Venezuela softened its tone on Tuesday over a threat to stop oil sales to America, with a top official saying a supply cut would be undesirable a day after world oil prices rose due to President Hugo Chavez's warning.
While the OPEC nation maintained its conditional threat and vowed to get tough with Exxon Mobil in a dispute that sparked Chavez's anger, the official's pragmatism reinforced analysts' views the anti-U.S. president is unlikely to follow through.
Still, the threat from the No. 4 oil exporter to the United States -- reiterated by Oil Minister Rafael Ramirez -- remained a concern in the world oil market where prices steadied after earlier declines Tuesday.
Washington played down the threat, which Chavez has delivered in different forms for years but never carried out. Other major oil producers have assured the United States they would make up for any interruption to Venezuelan supplies, a U.S. official who declined to be named said, adding a cutoff would hurt ordinary Venezuelans.
Chavez threatened to halt oil to the United States over a legal offensive by U.S. giant Exxon, which has won court rulings freezing up to $12 billion in Venezuelan assets in a fight over payment for a nationalized heavy crude project.
Curtailing supplies is "feasible" but would hurt both nations' economies, said Bernard Mommer, a senior official at state-oil company PDVSA and top strategist in Chavez's drive to bring Venezuela's energy resources under government control.
Asked on state television if it was desirable for Venezuela to cut off supplies, Mommer replied, "No. It would cost us money and would cost the other side money too."
Despite its legal attack, Exxon said on Tuesday it was interested in holding substantive talks with Venezuela to negotiate fair compensation for the seizure of the project that is based in one of the world's largest oil deposits.
Exxon is a proxy in Washington's economic war against Venezuela, according to the self-styled socialist revolutionary who clashes with the Bush administration over everything from oil prices to democracy.
"We are ready" to stop supplies if these actions continue, Oil Minister Rafael Ramirez said in an interview with local newspaper Ultimas Noticias published Tuesday.
He also warned Venezuela was willing to fight tough against Exxon, saying the state oil company PDVSA was considering suing one of the world's largest oil companies for damages.
Ramirez and Mommer have led the South American country's takeover of foreign-run oil projects. Most companies have reached deals over the seizures while Exxon has consistently been the most tenacious in seeking compensation.
"Only Exxon maintains this aggressive and hostile attitude," Ramirez told the paper. "If they want this to escalate, it will escalate."
Exxon's legal move helps ensure Venezuela will pay if the oil major wins arbitration over its lost project. Industry analysts also said it was a tactic to pressure the state oil company, which has shown signs of cash flow problems, to seek a deal.
"We do remain interested in getting into substantive conversations with the Venezuelan government and with PDVSA around the fair market value of the assets that have been expropriated," said Mark Albers, senior vice president at Exxon.
Venezuela says compensation would be less than $6 billion.
With two thirds of its oil exports going to the United States, industry analysts believe Chavez is unlikely to carry out his supply threat because it would slash revenue he uses to fund the social programs that underpin his popularity.
"Venezuela cannot easily find alternative destinations to refine its peculiarly heavy type of crude," said Goldman Sachs economist Alberto Ramos.
PDVSA says the Exxon case has no impact on its operations.
In a sign of business as usual, private equity firm First Reserve confirmed it will buy a PDVSA oil terminal in the Bahamas, the largest of its kind in the Caribbean.