Analysis: Lat Am spat may hit energy

MIAMI, March 5 (UPI) -- The specter of war among Latin American neighbors Colombia, Ecuador and Venezuela, the region's top oil producer, could prove harmful to international oil markets.

Though oil prices ended Tuesday below $100 per barrel for the first time in four days, there has been growing concern that diplomatic tensions in the region could help keep prices near record highs for the foreseeable future.

With both Venezuela and Ecuador -- both members of the Organization of Petroleum Exporting Countries -- choosing to sever diplomatic ties with Colombia over its military moves into Ecuador's soil, concerns are mounting the row will trickle down to the petroleum industry.

So far, the impact of the diplomatic tensions on either country's petroleum sector appears negligible, said Patrick Esteruelas, Latin America analyst for Eurasia Group.

"Impact to their oil industries is minimal" so far, he said, "unless of course both countries would go to war, which seem highly unlikely."

Colombia's decision over the weekend to kill rebel leader Raul Reyes and his men -- camped in Ecuador, just over the porous jungle border -- evoked the ire of Venezuelan President Hugo Chavez, who called for the deployment of thousands of troops and tanks to Venezuela's own border with Colombia.

His reasoning was to prevent Colombia from repeating the same move on Venezuela soil, where FARC rebels are believed to camp.

Ecuador mirrored Venezuela's decision and sent its own forces to the border, raising concerns the region could be teetering on the verge of a multination skirmish.

Chavez said he would prefer to avoid a conflict with Colombia, with which Venezuela does about $6 billion in bilateral trade every year, but was preparing for the possibility, accusing Bogota of doing Washington's bidding in its handling of the country's rebels.

"We don't want war, but we aren't going to permit the U.S. empire, which is the master (of Colombia) ... to come divide us," said Chavez.

The United States has provided Colombia with billions of dollars in military equipment and training over the last several years with an aim of taking on FARC and other leftist groups that traffic in drugs and carry out kidnappings to fund their army.

Some also speculate that Chavez's fury over the Colombian incursion into Ecuadorian territory is merely a diversionary tactic aimed at distracting Venezuelans from the country's woes like those plaguing PDVSA.

Last year Luis Vierma, exploration and production vice president at PDVSA, said Venezuelan oil faces a "significant operational emergency" if it does not increase the number of rigs operating in the country and that the state firm fell short of its 2007 goal of getting 191 rigs online in 2007 and producing some 3.3 million bpd.