Where is the oil price red line?

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Quico says: As chavista radicalism escalates, and with no institutional checks left on the guy’s power, the only brakes left on the damage this government might inflict are factual. Chief among them, of course, is the dicey issue of revenue: oil prices have been behaving in distinctly counter-revolutionary fashion lately, no doubt as the result of a CIA plot.

It’s hard to tell at what point the slide becomes a real problem for Chávez. One upshot of the government’s zero-transparency, zero-oversight management style is that we don’t really know much about the state of the State’s finances. Oversight of the official budget is weak enough, but the point is that more and more spending is carried out off-budget, through direct PDVSA spending, Fonden, and who knows how many other utterly opaque, slush-fundy vehicles for presidential discretion.

Since we don’t really know how much the government has been spending, we can’t really tell where its red line lies. Below what oil price does the government find itself forced to start cutting on sensitive spending programs? One well-informed guess I heard is $45/barrel. If so, things could get interesting, because Venezuela’s export basket dropped to $44.50/barrel last week. That’s still a lot, but then the government has been spending a lot as well.

So we may be getting uncomfortably close to some red lines. Seems like the government is advancing on two fronts to counter this one. On the one hand, they’re working with Iran to press for yet more OPEC production cuts. If that doesn’t work, they’re getting ready to borrow the difference. The real Enabling Law, (as opposed to the one they published) includes a clause that would empower Fonden to borrow money without anyone’s approval but Chávez’s, and with the usual standard of financial oversight (zilch.)

But is Wall Street really going to pony up the cash for a guy who’s off rambling about mass nationalizations and the Socialist New Man?

Stranger things have happened, I guess…

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