Venezuela: What Next at the Pump?

By Adam Zagorin

First he's out, then he's back. On Friday it seemed as if Venezuela's President, Hugo Chavez, 47, had been ousted in a coup. Following a series of escalating strikes, army leaders forced Chavez to resign early Friday morning. By Sunday morning Chavez had been freed by his captors and said he was back in power.

It's unclear, though, whether he can hang on, with the military's loyalty in question and many Venezuelans still disaffected. If anti-Chavez forces stage a comeback, it could signal an easing of the recent rise in gas prices because a new government would be likely to raise revenue through increased oil production.

What is clear is the mess in Caracas is going to exacerbate the volatility in oil prices already set in motion by unrest in the Middle East. In the short term, it may even lead to a spike. Venezuela, the third largest exporter of oil to the U.S., emerged under Chavez as an oil hard-liner. The left-wing former paratrooper cozied up to radical petroleum producers like Iraq and Libya. He also criticized U.S. military action in Afghanistan and pushed for higher prices in the Organization of Petroleum Exporting Countries. To further that strategy, Chavez had cut back Venezuelan oil output, which then declined to a virtual standstill when workers at the state oil company, Petroleos de Venezuela, went on strike.

Will Chavez stay true to form or will he stabilize his position by loosening the spigots? Frenzied oil traders at first bid down the price of crude 6% following initial news of his removal. But there's a good chance they will be bidding prices up again just as Americans are ready to hit the road for the summer driving season. --By Adam Zagorin