Venezuelan Oil Production Stutters as Reimposed US Sanctions Hamper Deals

Caracas, May 16, 2024 (venezuelanalysis.com) – Venezuela’s oil output has slightly receded for a second straight month following the return of US coercive measures.

The latest OPEC monthly report measured the Caribbean country’s April oil production at 809,000 barrels per day (bpd) according to secondary sources, a 13,000 bpd decrease compared to March. Output nevertheless remains close to the highest marks since early 2019.

Venezuelan state oil company put forward a slightly higher figure of 878,000 bpd, up from 874,000 the prior month.

Since 2017, Washington has levied financial sanctions, an oil embargo, secondary sanctions and a bevy of other measures meant to choke the South American nation’s most important revenue source.

In October 2023, the US Treasury Department issued a six-month waiver allowing transactions with Venezuela’s energy sector while warning companies that it was not a “call for investment.” On April 18, the Biden administration reimposed wide-reaching oil sanctions while offering firms a 45-day wind-down period.

Washington argued that the Nicolás Maduro government had not “met its commitments” to an agreement with the US-backed opposition. The White House has taken issue with the political disqualification of far-right candidate María Corina Machado. However, Machado had her ban upheld by the Venezuelan Supreme Court under an appeals process agreed to between the government and the hardline opposition.

The return of economic sanctions has already meant a sharp decrease in exports.

With corporations now requiring the US’ greenlight for dealings with Venezuela’s oil sector, the Treasury Department is going to favor actors that already have production or assets in the country, according to Reuters.

The policy benefits enterprises such as Chevron, which got a specific license to expand operations and exports from its Venezuelan assets. The California-headquartered corporation holds minority stakes in four joint ventures with PDVSA and has launched a new drilling plan to boost its current output by 65,000 bpd.

Repsol is also set to reactivate two oil fields with a 20,000 bpd capacity through a joint venture with PDVSA. Apart from the Spanish giant, Italy’s Eni and France’s Maurel & Prom have increased their Venezuelan operations in recent months, partly via oil-for-debt arrangements.

The US’ top diplomat for Venezuela Francisco Palmieri stated in an interview that there has been a “high volume” of authorization requests. India’s Reliance Industries is lobbying the US Treasury for permission to import Venezuelan crude. 

Indian companies were some of the major purchasers of Venezuelan crude during the recent six-month waiver. Though non-US firms do not violate sanctions by dealing with PDVSA, Washington has levied and threatened secondary sanctions to enforce its embargo.

While production has stagnated following the return of US Treasury restrictions, Venezuela has benefitted from higher market prices for the Merey blend, PDVSA’s most important export grade which is favored by Asian markets. OPEC has documented a 15 percent Merey price increase since January.

Higher crude rates can help Caracas offset losses owing to the need to resort to intermediaries to export cargoes. PDVSA is likewise reportedly accelerating a shift to cryptocurrency payments in its efforts to secure payments while blocked from financial markets. 

The dependence on unreliable intermediaries has fueled corrupt practices. Judicial authorities unveiled a major fund misappropriation scheme in March 2023 that led to multi-billion dollar losses and dozens of arrests, including former Oil Minister Tareck El Aissami.

Venezuelan leaders have consistently denounced sanctions and demanded their complete withdrawal. Multilateral agencies such as the UN Human Rights Council have also criticized the use of economic coercive measures and their impact on civilian populations.

Venezuelan Vice President Delcy Rodríguez called the use of sanctions an “international embarrassment” in the 21st century.

“Colonial powers like the United States use these mechanisms to subjugate peoples,” she said during a United Nations Caribbean Regional Summit held in Caracas.

PDVSA President and Oil Minister Pedro Tellechea has struck a defiant tone, vowing that the industry would continue to grow and build alliances despite US sanctions.

Earlier this month, PDVSA and private firm A&B Oil and Gas officially launched a new joint venture called Petrolera Roraima, with the shares split 51-49 percent, respectively. Petrolera Roraima received a 25-year license to drill in fields located in the oil-rich Orinoco Oil Belt in eastern Venezuela and is targeting an optimal output of around 100,000 bpd.