo and sold through its 15,000 retail gas stations.

Finding alternatives to Citgo's refineries -- specially designed to refine Venezuela's heavy, highly sulfurous crude -- would be difficult, critics say.

"If they sell these refineries, there are no other refineries in the world able to process Venezuelan crude, not in sufficient capacity," said Jose Toro Hardy, a Chavez critic and former director of the state oil company, Petroleos de Venezuela SA, or PDVSA.

PDVSA has domestic refineries and smaller operations in Europe, the U.S. Virgin Islands and Curacao, but they don't have the capacity to take on Citgo's share.

"You need refineries to sell oil," Rossi said. "The U.S. would feel the impact, but Venezuela would feel it much more."

Citgo paid US$785 million (euro655 million) in dividends to PDVSA in 2005 -- revenues that Chavez's government stands to lose if it sells.

Geography also works against Chavez's threat of making a clean break with the U.S. market: an oil tanker leaving Venezuela can get to Citgo's Gulf Coast refineries in five days compared to about 30 days to travel to China.

The United States remains Venezuela's No. 1 buyer of oil. It relied on Venezuela for 10 percent of its oil imports in November, the latest month for which U.S. figures are available.

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