Analysts and insiders believe that a proposed U.S.-Brazil ethanol alliance that pushes for greater ethanol cooperation and fosters biofuel production across Latin America could help the region cut its costly petroleum bills, stimulate jobs, burnish the image of the U.S. in the region, and limit the influence of Venezuela President Hugo Chavez.  "It's good politics for (U.S. President George W.) Bush - it would increase jobs and revenues in the region and reduce pollution as well," David Fleischer, a political scientist at the University of Brasilia, told Dow Jones Newswires.

At the same time, "if both Brazil and the U.S. can reduce dependence on fossil fuels, and this is repeated throughout Latin America, then it would reduce Chavez's economic influence in the region in the medium-term, perhaps in 5-6 years," he added.

Brazil and the U.S. together produce 70% of the world's ethanol supplies and have already discussed ramping up bilateral cooperation in the biofuel sector over the past year. Bush's bold proposal last month in his State of the Union address to slash U.S. gasoline consumption by 20% by 2017 has galvanized the discussion and taken it to new heights of interest.

On Wednesday, U.S. Undersecretary of State for Political Affairs Nicholas Burns visited Brasilia to talk with top Brazilian ministers about moving forward on fixing common ethanol standards and boosting joint ethanol initiatives across Latin America. One of the proposals that both sides discussed was jointly constructing a pilot ethanol plant in the Caribbean. 

Local analysts and traders said that if the U.S. and Brazil had the political will to forge ahead with such an ethanol alliance in coming years,  it would be a win-win situation for both sides and for Latin America as a whole, which could reduce its dependence on costly imported petroleum if local ethanol industries were fostered, generating both jobs and revenues for domestic workers.

That, in turn, could help curtail oil-rich Venezuela's influence in the region. "If the U.S. is using this as a hook to isolate Chavez and extend its influence across the region, then I think it's a home run," said Christopher Garman, the Latin America director at the political risk consultancy firm Eurasia Group.

Other analysts pointed out that they didn't know how much Chavez's economic influence would wane, given the fact that establishing local ethanol industries across the region will take years and the dominance of fossil fuels will stay strong even with the emergence of biofuels.

Still others added that, whatever the political ramifications for the region might be, any ethanol alliance with the U.S. is simply great news for Brazil's economy in the long-term. "Brazil is the Saudi Arabia of ethanol," said Walder de Goes, the president of the Brazilian Institute for Political Studies in Brasilia. "I think this is fantastic news."

Both Brazil and the U.S. jointly produced roughly 38 billion liters of ethanol in 2006, according to data from Brazil's main cane association, the Union of Sugarcane Industries.