Fear Not, Oil Traders -- It's Hugo Chavez to the Rescue!

As I write in the upcoming (tomorrow's) Money and Markets...

It is in the interests of both Iran and Venezuela to keep oil prices high, and one way to do that is to inject as much fear as possible in the global oil markets. Every dollar rise in the price of a barrel of oil is more money in their coffers.

So, the price of oil pulls back below $70 per barrel, and what happens? Hugo Chavez steps up with an announcement to set the oil markets on edge. From Bloomberg News:

Venezuelan President Hugo Chavez will increase taxes on foreign oil producers, grabbing a larger share of windfall profit from companies including Exxon Mobil Corp. and ConocoPhillips. Chavez, who last month seized Total SA and Eni SpA assets, will raise the income tax rate to 50 percent from 34 percent, Energy and Oil Minister Rafael Ramirez said in a press conference today in Caracas. The new rates threaten to curtail investment in the world's fifth-largest oil-exporting country at a time of record energy prices and rising industry profit.

As I write this the front contract for oil is back over $70 per barrel. And if it swoons again, Hugo will probably step in with another "Up Yours" to Uncle Sam.

And how about that news that Iran’s president has written a diplomatic letter to President Bush suggesting “new ways’ to resolve tensions"? That's what sent oil prices lower on Monday.

Does anyone really think this is anything but “war by other means”? Negotiations will likely fall apart. And then Iran’s President Ahmadinejad will be able to tell the Muslim world: “See, I tried to make peace with the guy. It’s all HIS fault!” And oil prices will ratchet higher.

Sure, it could play out differently. But my money's on $80 oil by the end of the year -- potentially much higher if hurricanes deliver a direct hit to Gulf of Mexico oil facilities.

Check out my new gold and energy blog at MoneyAndMarkets.com