Reuters (Stuart Grudgings): Venezuela's socialist President Hugo Chavez cut diplomatic ties with neighbor Colombia last week after it accused his country of sheltering leftist guerrillas. The latest dispute between the feuding Andean nations has ratcheted up regional tensions ahead of the inauguration of Colombian president-elect Juan Manuel Santos on August 7 and Venezuelan legislative elections on September 26.

The following looks at some of the issues and risks raised by the crisis.

ARE COLOMBIAN REBELS OPERATING IN VENEZUELA?

Almost certainly, although it is disputed whether they are actively supported by Venezuela. While Chavez dismissed Colombia's charges that there are Revolutionary Armed Forces of Colombia, or FARC, camps in Venezuela as a hoax, he says Venezuela is a victim of Colombia's failure to end its decades-old civil war. The porous, 1,375-mile (2,200-km) frontier has long been a source of war refugees, weapons and smuggled cocaine, and residents of the region say members of the rebel group have become more visible in recent years.

Colombia, which has driven the once mighty FARC into remote hide-outs, accuses Chavez of financially backing the group as well as allowing it to set up comfortable "summer camps." The FARC are labeled terrorists by the United States and the European Union, although not by all South American countries.

The evidence that sparked the current crisis, which Colombia presented to the Organization of American States last week, included satellite pictures, maps and testimony from demobilized guerrilla fighters indicating that 1,500 rebels were living in dozens of camps on Venezuela's side of the border.

Chavez has welcomed a FARC commander at his presidential palace as part of his involvement in efforts to free rebel hostages, but he rejects US and Colombian claims he shelters or supports the group.

Colombia says that the same commander, Ivan Marquez, is among about 15 leaders of the FARC and smaller rebel National Liberation Army (ELN) taking refuge in Venezuela.

WHY DOES CHAVEZ SAY COLOMBIA AND THE US.PLAN TO ATTACK?

The former paratrooper sees a US hand in most of Venezuela's problems, and says Washington is using the rebel camp issue as a pretext to invade his OPEC nation. Analysts say much of his rhetoric against "Yankee imperialism" is theater to boost domestic support.

But Chavez, who was briefly ousted in a 2002 coup that Washington welcomed, may also have genuine cause for concern over US policy in the region. He says a US-Colombian agreement to allow US troops more access to seven Colombian bases is part of Washington's plan of aggression against his government.

The United States says the pact is aimed at fighting the drug trade and criminal groups, but a US Air Force document stating the deal would help against threats including "anti-US governments" gave fuel to Chavez' claims. Chavez has pointed to the relaunch in 2008 of the US Navy's Fourth Fleet in Latin America after more than 50 years as an aggressive act. He also feels threatened by US military access to a base in the Dutch Antilles, just off Venezuela's Caribbean coast.

The United States has funded Colombia's war on rebels and drug traffickers to the tune of $6 billion since 2000, helping create Latin America's most battle-hardened army. In 2008 Colombia bombed a FARC camp in Ecuador's jungle. Chavez' angry response to Colombia's charges he harbors guerrillas are in part aimed at deterring a similar attack on Venezuela soil.

WILL THERE BE ANY ECONOMIC IMPACT?

Not much, unless the stand-off worsens. Trade between the nations that often call themselves "brothers" has been crippled since last year when Chavez partially froze trade ties worth $7 billion in protest at the plan for US bases in Colombia. Officials in border areas report a fall in business and job losses since Chavez cut ties last week, but the major remaining economic links between the countries have not been affected.

Markets have shrugged off the latest row, with the Colombian peso COP=RR performing strongly and Venezuela's benchmark Global 2027 bonds VENGLB27=RR stronger in the last week.

If the crisis worsens, Colombia could shut off the pipelines that carry about 175 million cubic feet (4.95 million cubic metres) of natural gas to Venezuela every day. Air transport ties could also be affected. Chavez threatened at the weekend to stop selling oil to the United States if Colombia invades but has not carried out previous such threats, which would cripple his own economy.

IS INCOMING COLOMBIAN PRESIDENT SANTOS LIKELY TO HERALD RECONCILIATION?

In the medium-term, yes. The former defense minister shares current President Alvaro Uribe's conservatism, but is keen to undo economic damage from the trade freeze. He has already appointed a respected former ambassador to Venezuela as his foreign minister and his new finance minister said restoring trade was a top priority, both signs of warmer intentions.

Santos cannot ignore the issue of the alleged Venezuelan FARC camps, however, especially if he wants to go down as the president who ended the conflict.

As defense minister, Santos was louder than his boss Uribe in criticizing Chavez. Chavez' ideological divide with Santos, heir to an elite media family, is if anything wider than with Uribe. Chavez' insistence on a peace deal to end Colombia's war, the US military presence and the continued existence of rebels in Venezuela are all issues that will complicate ties.

The key may be in persuading Chavez, without backing him into a corner, that close relations with the rebel group that is heavily involved in the cocaine trade are not in Venezuela's interests. Supporting the FARC could also raise tensions between Chavez and his own armed forces.

A greater regional role in the dispute could also help ease tensions. Regional heavyweight Brazil has offered to mediate in the crisis ahead of an emergency meeting of the 12-member Unasur South American bloc on Thursday.

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