Jan. 7, 2009— -- The Venezuelan government has had a change of heart: just two days after announcing that it would end a controversial program to provide free home heating oil to low-income Americans, it decided to continue with the aid.
That's good news for the 200,000 households in 23 states that got free fuel but the suspension of the program -- if only for two days -- signals to some a decline in power by Venezuelan President Hugo Chavez.
"He's just running out of money," said Mark Falcoff, a Latin America expert at the American Enterprise Institute, a conservative Washington think tank. "He needs that money to buy friends in Latin America as part of his attempt to expand his influence. But as we Americans know better than anybody, you can't really buy friends, you can only rent them."
Chavez and the leaders of other oil-producing nations are facing a quick and steep drop in the price of crude that they rely upon to keep their economies running.
The free oil from Citgo -- the American arm of the Venezuelan oil company -- is distributed through Citizens Energy, a nonprofit run by Joe Kennedy, son of late Sen. Robert F. Kennedy.
Kennedy said in a statement late today that he is "personally aware of President Chavez's genuine concern for the most vulnerable, regardless of where they may live."
"This decision is a clear, direct message from President Chávez of his desire to strengthen relations between his country and the United States, particularly at this time, when a new U.S. administration is scheduled to be sworn-in within the next few weeks," Kennedy added.
In July, crude hit a record of $145.29 a barrel but as the recession has spread around the globe, the price of oil has fallen to around $40 a barrel.
Fighting in Gaza and a Russian gas pipeline shutdown have brought the price back up to nearly $50 a barrel in the last few days.
"Obviously, he's a lot more magnanimous when oil prices are at $100 a barrel than when it is at $40 a barrel," said Phil Flynn, a vice president and analyst with Alaron Trading. "Chavez's entire reign and popularity really has been built upon high oil prices and his using of the country's oil profits to further his political agenda."
Chavez has been a vocal critic of the United States and particularly President Bush, whom he called the devil in a speech at the United Nations two years ago. His donation of free heating oil was criticized by many as nothing more than a political jab at the Bush administration.
Flynn said the propaganda line from Chavez was: "We're giving away free oil to the poor people. Why aren't the people in America doing the same thing? See what a great guy I am. See what a lousy guy George Bush is."
Oil-producing countries, such as Russia and Venezuela, are "extremely desperate" to prop up the price of oil, Flynn said.
Russia recently cut off a key natural gas pipeline to Ukraine, which is also affecting the supply to Bulgaria, Turkey, Greece and Macedonia.
"This conflict between the Ukraine and Russia is because prices are low. In the past, when Russia cut off supplies to the Ukraine, it was more politically motivated," Flynn said. "But I don't think that's what it's about this time. Russia is cutting off supplies because they want to create a crisis because they need the money."
Flynn said Venezuela halting its free heating oil program and Russia shutting down the pipeline are two separate situations with the same back story. "The price of oil has gone down and they're desperate."
In the United States, there would be a real impact for many poor Americans: They could have lost 100 free gallons of oil that Chavez has sent their way the last three winters.
The free oil from Citgo was distributed through Citizens Energy, a nonprofit run by Joe Kennedy, son of late Sen. Robert F. Kennedy. Citgo donated $100 million worth of heating oil last year, according to Citizens Energy. That accounted for the vast majority of the group's funding.
Kennedy is the figurehead of the group and publicized the program in TV commercials where he told poor Americans to call 1-877-JOE-4-OIL.
"I'm Joe Kennedy. Help is on the way," he said in one ad. "Heating oil at 40 percent off from our friends in Venezuela and Citgo."
In another ad, Kennedy said: "Our own government cut fuel assistance and the big oil companies -- with oil and money to burn -- all said no when we asked for help. All but one, Citgo owned by the people of Venezuela …"
It was Kennedy who on Monday had announced the end of the program at a news conference.
Because of falling oil prices, Kennedy said, the assistance program "has been suspended until further notice. It remains unclear how long this postponement, if it is one, will last."
Kennedy, through his spokesman, declined a request by ABC News for an interview Tuesday.
But in a statement, Kennedy said that he has repeatedly reached out to Venezuelan government officials "at the highest levels" including Chavez.
"I will continue to fight and advocate for a continuation of this critical assistance for our most vulnerable citizens," he said.
The program provided oil to about 200,000 eligible families in 23 states as well as grants to American Indian tribes to help pay for oil.
Venezuela's Budget Crisis
The falling price of oil has hurt Venezuela's budget.
The government said it has been calculating its budget on $60 a barrel, according to John Carey, a Dartmouth College government professor. Carey believes the budget is actually based on a $70 to $80 a barrel price.
Either way, with Venezuelan crude selling for less than $40 a barrel now, Chavez is facing a budget crunch. The country's oil is harder to refine than oil from the Middle East and therefore sells for less.
Chavez has also been giving away oil to Cuba, Nicaragua and Honduras. Carey said it makes sense that the U.S. program was cut.
"The U.S. is the first to go and Cuba will be the last to go," he said.
So could that lead to the downfall of Chavez? Not at all, Carey said.
"For a guy who's been in office for almost 10 years now, his public approval ratings and his electoral pull is still pretty impressive," Carey said.
And will this have any impact on America's relations with Venezuela?
Falcoff, from the American Enterprise Institute, said he never understood why Chavez was giving away oil and said he doesn't expect any change. He said that there is no American embargo against Venezuela and that besides some rhetoric the United States has normal trade relations with the country. Each month, the United States imports 35 million to 40 million barrels of oil from Venezuela.
"It's been a mystery to me," Falcoff said, "except that it's an attempt to demonstrate to the world that Venezuela is a rich country and the United States is a poor country."