Venezuelan Oil Output, Fuel Supply Threatened by Potential Renewed US Sanctions

Washington is looking to target Venezuela’s most important economic sector ahead of this year’s presidential elections.
Sanctions GL44
Venezuela's crude and fuel production could face setbacks with renewed US sanctions. (PDVSA)

Caracas, February 15, 2024 (venezuelanalysis.com) – The Venezuelan oil industry continues to struggle under existing and looming US economic sanctions.

The latest monthly report from the Organization of Petroleum Exporting Countries (OPEC) placed the Caribbean nation’s January crude output at 796,000 barrels per day (bpd), as measured by secondary sources. The number increased by 14,000 bpd compared to December’s production.

State oil company PDVSA reported a figure of 841,000 bpd, up from 802,000 bpd the prior month.

The modest production improvements did not correlate to sales, with exports falling a reported 25 percent month-to-month in January, mostly due to power outages at the country’s main loading terminal in eastern Anzoátegui state.

Venezuela’s most crucial economic sector has been targeted by US coercive measures since mid-2017. Washington has levied financial sanctions, an oil embargo, secondary sanctions and a raft of prohibitions aimed at strangling Caracas’ main income source. 

Crude output fell from around 1.9 million bpd before the first sanctions to historic lows below 350,000 in 2020. The industry has steadily recovered since then but failed to reach a 1 million bpd target.

Venezuela’s oil output under US sanctions. Click here for the full infographic.

In October 2023, the US Treasury Department issued General License 44 (GL44) providing a six-month waiver on dealings with Venezuela’s energy sector. The Biden administration emitted GL44 and other licenses in the wake of the Barbados agreement between the Nicolás Maduro government and the US-backed opposition.

Despite the authorization, the Treasury’s Office of Foreign Assets Control was quick to warn companies against investing in Venezuela. In the months since, several corporations, including France’s Maurel & Prom, have increased activity in joint projects with PDVSA. However, the deals have limited upside for the country’s crude production.

In recent weeks, US officials revoked a license authorizing dealings with Venezuela’s mining sector and have repeatedly threatened not to renew the oil and gas license once it expires in April. Washington is demanding that María Corina Machado be allowed to run in this year’s presidential elections. The far-right candidate had an appeal against a political ban rejected by Venezuela’s Supreme Court.

Venezuelan officials, including Oil Minister Pedro Tellechea, have claimed that the industry is “prepared” for new coercive measures, warning that US markets and supplies would ultimately be affected.

Economist Francisco Rodríguez estimated that the non-renewal of GL44 would represent a blow of $1.6 billion in this year’s oil revenues. Rodríguez argued that, even with the absence of the waiver, much will depend on whether the US Treasury will actively dissuade firms from purchasing Venezuelan crude by threatening secondary sanctions. 

Analysts also predict a sharper output fall should Washington likewise withdraw the license conceded to Chevron. The US energy giant began to camp up activity in its Venezuela joint ventures following a November 2022 sanctions waiver and set a 200,000 bpd target for 2024.

A return of broad oil sanctions would halt PDVSA’s ongoing prospects to revamp ventures and procure new customers. According to reports, Indian state-owned companies ONGC and Oil India are both eyeing increased involvement in the South American nation’s oil sector. India’s multinational refiner Reliance Industries has likewise purchased Venezuelan crude cargoes in recent weeks.

The most significant effect of the October license has been allowing Venezuela to execute spot crude sales with fewer restrictions and without needing to offer significant discounts. With tightened sanctions, PDVSA will once again be forced to count on intermediaries that have proven unreliable in the past. In March 2023, Venezuelan authorities unveiled a corruption scheme that cost the industry billions of dollars from unaccounted oil sales and led to dozens of arrests.

The expiry of GL44 could likewise spell a resurgence of fuel shortages. PDVSA has reportedly secured swap arrangements with partners such as Chevron, Maurel & Prom, Spain’s Repsol and Italy’s Eni to boost its supplies of fuel and diluents for refineries.

Venezuela has sought to reactivate its refining industry with assistance from Iran in recent years. Nevertheless, refineries remain plagued by operational disruptions and unable to meet demand. Scarcity of gasoline and particularly diesel has serious consequences for electricity generation, public transportation and agriculture.