July 15, 2022
Venezuela’s oil output has remained stagnant, although newly renewed crude exports to Europe have increased exports.
Secondary sources from the most recent Organization of Petroleum Exporting Countries (OPEC) report indicate that Venezuela’s oil production in June was 706,000 barrels per day (bpd), which was lower than the previous months’ outputs of 720,000 and 721,000 bpd, respectively. PDVSA, the national oil corporation of Venezuela, reported 727,000 bpd, which was less than the 735,000 bpd of the previous month.
Venezuelan exports recovered despite a decline in output; the nation sent an average of 630,500 bpd of oil and gasoline in June. According to Reuters, the figure reflects a 61 percent gain over May, when sales hit their lowest point in 19 months.
The renewed oil-for-debt swap agreements between Caracas and Italy’s Eni and Spain’s Repsol are to blame for the recent spike in exports. The two European companies were given permission by the US Treasury Department in May to import Venezuelan oil in order to recoup PDVSA’s overdue obligations. Wide-ranging sanctions imposed by Washington prevented payments to partners and investors by stopping shipments to clients in the US and Europe and isolating the state enterprise from the global banking system.
Following the approval, the first shipment of Venezuelan oil to Europe in two years reportedly sailed on June 17 on an Italian-flagged tanker with a 650,000-barrel cargo.
Eni and Repsol received restricted permits from the White House in response to mounting pressure on the Biden administration to assist Europe in coping with skyrocketing fuel prices. The decrease in Russian energy supply brought on by sanctions imposed on Moscow as a result of the crisis in Ukraine has been a problem for European countries.
Recently, France and former OPEC secretary-general Mohammad Barkindo urged oil-producing nations to permit the return of Iranian and Venezuelan petroleum to Western markets in order to alleviate global shortages of oil and gas.
The most recent changes in Venezuela’s oil industry follow the resumption of bilateral negotiations between Caracas and Washington, in which high-level US delegations met with the Nicolás Maduro administration in March and June. While the Biden administration said the visits were to obtain the release of US citizens held by Venezuela, Venezuela is known to have lobbied for the lifting of sanctions.
However, expectations of improved relations and the lifting of sanctions against Caracas have sunk in light of bipartisan backlash against the overtures. Officials from the White House deflected criticism by telling the public that any sanctions relaxation will be conditional on the restart of negotiations between the Maduro administration and the hardline opposition supported by the US. Ahead of the 2024 presidential election, Washington is pressing for political accommodations to right-wing constituencies.
The past Trump administration enacted a harsh sanctions regime program on Venezuela, and Biden continued it. In addition to an oil embargo in 2019 and a number of secondary sanctions and other coercive measures throughout 2020, the US Treasury Department unilaterally imposed coercive measures against PDVSA in 2017. The country’s petroleum production fell precipitously during those four years, from 1.9 million barrels per day to less than 500,000, depriving Caracas of its primary source of income and escalating an already dire economic situation.
Foreign companies, like Chevron, were forced to cease operations and terminate oil deals with Venezuela as a result of US sanctions and overt threats. The oil company with headquarters in California owns shares in four joint ventures with PDVSA that can produce crude at a rate of roughly 200,000 bpd.
After being prohibited by Washington from drilling for, processing, or selling Venezuelan oil since April 2020, Chevron nevertheless retains a little presence in Venezuela thanks to a Treasury license that enables it to protect its assets. The decision spurred the oil executives of the company to launch a lobbying effort for sanctions relief in order to resume business in the South American nation.
In anticipation of a potential relaxation of sanctions against the oil industry, Washington granted Chevron permission to negotiate its contract with PDVSA in May. The corporation is reportedly recommending to Caracas a reduction of the Venezuelan state’s stake in joint ventures, according to inside sources quoted by Argus Media and Bloomberg. Chevron might bypass the Treasury penalties that prohibit doing business with firms where PDVSA or other state entities own a 50% or greater stake by controlling the majority of the shares.
With this setup, the US company would be able to handle finance and bargain with Western importers and suppliers. Chevron will also utilize the proceeds from its oil sales in Venezuela to pay off the allegedly over $3 billion debt owed to them by PDVSA.
However, the Hugo Chavez administration’s 2001 Hydrocarbon Law in Venezuela mandates PDVSA’s majority ownership and a 51 percent minimum state investment in all joint ventures with foreign partners. Additionally, neither the ongoing discussions with Chevron nor the amendment of the oil laws have been the subject of any announcements from Venezuela’s Minister of Oil, Tareck El Aissami.
Chevron owns 25 to 40% minority holdings in its joint ventures with PDVSA. The negotiations with the Venezuelan government should be finished in November.
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