By Frank Jack Daniel and Arshad Mohammed
CARACAS/WASHINGTON (Reuters) - The United States escalateda major diplomatic crisis with Venezuela on Friday, imposingsanctions on aides to President Hugo Chavez in retaliation forhis expulsion of the U.S. ambassador.
The crisis and Chavez's threat to cut off oil shipments tothe United States sent debt tumbling in the OPEC nation andplunged relations between the superpower and one of its topenergy suppliers to their lowest point in years.
Washington was also preparing to eject Venezuela's topdiplomat in the United States, a U.S. official said, althoughChavez tried to pre-empt that move by telling him to pack hisbags and go home on Thursday.
Venezuela has some of the largest oil reserves outside theMiddle East and despite Chavez's clashes with the Bushadministration, he has maintained oil supplies and never beforeexpelled a U.S. ambassador.
Chavez said Thursday's move was made in support of hisleftist South American ally President Evo Morales of Bolivia,where violent anti-government protests have killed eightpeople. Bolivia and the United States have expelled theirrespective ambassadors too this week after Morales accusedWashington of supporting the opposition.
Venezuelan bond yield spreads over U.S. Treasuries --widely seen as a gauge of investor risk perception -- soared 41basis points to 765 basis points on Friday. Rising spreads areassociated with more investor risk perception.
Chavez said he would not restore relations with the UnitedStates at least until his stated foe U.S. President George W.Bush leaves the White House in January.
"When there is a new government in the United States wewill send a new ambassador, a government that respects thepeople of Latin America," he said late on Thursday.
Lehman Brothers' Gianfranco Bertozzi, who analyzes howpolitical risk in Venezuela can affect the country's debtprices, told investors the market was overreacting to thediplomatic moves because there had been no oil-relatedmeasures.
"This expulsion is really only until the nextadministration, the election for which is 53 days away, and inthe meantime oil is still flowing - although markets seemsagitated by the risk of escalation," he wrote from New York.
"We doubt that we will see any (escalation) though, butsuperficial conflict will likely go on in the near term."
(Editing by Doina Chiacu)
