Venezuela
US May Weigh Broader Sanctions Relief
24 August 2023
The US administration is in preliminary discussions with Venezuela to explore a temporary lifting of crippling sanctions in exchange for allowing fair elections next year. Senior officials from both nations, include Venezuela’s head of congress Jorge Rodríguez.
The US is mulling a broadened range of sanctions relief on Venezuela’s oil sector in a push to incentivize Caracas to hold free and fair elections next year. Reuters reported that officials are working up a draft expanding offerings for sanctions removal, which Caracas sought to revive its moribund economy and a hydrocarbons sector that remains in ruins despite holding the world’s largest oil reserves.
Cause for caution remains. Even a more generous offer would largely remain a nonstarter so long as President Nicolas Maduro continued to ignore international pressure to hold competitive elections.
In recent months, Maduro’s administration moved sharply in favor of maintaining a forceful grip on power. It imposed a lengthy ban on far-right opposition candidate Maria Corina Machado from holding office, for one, while also taking steps towards reconstituting a key electoral commission with loyalists. Despite discouraging signs, however, the Biden administration may now be laying more cards on the table ahead of primaries scheduled for Oct. 22 in the hopes of salvaging any potential for a competitive result.
“It’s more about seeing this as the last chance to see if something can be moved in Venezuela before it [becomes] a Nicaragua situation,” said Francisco Monaldi, director of the Latin America Energy Program at Rice University, referring to that country’s contests, which are considered blatantly undemocratic.
Relief Possibilities
It’s not yet clear which prospects might be on the table. Requests for a broader operating license for US major Chevron — currently operating under restrictive conditions — as well as similar case-by-case flexibility for operators such as Maurel & Prom, Eni and Repsol are one guess, sources say.
Monaldi suggests that such incremental measures would have limited potential to lift Venezuelan production, potentially helping add another 200,000 barrels per day as soon as 2025. In his view, the only provisions that might make Maduro agree to election concessions would be immediate changes allowing the OPEC founder to sell its crude in open markets and receive dollars, abandoning opaque markets in which SOC PDVSA struggled to keep track of cargoes and secure payments.
Another source reported encouraging signs on discussions relating to more minor political progress — such as membership of the disputed electoral commission — that might move some incremental changes for industry.
Signs of Progress
The recent relaxation move helped bolster Venezuela’s oil fortunes on the margins, where exports have been challenged by difficult sales into dark corners of the global oil market amid a slump in Chinese crude imports.
Venezuelan crude exports to the US hit 174,000 b/d in July, the highest since the policy loosening, according to Kpler data.
That said, overall exports averaged about 475,000 b/d in July, down from a March high of 614,000 b/d. Energy Intelligence estimates the petrostate pumped some 610,000 b/d of crude in July, Further rollback of sanctions could usher in more progress, Venezuela’s former vice-minister of hydrocarbons, German Marquez, said of the possibility.
“Without a doubt, the license granted to Chevron improves the conditions of the Venezuelan oil industry, but only for the companies where the transnational has a stake.” The situation could be “replicated equally” to other joint ventures if “coercive measures” imposed against PDVSA are relaxed more broadly.
Gas Potential
Sector observers have also been pushing for sanctions relaxation in the gas sector, where European countries including Germany, France and the Netherlands are involved in a diplomatic and business push to shore up access to gas reserves as the continent works to wean itself off Russian supply. That effort, including Maurel & Prom, Repsol, Eni and Shell, made bids to the US Office of Foreign Assets Control, OFAC, for an authorization to do business with PDVSA on gas projects, according to two sources, with hopes of its being received by years’ end.