CARACAS, March 2 (Reuters) - Government restraints on oil company PDVSA, a weak economy and President Hugo Chavez's pressure on opponents ahead of the 2012 presidential election are the main risks to watch in OPEC member Venezuela.

CHAVEZ-OPPOSITION DYNAMIC

Chavez is likely to keep up the pressure on the opposition as they position themselves ahead of the elections. In the past, his government has used allegations of corruption to block some opponents from running for office.

Political noise will increase as opposition parties jostle to choose a single candidate to face Chavez, most likely through multi-party primaries late this year.

In recent parliamentary and regional votes, Chavez secured an advantage by gerrymandering and other electoral tricks but the voting system itself is widely seen as fair.

Chavez infuriated opponents at the end of last year by asking the outgoing National Assembly for fast-track decree powers. That would last until mid-2012, giving him a potential stranglehold on the legislative process until his re-election campaign for the next vote is well underway. [ID:nVEDECREES].

Although the former soldier struck a more conciliatory note at a major speech before parliament in January, saying he wanted dialogue with the opposition and would consider shortening the decree period, he is still using his extra powers and is drawing up a decree law to force banks to loan more money to farmers.

Opposition parties have a significant presence in the new parliament for the first time in years but will not be able to block major legislation because of the powers, which Chavez has vowed to use to entrench his "21st century socialism".

The outgoing parliament increased state control by passing a host of laws covering areas like the media, the Internet and banking.

Perhaps with one eye on unrest in the Middle East and North Africa, Chavez has recently moved to calm student protests. In December, he said he would not approve a contentious university law, mollifying students who had clashed with security forces. Following a three week student hunger strike in February, the government agreed to release a lawmaker under house arrest.

In 2007, a student-led opposition movement was credited with handing Chavez his only national electoral defeat in a referendum on constitutional reform.

Chavez survived massive protest marches that led to a short-lived coup in 2002 and the opposition is now almost totally focused on beating him at the ballot box, meaning Middle East-style protests are not likely without major new economic woes or another unforeseen shock.

What to watch:

-- Decrees by Chavez, including nationalizations.

-- More street protests could cause unrest.

-- All sides focused on 2012 presidential election.

ECONOMIC DIFFICULTIES

After two years of shrinking GDP, Venezuela moved out of recession with 0.6 percent growth in the last quarter of 2010. But with the private sector reeling from years of scatter-gun nationalizations and an 8 percent drop in oil output last year, only a sustained oil price rally will bring back the boom.

Many economists predict a sluggish year despite the recent jump in crude prices. The government sees things differently and expects growth above a 2 percent estimate in the budget.

Risk indicators such as Morgan Stanley's EMBI+ 11EMJ and CDI spreads VEGV5YUSAC=MP consistently rate Venezuelan debt as the highest default risk in the world, so Wall Street will remain focused on whether Chavez can keep paying.

Concerns about Venezuela's finances have diminished in line with a big jump in oil prices in recent weeks. Although only the most pessimistic observers predict a serious cash-crunch any time soon, falling oil production means Venezuela needs a higher oil price than in the past to balance its books.

The government devalued the bolivar currency on Jan. 1. Local economists expect another devaluation could take place, perhaps involving a weakening of the central bank's SITME exchange rate. [ID:nN12191898]. However, with Brent crude contracts LCOc1 above $110 per barrel Chavez's economic team is likely to hold off for now.

Inflation was 27 percent last year and the devaluation combined with higher food prices pushed inflation to 2.7 percent in January. In the past Chavez has pressured business to keep prices low when inflation spikes.

What to watch:

-- The oil price. More than anything this defines Venezuela's economic performance and the price of its assets.

-- Oil output. Last year's drop was partly due to bad weather, but things may get worse unless investment picks up.

-- More debt issues this year. Some investors are worried about over-supply affecting Venezuela bond prices.

-- Moves against the currency. A weaker bolivar in 2010 was a blow to foreign companies' profits.

OIL

Venezuela's PDVSA remains one of the world's largest oil companies but exports and production are falling, partly because of the heavy load Chavez puts on the company as the main economic motor of his revolution. PDVSA is required to hand over so much of its revenue to the government that it has neglected investments in its older oil fields. A wave of nationalizations in 2009 has also hit production, with PDVSA struggling to take on oil well and drilling services previously carried out by private companies.

Output fell around 200,000 bpd in 2010. Just 50,000 barrels per day (bpd) of new output is likely to come online in the Orinoco heavy crude region by the end of 2011. [ID:nN19236122]

Venezuelan oil exports fell 6 percent to 2.32 million bpd in 2010, and output dropped even faster to 2.78 million bpd.

One eventual outlet for Orinoco oil will be Venezuela's first refinery in China, which is expected to cost $8.7 billion, process 400,000 bpd and be completed around 2014/15. Beijing gave initial environmental clearance to the project in January, paving the way for final approval. [ID:nTOE70502W]

The authorities have hailed new figures showing that the South American OPEC member has overtaken Saudi Arabia as the world leader in oil reserves, with certified deposits leaping to 297 billion barrels at the end of 2010. Analysts are now looking to see concrete steps toward tapping the Orinoco belt.

What to watch:

-- More details of investment in projects to exploit the huge reserves in the Orinoco belt.

-- Chinese approval of new 400,000 bpd refinery project.

-- Unscheduled maintenance, stoppages and outages at Venezuela's refineries and heavy oil upgraders.

NATIONALIZATIONS

Chavez is expected to use his decree powers for more nationalizations. He has already said more private land needs to be turned over to build houses for the poor, and has warned banks they must help finance his social programs or face expropriation. A new banking law passed in December made takeovers in the financial sector easier.

Most recently, the president again threatened to take over the local unit of Spanish bank BBVA (BBVA.MC)(BBVA.N) if mortgage seekers were not better served. [ID:nN26177772]

More than 200 companies passed into state hands last year. With the oil, heavy industries and telecoms sectors seeing major nationalizations in the past, the emphasis in 2010 was on increasing state control over food supply. That looks likely to continue. Chavez has often threatened to seize brewer and food processor Empresas Polar, Venezuela's top private employer.

The government is supposed to compensate expropriated companies, but payment is slow. The growing bill may begin to weigh on public finances and the takeovers have chilled private investment, slowing recovery from a two-year recession.

What to watch:

-- Takeovers or increased controls throughout the economy, in health, finance, housing, insurance and food. (Editing by Kieran Murray)