Venezuela elections -- Expect high oil prices

December 6, 2006

The weekend Venezuela elections were a victory for Hugo Chavez , who was reelected as President for another six years. Chavez’s victory was thanks to prosperity created by high oil prices. The Venezuela elections now position Chavez to continue his campaign for “Bolivarism”, or pan-South American unity, of which Nicaragua, Bolivia and now Ecuador are solid members.

What Venezuela's elections mean:
Venezuela’s 2005 GDP growth was 9.5%, fueled by the 2.1 million barrels of oil the country exports, making it the 7th largest oil exporter in the world. Taking advantage of the country’s importance as an oil producer, Chavez has been strengthening his relationship with Russia and Iran, and has been successfully prodding OPEC to restrict production in an effort to keep oil prices above $60 per barrel.

On the other hand, recent elections in Mexico, Peru and Columbia were anti-Bolivarism, as these countries continue to profit more from their trade relationships with the U.S. Earlier this month, Chavez lost a bid for Venezuela to sit on the UN Security Council, after a standoff with the U.S.-backed Guatemala. (To end the month long stalemate, Panama was nominated by the South American contingent).

Action steps:
Chavez’s reelection means he will continue to support higher oil prices at OPEC. Make sure you have a good natural resources or commodities fund in your portfolio.

Source: Voice of America web site, CIA Fact Book, UN web site, OPEC web site

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