Venezuela is scrambling to find buyers for its oil, hoping to keep revenue streams alive even as Maduro loses control of Citgo.
The U.S.-based subsidiary of PDVSA officially severed ties with its parent company in order to comply with U.S. sanctions, according to Reuters. The American government is trying to shift control of Citgo into the hands of Venezuelan opposition leader Juan Guaidó. Citgo has stopped sending payments to PDVSA, and Gauidó has appointed a new board to the company. Some Venezuelan employees working at Citgo in the U.S. returned back to Caracas.
Citgo is one of the major prizes that the U.S. has tried to wrestle away from Maduro as part of the American regime change campaign in Venezuela. Citgo is the eight largest refiner in the U.S. at 750,000 bpd, and it owns pipelines and retail gasoline stations. The company is a key source of revenue for the Venezuelan government.
Aside from being based in the U.S., the Trump administration had some extra leverage over Citgo. The company needs to refinance some of its debt, but couldn’t do so if it was to be smothered by sanctions. “We have been told that we have to organize the house by Feb. 26 to avoid conflicts with sanctions,” a source told Reuters. Citgo’s bonds have gyrated in value due to the uncertainty over how its credit rollover would be handled.
The Trump administration had been holding off creditors, who, like vultures, have been swarming around Citgo, readying for a default amid the political chaos. Guaidó and the Trump administration wanted Citgo to remain intact, free of creditor actions, so that it would provide a source of revenue for the fledgling government after the ouster of Maduro. The severing of Citgo from PDVSA was a crucial element in keeping Citgo alive.
Meanwhile, back in Venezuela, Maduro and PDVSA are trying to keep their oil exports from collapsing, despite the tightening vice of American economic and political (and potentially military) warfare. Venezuela is aiming to send oil shipments to India and Europe, the Wall Street Journal reports, although the discounts necessary to secure purchases from worried buyers might mean that the country’s revenues from the sales are vastly diminished. PDVSA’s head Manuel Quevedo said that exports remain steady at 1.2 million barrels per day (mb/d), although the WSJ notes that private estimates from shipping tracking firm Kpler put the figure at 1.1 mb/d.
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Venezuela has had some modest success. Exports to India rose modestly by 40,000 bpd in February. The WSJ reports that Spain, Sweden and the UK continue to import oil from Venezuela.
However, the problems are significant and mounting. Some of those shipments are sent in return for investment in Venezuela, and thus, are not earning hard currency. Moreover, somewhat surprisingly, exports to China declined by 155,000 bpd in February, the WSJ reports. China was expected to be one of the few countries that might pick up extra cargoes following U.S. sanctions, but that has apparently not yet happened.
Other buyers are staying away. Eni has stopped buying oil from Venezuela, along with other European oil majors. Even the Russian privately owned oil company Lukoil ended its oil-for-products trade with Venezuela.
One of the problems for PDVSA is the quality of its oil. The heavy grade of Venezuelan oil can only be refined in certain places. The U.S. Gulf Coast was one of the few sources of major heavy oil refining capacity. Not just Citgo’s refineries, but also those of Valero and Chevron. With sales to the U.S. Gulf Coast drastically down, it’s tricky finding other buyers for so much heavy oil.
At the same time, Maduro has defied the odds and has so far fended off the Venezuelan opposition, the U.S. government and the combined political attacks from governments in most of Latin America and Europe. He is still hanging on to power, and for now, still exporting oil, even as shipments are expected to decline. Surely the Trump administration will decide to escalate the situation in an effort to topple him, but so far the oil embargo has not succeeded.
By Nick Cunningham of Oilprice.com
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Another factor is that a majority of the Venezuelan people believe that Venezuela is facing a coup aiming at regime change backed by the US with clear designs on the country’s huge proven oil reserves which are the world’s largest estimated at 303 billion barrels and growing.
However, it has not been lost on the Venezuelan people that they are facing a home-grown crisis. Still, they don’t welcome foreign-supported regime change. While extremely critical of the corruption and bureaucracy that pervade the government, people still express the willingness to rise up against the perceived threat of “Yankee imperialism”. After all, it was the Bolivarian revolution that liberated countries of South America from Spanish imperialism.
The United States didn’t even bother to camouflage its involvement in this coup. John Bolton President Trump’s national security advisor openly urged Venezuelan military officers to back opposition leader Juan Guaidó or suffer the consequences. He even offered relief from punishing sanctions to Venezuelan military officers who betray Nicolás Maduro.
Moreover, John Bolton openly said on national TV that “the sanctions will make a big difference to the United States economically if we could have American oil companies really invest in and produce the oil capabilities in Venezuela. It would be good for the people of Venezuela. It would be good for the people of the United States. We both have a lot at stake here making this come out the right way. A decimated oil industry in the nation with the largest proven oil reserves in the world would appear to serve some alternative interests beyond democracy and human rights.”
And despite the sanctions, Venezuela is saying that its oil exports remain steady at 1.2 million barrels a day (mbd). Venezuela is now redirecting more shipments to India and the European Union (EU). India’s imports from Venezuela rose by 40,000 barrels a day (b/d) to 440,000 b/d.
If China’s imports of Venezuelan crude are reported to have declined, it is because PDVSA is not shipping to China more crude than those earmarked for payment of the Chinese loans. Any extra exports will not earn any revenue as China will treat them as extra payments against its loans.
Still, Russia and China who extended loans estimated at $30 bn to Venezuela will do whatever they can to ensure that the Venezuelan economy doesn’t collapse.
The recent decision by President Maduro to relocate the European Headquarters of PDVSA from Lisbon to Moscow aims at mitigating the impact of US sanctions on Venezuela’s oil industry, defending the country’s assets outside Venezuela and also expanding Venezuela’s energy cooperation with Russia. In late January, the US froze $7 billion of assets belonging to PDVSA and its US subsidiary Citgo.
Venezuela is planning to broaden its trade with Russia purchasing among many things Russian food and medicines in exchange for oil. Caracas considers Russia an important strategic partner economically and geopolitically and it hopes to be able to attract more investments into the Venezuelan economy with Russia’s help.
In the final analysis, only free elections with the voice of the Venezuelan people heard loud and clear and without US interference could be the only way out of this crisis.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London