Venezuela halts oil supplies to Exxon Mobil

CARACAS (Reuters) - Venezuelan President Hugo Chavezstopped oil exports to Exxon Mobil Corp on Tuesday, escalatinga multibillion-dollar fight with the U.S. company two daysafter threatening to cut off all supplies to America.

The anti-U.S. president's retaliation for Exxon's legaloffensive, which froze $12 billion (6.13 billion pounds) inVenezuelan assets, pushed oil prices higher in late trading.

State oil company PDVSA said it broke off commercial tiesand halted the supply of crude and petroleum products toAmerica's largest company in a fight over Exxon's demand forcompensation after Chavez seized a crude project last year.

"Faced with the legal-economic harassment started by ExxonMobil against PDVSA and as an act of reciprocity, PDVSA hasdecided to suspend commercial relations," the Venezuelancompany said in a statement.

Venezuela is the No. 4 energy supplier to the UnitedStates, which is its biggest customer.

Washington has played down Chavez's threat, industryanalysts say it is unlikely he will carry it out and even hisdeputy energy minister said Venezuela wanted to avoid a generalcutoff because it would be costly for the OPEC nation.

But after regularly issuing conditional warnings overending exports to what he calls the evil superpower, Tuesday'salbeit limited move was the first time Chavez has taken anyconcrete action over supplies in a dispute.

PDVSA said it would not break certain contracts with Exxon,an apparent reference, analysts said, to the jointly ownedChalmette refinery in Louisiana.

Venezuela's other sales to Exxon in November were about90,000 barrels per day, a drop in the bucket for the world'slargest oil company.

'SABER-RATTLING'

Jim Ritterbusch, president of Ritterbusch & Associates oilconsultants, said Chavez's move was "sabre-rattling."

"It is to Venezuela's interest to keep oil prices high andits response to the Exxon Mobil asset freeze orders has donejust that," he said.

With two-thirds of Venezuela's oil exports going to theUnited States, industry analysts believe Chavez is unlikely tocarry out his supply threat because it would slash revenue heuses to fund the social programs that underpin his popularity.

The Exxon battle pits Chavez, a leading proponent ofresource nationalism who calls capitalism an evil, against oneof a giant company seeking access to increasingly restrictedoil deposits around the globe.

Chavez, a self-styled socialist revolutionary who clasheswith Washington over everything from oil prices to democracy,says Exxon is a proxy in a U.S. economic war against him..

Venezuela's oil minister, Rafael Ramirez, said fellow OPECmembers had expressed solidarity with the South American nationin the fight and consulted with the oil producers group'slawyers on a defence strategy.

But an official of the Bush administration, which hasdistanced itself from the Exxon action, said the United Stateshad lined up allies in the spat too.

Other major oil producers have assured Washington theywould make up for any interruption to Venezuelan supplies, saidthe official who declined to be named, adding a cutoff wouldhurt ordinary Venezuelans.

And the head of the International Energy Agency, whichcoordinates the release of global crude oil and refined productstockpiles in the event of a major supply disruption, said thegroup was willing to act if needed.

It was not immediately clear whether PDVSA would stillsupply some crude to Chalmette or what it would do with theexcess crude that would normally go to the U.S. company.

Exxon Mobil said it will act to ensure supply to itsclients.

"It is our long-standing practice to take appropriate stepsto meet our customer needs," spokeswoman Margaret Ross said.

(Additional reporting by Matthew Robinson in New York andMichael Erman in Houston; writing by Saul Hudson; editing byDavid Gregorio and Mohammad Zargham)