Another slice of Venezuela’s oil production is at risk, and it is very much at the mercy of the U.S. government.
When the Trump administration announced sanctions on Venezuelan oil earlier this year, it offered a waiver to Chevron, which plays a crucial role in multiple projects in the country. Chevron claims roughly 40,000 barrels per day (bpd) as part of its own production, according to its financials, but in reality its operations are integral to an overall 200,000 bpd of output.
Chevron’s waiver is set to expire on July 27, and the White House faces a crucial decision. Earlier this year, the thinking was that Chevron would keep productive oil assets alive in Venezuela, which would provide the foundation for the new government of Juan Guaidó. But the American-led regime change campaign has run aground, and Guaidó’s efforts at toppling President Nicolas Maduro have at times appeared haphazard and poorly planned.
As Maduro hangs on, Chevron’s operations have served to prop him up. Or, at least, that’s how some hardliners within the White House see it. According to Reuters, there is quite a bit of disagreement within the Trump administration on whether or not to renew the waiver for Chevron. National Security Adviser John Bolton, who typically stakes out the most hawkish position, wants to let the waiver expire. If that were to occur, Chevron would be forced to wind down its operations, putting something like 200,000 bpd of Venezuela’s oil production at risk.
Others within the Trump administration, including Secretary of State Mike Pompeo, prefer an extension for the waiver. As Reuters notes, Pompeo views Chevron’s presence as important. Sources told Reuters that having an “American beachhead” in the country would be important for the Venezuelan economy if Guaidó managed push Maduro out and take over. “Maintaining an American lever will be very helpful on Day One,” said the source.
Reuters notes that a compromise position could be a shorter extension, on the order of three months rather than six months. Related: Permian Producers Underreport Fracking Activity
In early July, Maduro’s government upped the ante by suggesting that if the Trump administration let Chevron’s waiver expire, the company’s assets would quickly be seized and offered up to Chinese and Russian oil firms. In fact, as Argus Media reported, an official in the presidential palace in Caracas said that “discreet discussions” with CNPC and Rosneft were already underway.
That is something that American officials that support an extension are warning about. “If they pull the plug on Chevron, it’s just a gift on a big platter to the Russians,” an unnamed source in the U.S. government told Reuters.
On Tuesday, Juan Guaidó said that he would protect Chevron’s assets if the U.S. let the waiver expire. He argued that the expiration of the waiver “constitutes an event of force majeure,” and that once Maduro was toppled “we will adopt all the measures that will allow Chevron Corporation and its affiliates in Venezuela to restart activities,” a decree from Guaidó’s office said. It’s not clear that the decree has any practical effect since Maduro maintains control and could still seize Chevron’s assets. But the decree appears aimed at sending a signal that Chevron could return quickly if Guaidó takes over.
Adding to the intrigue however, is the possibility that Guaidó is actually in favor of letting the waiver expire even if it paves the way for Maduro to seize the company’s assets. Despite the fact that Guaidó’s decree seems designed to preserve Chevron’s position, and aimed at deterring Maduro from transferring Chevron’s assets to Russian and Chinese company, he may actually hope that Chevron is forced out.
“According to our sources, the Guaido government wants the Chevron license ended and have conveyed this position privately to the Trump Administration,” Joseph McMonigle, of consultancy Hedgeye Risk Management, wrote in a brief. “We believe the Chevron license renewal is in trouble, and the Guaido decree today signals that the Trump administration is leaning against an extension when the Chevron license expires on July 27.” Related: Heavy Oil Supply Crunch Cushions Canada From IMO 2020
If the White House does indeed let the waiver expire, it would likely trigger the transfer of Chevron’s assets to Russian and Chinese companies. But then, if that were to occur, it would force the U.S. to take secondary sanctions that might impact oil companies doing business in Venezuela, “including Russian, Chinese and European companies,” McMonigle of Hedgeye said.
That might be the whole point. “[W]e are told Guaido is flat out asking for secondary sanctions,” McMonigle said. “In our view, the termination of the Chevron license may be the catalyst for secondary sanctions as well.”
In this scenario, Guaidó is betting that another round of escalation – forcing Chevron out, bringing on secondary sanctions, and slashing Venezuela’s oil production further – will increase the pressure on Maduro and finally bring about regime change.
With the waiver set to expire on July 27, the Trump administration will decide on its course of action in the next few days.
By Nick Cunningham of Oilprice.com
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