The venture capital industry is dialing back expectations for 2012 to reflect sustained instability in both political outlooks and across markets dealing with continued financial turmoil.

Venture capitalists have been central to launching many of the technologies that form the basis of the ongoing smart grid and clean energy revolutions in the business, but diminishing investor interest in initial public offerings and a flight to safety by worried investors protecting dinged portfolios are weighing on the sector.

A decline in investment levels for clean technology companies was forecast by more than half – 55% – of the more than 500 venture capital executives interviewed in late November and early December by the National Venture Capital Association and Dow Jones VentureSource.

“We can expect a competitive environment for capital on both sides of the ventures business in 2012,” said Dow Jones VentureSource global research director Jessica Canning. She was referring to both the seed and early stage funding environment and the traditional venture capital partnership funding arena.

“With nearly three-quarters of VCs predicting limited partners will commit the same amount or less to the industry and about the same proportion of CEOs expecting to raise money, financings could get tighter with some companies left to survive on their own,” Canning said.

The IPO pipeline, which has been blocked for much of the past five years since the global financial crisis first emerged, is expected to be even tighter in 2012. Only 15% of VCs see increases in IPO volume for clean tech in 2012.

In politics, the VC sector mirrored recent poll results across the broader US population. The majority of both VCs and CEOs expect Mitt Romney to beat Newt Gingrich in the Republican nomination race, and 57% of VCs expect Obama to beat the Republican challenger in the Presidential race next year.