ANALYSIS - Andean "Cold War" raises risks for Colombia, Venezuela

Venezuelan Minister of Foreign Affairs Miguel Burelli (L) and his former Colombian counterpart Rodrigo Pardo greet the press in this March 7, 1996 file photo.

BOGOTA (Reuters) - Spying charges, troop movements and mysterious killings along the border between Venezuela and Colombia are stoking a long-running diplomatic dispute that some are calling the "Cold War" of the Andes.

The on-off feud between the two South American neighbors since Venezuela's Hugo Chavez came to power a decade ago has usually stopped at sabre-rattling and diplomatic barbs.

This time, though, the increasing volatility on the border, presence of illegal armed gangs, and growing political distance between the two governments, mean the latest crisis may be tougher to solve and could spill over into more violence.

Chavez and Colombian President Alvaro Uribe in the past resolved differences with a handshake. Now ties between the Venezuelan socialist who blasts Washington's "imperialism" and the staunch U.S. ally are more chilly than ever.

"Instead of channels of communication, now there are more reasons for suspicion," said former Colombian foreign minister Rodrigo Pardo, now a magazine director. "Now there are more charges such as espionage, but less chance to explain them."

There may be little appetite for a military confrontation, but the border has become more sensitive since Chavez dispatched more troops after the murder of nine Colombians and the killing of two Venezuelan soldiers in the area.

Chavez, a Cuba ally who wants to counter U.S. influence, accuses Colombia of conspiring with the White House to foment violence. His government says it has captured three Colombian spies and blames paramilitaries for killing its two soldiers.

War is unlikely, but the potential for more violence on the border, ranging from an accidental troop clash to attacks from illegal armed groups, has increased.

The latest diplomatic crisis began over a Colombian deal to allow U.S. troops more access to its bases. Bogota says that is an extension of its existing anti-drug cooperation deal, but Chavez warns it could be used to attack his OPEC nation.

Chavez froze ties with Colombia in July and warned he would reduce their $7 billion annual bilateral trade. Both governments, however, maintain ambassadors in each other's capitals, and trade has continued, albeit at a slower rate.

CHAVEZ FIRE VS COLOMBIAN CAUTION

As in the past, the Venezuelan leader may be ramping up the rhetoric over an external threat to distract from domestic problems, such as high inflation and water and power shortages, and to project his international presence.

"His problems are mounting," said Michael Shifter at the Inter-American Dialogue think tank in Washington. "Chavez is stoking this a little and calculating he will gain."

Seeking to project a more conciliatory tone, Uribe's government has called for a probe into the murders and urged Venezuela to tone down the accusations and keep talks open.

Bogota says only one of its security agents is being held in Venezuela. One diplomatic source in Caracas said he was invited to a party in Venezuela in a possible set-up.

"Colombia has to act first with firmness to defend its interests, and there are sensitive matters there, second with prudence not to be provoked ... and third with audacity to look for alternatives," Foreign Minister Jaime Bermudez told Reuters.

The Andean neighbors have sparred in the past over Chavez's sympathy for leftist Colombian guerrillas and Venezuelan accusations that Bogota has failed to halt violent spillover from its four-decade-old conflict.

In 2005, a Colombian-led police operation arrested a FARC guerrilla leader in Caracas, and the two countries went to the brink again in March last year after a Colombian bombing raid on a guerrilla camp inside Ecuador brought troop movements from Quito and Caracas.

That confrontation was resolved within a week by a handshake. But this time, Chavez appears more serious about curtailing trade with his Andean neighbor. Colombian businesses are fretting after Chavez curbed sales of cars, food and other goods, and sought more from Brazil and Argentina.

"They're just not sorting out the paperwork for Colombian businesses. They're making it impossible," a diplomat said.

In contrast, Colombia is making progress in improving relations with neighboring Ecuador, where leftist President Rafael Correa has often formed part of Chavez's alliance.

Relations with Ecuador sunk to their worst in years after Colombia's military raid last year. But the governments this week agreed to soon start re-establishing diplomatic ties.

While Uribe has sought to stay above the Venezuela fray, the conservative lawyer could also benefit from the quarrel.

Uribe's allies are pushing to allow the popular president to run for a third term. A perceived threat from Chavez could stir support for a man many Colombians see as a steady hand.

"Chavez' bullying and bluster are simply strengthening Colombian support for a giving a third term to Uribe," said Myles Frechette, a former U.S. ambassador in Colombia. "Uribe couldn't find a better presidential campaign manager."

(Editing by Andrew Cawthorne and Sandra Maler)