Military Conflict Highly Unlikely

Although diplomatic tensions between Colombia and Venezuela have risen significantly in recent weeks, with the latter sending extra troops to patrol the countries' shared border, the likelihood of any armed confrontation is highly limited, in our view. Venezuelan President Hugo Chávez decided to cut off diplomatic ties with Colombia on July 22, yet the two countries still engage in some cross-border trade (particularly natural gas) and we believe this economic interdependence will prevent further escalation of the political crisis, although Venezuela's dire economic situation implies Chávez will continue using inflammatory rhetoric to divert attention from his own economic mismanagement.

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