On Friday, Venezuelan state oil company PDVSA will hope to overturn a recent order issued by a UK court freezing up to 12 billion dollars of its assets.
The freeze was obtained by US oil giant ExxonMobil following PDVSA's takeover of majority stakes in Venezuelan oil operations last year; after deciding to pull out of Venezuela rather than accept the new terms, ExxonMobil announced in September that it had taken the dispute to arbitration after efforts to negotiate compensation failed.
Similar court orders have been issued in the Netherlands and Netherlands Antilles; a court in the United States has also ordered the freezing of some 300 million dollars in that country. A US federal court upheld that freeze late last week, on the grounds that Exxon can be expected to win its lawsuit against PDVSA. Venezuelan President Hugo Chavez has responded to the freeze by threatening to cut off oil exports to the United States -- estimated at some 1.2 million barrels a day -- and attributing the move to a conspiracy between ExxonMobil and Washington.
The US government has played down both the accusations and the risk of an oil cut-off -- indeed, the lack of refining capacity for Venezuela's extra heavy crude outside the United States renders any cut-off of oil exports somewhat unlikely, given the potentially disastrous consequences for the Venezuelan economy.
In practice, ExxonMobil appears to be pursuing corporate rather than diplomatic ends, seeking to force Venezuela to reach a deal on compensation, as well as to send a signal to other countries that might consider similar measures. However, the court orders will preclude further moves by PDVSA to sell or withdraw assets during what could be a protracted legal process, in particular given the political difficulty for Caracas of negotiating compensation under duress.
PDVSA has been borrowing heavily in order to finance its increased investment burden in the Orinoco heavy oil belt, and the asset freeze will reduce its borrowing options significantly. This could have serious implications for oil output and the Venezuelan economy more generally -- as well as further damaging bilateral relations and potentially affecting US oil supplies.