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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Greek Shipowners Easily Evade Venezuela Oil Sanctions

In January 2019, the Trump administration imposed sanctions on Venezuela's oil shipping sector in an ongoing bid to force President Nicolás Maduro from power. The sanctions deepened Venezuela's already severe humanitarian crisis leading to runaway inflation and widespread fuel shortages.

But the beleaguered nation can somewhat now breathe a sigh of relief after maritime intelligence firm Lloyd's List reported that an Aframax tanker has loaded a third crude cargo destined for China via a ship-to-ship transfer five months after being sanctioned in June by the U.S. administration for shipping Venezuelan oil. The tanker was one of six, mostly Greek-owned vessels carrying Venezuela's crude that were targeted by the U.S. in a shock move.

The Aframax vessel, owned by Greece's Eurotankers of the Gotsis-family, received an 80,000-90,000 tonnes cargo of Venezuelan crude via ship-to-ship transfer from a Suezmax tanker on November 30 in waters off the Sungai Linggi. Back in September, a VLCC (Very Large Crude Carrier) by the name Cape Bella V loaded ~1m barrels of crude off Venezuela's coast again via ship-to-ship transfer.

The selective targeting of the six vessels was viewed as a warning to Greek shipowners who collectively transported about 80% of sanctioned Venezuelan crude. 

A drop in the bucket

Source: Lloyd's List

There's little clarity whether the latest shipments breached U.S. sanctions or whether the vessels were engaged in deceptive practices that have become rampant in Venezuela's disintegrating crude shipping industry.

But either way, the crude exports really are a drop in the bucket and nowhere near enough to salvage an extremely dire crisis.

The U.S. sanctions could not have come at a worse time, with the country's production decimated by years of corruption, mismanagement, and poor maintenance.  Related: Will Batteries Kill Off Traditional Power Plants?

Indeed, Venezuela's crude production clocked in at just 367,000 barrels per day in October, or a quarter of 2017 levels. Meanwhile, exports came in at 300,000 b/d vs. 2.2 million in January 2016.

The situation has not been helped by Trump's withdrawal of exemptions for non-US companies to undertake diesel-for-crude swaps in October, effectively ending shipments to European and Indian refineries. Further, the U.S. has sanctioned Russia's Rosneft and other trading partners that were selling crude on PDVSA's behalf, mainly to China.

Venezuela has mainly been scraping by through diesel-for-crude swaps, a crude-backed humanitarian channel permitted by the U.S. Venezuela has been receiving these diesel cargoes from Indian, Spain's Repsol, and Italy's Eni, with the latter two supplying the fuel under debt and swap arrangements partially tied to payment for their offshore natural gas production from Venezuela's Perla field.

Unfortunately, the swaps have been falling far short of local demand, with Venezuela's state-owned oil company PDVSA recording a surge in inventories as well as a fresh wave of shut-ins beginning to take hold.

Meanwhile, shipowners and buyers of Venezuelan crude are being forced to sell their ships to anonymous owners who then undertake the transaction. Numerous name and registry changes as well as ship-to-ship transfers have become the favored tools to obfuscate the origin and destination of Venezuela's oil cargoes. 

Indeed, Eurotankers has continued to expand its fleet by buying these distressed oil vessels. In one of its latest deals, Eurotankers is reported to have paid $48m for the 2011-built 320,105 dwt Hra from Vanda Marine, taking its fleet to 20 ships including 17 tankers and three bulkers.

No Respite from Biden

With Maduro's arch enemy about to leave office, a section of Venezuela's politicians is hoping that Biden will be more lenient than his predecessor. Biting oil sanctions have forced Maduro's government to resort to using the country's considerable gold reserves to secure loans. But with stockpiles rapidly dwindling and the government repeatedly defaulting on loan repayments, the government is quickly running out of options. Venezuela's gold reserves fell by seven tonnes in the first half of the year to reach just 98 tonnes, the lowest level in half a century. Meanwhile, Venezuela's inflation rate has skyrocketed to 2,400%, the highest in the world.

But whether or not Biden will adopt a softer stance than Trump remains to be seen.

On the one hand, Biden has expressed his desire to resume diplomacy with OPEC members Iran and Venezuela "...by applying sanctions in an intelligent way." So, there's hope that a Biden administration might allow the return of some of Venezuela's exports--but only on the condition that Maduro's government conducts free, fair, and credible elections.

But on the other hand, Biden appears eager to dispel the impression that he's going to be soft on Maduro:

"Maduro, whom I have met, is a dictator, pure and simple. And he is inflicting incredible suffering on the Venezuelan people in order to stay in power," Biden said. The president-elect has in the past even criticized Trump for being "...friends with dictators."

Nicolás Maduro continues to desperately cling to power essentially because he's trapped there, and letting go could mean a life in jail. He's not so much governing Venezuela anymore but is rather using the state as a protective cocoon and his last bastion against a life behind bars--or worse. So expecting him to allow free and fair elections any time soon is a really long shot.

By Alex Kimani for Oilprice.com

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