With much of our attention focused on the resolution of the Iran conundrum, Venezuela heaved a temporary sigh of relief. Not only did it manage to overturn a seemingly terminal production decline that saw 7 consecutive month-on-month decreases but made tangible strides in avoiding a total fallout with the rest of the world, availing itself of the EU’s diplomatic efforts. President Maduro might be a lame-duck but the regime, heavily imprinted by him (i.e. increased military presence in state-owned non-military companies) and tracing back to Hugo Chavez, might survive in the long term by means of a good old rebranding trick and the oft-used tactic of playing off rivals. Rivals, who in case of cooperation would have no problems reshaping Venezuela for the better, seem to have too many personal ambitions to cooperate.
The biggest game-changer so far has been the EU-brokered diplomatic platform between high-ranking officials from the Maduro administration and leading opposition figures that regularly meet at the Caribbean island of Barbados to iron out the contours of post-2020 Venezuela. Interestingly, it is not the figure of the Venezuelan President that is at stake currently – it seems that President Maduro would not object to his leaving the post should Venezuela remain a Bolivarian republic composed mostly of the current elite, i.e. politicians that saw rapid promotion during the Chavez-era. The main stake is the National Assembly elections, the next round of which was scheduled to take place in December 2020.
The Maduro administration sees the parliamentary elections as the only missing link to exercise an all-encompassing control over Venezuela’s political life, the opposition, on the other hand, is intent on proving that the ruling regime’s popular support is a mere ephemeral myth. In fact, the current political setup favors the ruling political strata – if Maduro were to surrender to the opposition’s demands, he might still choose an affable younger version of himself who would stick to the same narrative.
Hector Rodriguez, the 37-year-old governor of Miranda, might be one such candidate, all the more so as he has been used by Maduro to negotiate with the opposition in Oslo. He shares the Chavista zeal of his predecessor yet is evidently more skilled in terms of traditional political dialogue, being eager to take on the opposition verbally instead of police batons. The opposition, however, would need to choose between Juan Guaido, the hitherto leader of the popular anti-Maduro resistance, Leopoldo Lopez, his predecessor currently living on the premises of the Spanish Embassy in Caracas who might soon be released, as well as a plethora of others.
As talks on the political future of Venezuela take their course, the state-owned oil company PDVSA has benefitted from a period of relative lull when most of international media focus was set on Iran and not Venezuela. Bouncing back from a series of blackouts, refinery troubles and fires in H1 2019, Venezuela’s July 2019 exports will most probably surprise oil analysts, standing at 0.86mbpd. That is still half of what it was exactly 2 years ago, yet still marks the first time this year that month-on-month exports increase, up 16 percent from June’s 0.74mbpd. Animated by this shift, PDVSA has launched a new series of talks with the government of Curacao to extend its lease of the 335kbpd Isla Refinery which has served as a logistics hub for the Venezuelan NOC over the past couple of years.
PDVSA effectuated several notable feats in the downstream segment, too. After blackouts took out the 645kbpd Amuay Refinery, PDVSA managed to restart it last week. Despite currently functioning at a quarter of its nominal capacity, the return of Amuay will partially ease domestic shortages. Fuel supply is still scarce in Venezuela though as the Maduro Administration opted to supply larger cities and pro-Chavista constituencies, all but abandoning states that are far from demand hubs like Mérida or Tachira (these are predominantly agricultural territories, traditionally being rather opposed to the populist measures of Maduro). Yet come another blackout or oil infrastructure fiasco, the situation might deteriorate quickly, which only underlines the importance of keeping trading lines open to having enough currency for future contingencies.
Since January 2019, India is the largest market outlet for Venezuelan crude. American compliance with the Trump Administration’s January 28 sanctions has been absolute, early February saw a couple of USGC-destined loadings, but all US refiners after that were in line with the requirements of their executive powers. China reined in its appetite for Venezuelan crude, despite the national oil company CNPC being one of the very few oil majors to continue dealing with PDVSA crude overtly. In this, Rosneft has surpassed every other oil major, being the prime supplier to its Indian Nayara Refinery in Vadinar, state of Gujarat, where it routinely takes 3-4 cargoes of Venezuelan Merey per month.
Even though only a limited number of firms trade Venezuelan crudes, Merey and Bachaquero have kept a tangible presence on markets – in the post-January period, vessels carrying Venezuelan crude were seen discharging in almost all NW-European nations, including Denmark, Sweden and Germany (the latter two making up the Nynas refining system co-owned by PDVSA). Repsol also continues to take in the occasional cargo of Venezuelan crude, yet it has to be said that Asia remains the main partner for PDVSA. And even though no longer the leading buyer of Venezuelan, the Chinese still take great care to ensure the continuity of Venezuelan crude supply, primarily by helping PDVSA with its ailing blending and upgrading capacities.
This might be best demonstrated by CNPC’s commitment to upgrade the blending capacity of the PetroSinovensa upgrader, one of Venezuela’s key infrastructure elements together with the PetroPiar upgrader. Last week works were finished on the PetroSinovensa extension by the Chinese Huanqiu engineering firm, boosting the blending plant’s nominal capacity by 60kbpd to 165kbpd – all this to produce more Merey, hitherto a staple diet of Chinese refiners and PDVSA’s way of repaying the multi-billion dollar Chinese loans, by blending 10-12 API Orinoco crudes with lighter (and much rarer) light sweet Venezuelan crudes, such as the Santa Barbara. As much as the PetroSinovensa upgrade, Venezuela’s output rebound depends on the fate of the PetroPiar upgrader, co-operated by PDVSA and Chevron.
Chevron’s future participation in Venezuela might be a litmus test of where things would go in the upcoming months. If the Trump Administration extends the US major’s waivers to operate in Venezuela despite the ongoing sanctions regime, expect Venezuelan exports to gradually inch upwards (and blackouts to become rarer). If, however, the White House chooses to repeat the Iranian scenario and withdraw the waivers, forcing Chevron to cease all activity in the Latin American country by July 27, PDVSA will most probably have to shut indeterminately the 170kbpd PetroPiar (for which it already allocated a portion of Santa Barbara). PDVSA has sought to sweeten the deal by offering to decrease Chevron’s royalty rate to 20 percent (from 30 percent now), yet the ultimate decision will be a political one.
The weakest element in the Barbados talks is the palpable absence of the United States – for instance, the ruling PSUV party states that all arrangements reached are conditional on the US’ lifting of all sanctions against national oil company PDVSA. The European Union certainly plays a substantial role in the talks, however, can it effectively influence US policy on issues this controversial? Can anyone even foresee the twists and turns of the White House’s Venezuela policy? On the one hand, creditor groups that have a lot to lose in Venezuela urge the government to lift all trading bans and concentrate on political tools that would not jeopardize business interests. President Trump’s national security team, however, seems to prefer a more hawkish stance, one that sees the ouster of Maduro as a precondition to every other arrangement.