Published by Minyanville

President Hugo Chávez will be ringing in the New Year—election year—with a smile on his face as his government has been ordered to pay ExxonMobil (XOM) just $908 million, less than a tenth of the amount sought by the US oil giant, after its assets in Venezuela were seized in 2007.


ExxonMobil had wanted around $10 billion after the nationalization of its Cerro Negro project in Venezuela’s oil-rich Orinoco belt. The Paris-based International Chamber of Commerce (ICC), however, ruled last week that the company is due less than 10% of that.


Since then, state oil company Petróleos de Venezuela (PDVSA) has added that it will pay out just $255 million within 60 days, having deducted $191 million that ExxonMobil owed for the repurchase of related bonds, $300 million in PDVSA’s New York accounts that Exxon had frozen during the dispute, and $160 million that the ICC panel awarded the Venezuelan company in counterclaims.


PDVSA claims in a statement that ExxonMobil originally sought $12 billion, plus interest, a figure the state oil company claims is “completely exaggerated and beyond logic.”


The statement continues: “Since [2007], the Venezuelan government and PDVSA always maintained the position that such an amount was unrealistic… If ExxonMobil had been willing to accept reasonable compensation—which the tribunal has confirmed—there would have been no need for arbitration.”


ExxonMobil has another case pending against Venezuela with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). A ruling is expected in the coming months.


“While we view the fact that PDVSA did not repudiate this settlement in a positive light, we are not sure how PDVSA will behave if the ICSID’s ruling does not go its way. As such, the headline risk around these arbitration procedures is unlikely to dissipate easily,” writes Boris Segura, an analyst at Nomura in New York, in a note to investors.


Around 20 companies have outstanding cases against Venezuela at the ICSID. Executives at ConocoPhillips (COP) will have taken keen notice of the recent ruling as they are claiming $30 billion in compensation for two projects in the same region, as well as two others, also nationalized in 2007.


Mexican cement giant Cemex (CX) recently received $600 million for the 2008 seizure of its Venezuelan assets.


The money demanded in compensation is a heavy burden on Venezuela's economy, just as Chávez plans to increase spending nearly 50% this year to drum up domestic support before October’s elections. Despite this, the political capital from the decision could be much more valuable.


“Chávez is bound to use the decision to rally his base, not to mention that he will have even more money to spend to ensure political support,” says Michael Shifter, president of the Inter-American Dialogue think tank. “No one is more adept than Chávez in deriving maximum political advantage from such opportunities.”


This was demonstrated over Christmas as the president appeared in a Nativity scene on the streets of Caracas, standing among the more traditional biblical scenery.


“To symbolize his infrastructure achievements, there is a miniature cable car reaching up to a replica shantytown. The flagship social projects of the Chávez government, including his Barrio Adentro (Inside the Slum) clinics, also are painstakingly represented,” writes Andrew Cawthorne for Reuters.


“In the middle—in front of and below Jesus' crib—stands Chávez next to a model of his hero, South America's 18th century independence fighter Simón Bolívar.”


In preparation for elections, Chávez has shaken up his inner circle, in what observers claim is meant to appease the military and cement his already strong leadership of the government.


“Greater power in the hands of the military could increase the possibility that it may not abide a victory of the opposition, should that occur,” write Barclays Capital analysts Alejandro Grisanti and Alejandro Arreaza in a note to investors.


“In any case, these moves increase the importance of next year’s elections, putting it in terms of all or nothing.”


Many hardened to Chávez’s strong rhetoric were shocked last week to hear the president speculate that Washington may be responsible for the cancer that afflicted him earlier this year, as well as that of Argentina’s President Cristina Fernández de Kirchner, Paraguay's Fernando Lugo, Brazil's Dilma Rousseff, and popular former Brazilian leader Luiz Inácio Lula da Silva—all left-wing allies of the Venezuelan government.


“It would not be strange if [Washington] had developed the technology to induce cancer and nobody knew about it until now ... I don't know. I'm just reflecting,” Chávez said on state television.


Bolivia’s President Evo Morales, another ally of Chávez, has not been diagnosed with cancer. “Take care Evo!” the Venezuelan maverick added.