Is Venezuela on the cusp of a post-Chavez oil boom?

If Venezuelan President Hugo Chavez is forced to drop his bid for re-election for health reasons, will the primary repercussion for the West be the exit of a voluble thorn in the side? Perhaps, but it will also mean the prospect of yet more newly available oil reserves — on top of the widely projected U.S. shale oil bonanza. The takeaway: If the shale oil projections are accurate, and Chavez leaves politics under whatever scenario, we have the prospect of a geopolitical shakeup analogous to what has accompanied the rise of shale gas.

Venezuela has the largest proven oil reserves on the planet — 296 billion barrels, according to OPEC figures. The number is slightly misleading: Saudi Arabia’s 264 billion barrels are higher quality and cheaper to produce than the extremely heavy crude of Venezuela’s Orinoco Basin; yet Venezuela’s reserves are so massive that such details almost don’t matter.

The trouble has been that, since Chavez took power 13 years ago, Venezuela’s oil production has fallen to 3 million barrels a day, 16 percent less than the 3.5 million barrels a day it produced in the 1990s. This has resulted from Chavez forcing out key members of the skilled labor force and management of the state oil company, known as PDVSA, and his marginalizing of the other source of oil patch expertise — foreign oil companies such as Chevron and Shell.

Yesterday however, Chavez said his cancer may have recurred, reports the Associated Press — he must go to Cuba for further treatment and scale back his frenetic pace. That bodes ominous for his attempt to hold back a groundswell of apparent support for Henrique Capriles (pictured above), his 39-year-old opponent in October elections. What distinguishes Venezuela from some other petro-states — Russia, Kazakhstan, Azerbaijan and Iran among them — is that power can actually change hands through the ballot box. So even though polls show Chavez with sustained popularity, he still must win. Capriles already was a serious challenger, and now he is more so.

Capriles has already said that, if elected, he will boost oil production. He also has suggested that foreign expertise will be permitted back into the country.

The new production would come against the backdrop of a projected flood of new oil in North and South America – so much oil that, if the forecasts pan out, current U.S. imports of 9 million barrels a day would be more than halved over the coming decade, to 3 to 4 million barrels per day. That excludes Venezuela, which could halve that number again.

As discussed previously, there are unspoken wrinkles in the heady prognoses, such as whether oil prices will be high enough to justify the expensive type of drilling embedded in the U.S. forecasts, and to what decree natural oilfield decline will erode the output.

There are also politics, especially in the case of Venezuela. When populists and strongmen rule, they are typically supported by a cast of other, smaller strongmen who are feeding at the trough. Such hangers-on are loathe to give up the high life. Such will be the case in Venezuela in a post-Chavez scenario, write the Wall Street Journal’s Jose de Cordoba, Ezequiel Minaya and Ron Winslow. They quote an unidentified former high-ranking official under Chavez:

People will say Chávez is on his last legs. Whether he is or he’s not, there will be a furious fight for leadership within his movement between the generals who have been involved in corruption and drug trafficking, and everybody else.

There is no telling how Capriles is equipped to handle this predictable battle. Bluntly speaking, we also don’t know how policy would differ under either type of regime. But Venezuela may be back as a dynamic force in oil. When shale gas hit the market, it upended Europe, and weakened Russia. If the forecasts of U.S. oil plenty are accurate, millions of barrels of U.S. imports — no longer required by Americans — could be pushed onto the global market, affecting prices and petro-powers.