LOOKING AHEAD: More trouble for Venezuela as US imposes more sanctions
| Date | 01 September 2017 |
| DOI | http://doi.org/10.1111/oet.12527 |
| Published date | 01 September 2017 |
LOOKING AHEAD
More trouble for Venezuela as US imposes more sanctions
eUShasimposedafurthersetofsanctionson
Venezuela,thefourthsofar,inresponsetoJuly30’s
plebiscite that allowed President Nicolas Maduro to
replace Venezuela’s National Assembly with his own
nominees to enable them to rewrite the constitution so
as to increase the powers of the presidency. e new
sanctions restrict the trading of bonds and other nan-
cial instruments by US institutions, thereby increasing
the nancial pre ssure on the Venezuelan government
and, especially, the national oil company, Petroleos de
Venezuela (PDVSA).
e measures are rather less draconian than t he sound
since neither Venezuela nor its debt-ridden state oil
companydoappeartohaveplanstoissueanybondsor
other debt instruments at present.ey do, however, add
to Venezuela’s considerable economic woes and could
inhibit or delay certain types of business transactions,
including some that are connected with the oil busi-
ness. ere are reports, for example, that some nancial
institutions are refusing to provide letters of credit to
companies buying oil from PDVSA [1]. ese guaran-
tee payment to the seller when the shipment of a cargo
is accepted; without them the cargo cannot be delivered.
e only way then for a company to import Venezue-
lanoilwouldbebypayingforthecargoinadvance.
Such prepayments, however, havea lready been reported
before the latest round of US sanctions.
Production falling
A more fundamental problem for Venezuela is that its
oilproductionisindeclineasaresultofyearsofunder-
investment owing to the fact that since 1999 PDVSAhas
been forced to hand over most of itsrevenues to the state
to fund high levels of social spending under President
Maduro and his immedi ate predecessor, Hugo Chavez.
ishasnotonlydeprivedPDVSAofmoneyforcap-
ital investment, in recent times the company has not
hadenoughtofundallofitsday-to-dayoperations.For-
eign investment has also fallen following the nationaliza-
tion of the product ion assets of several US compani es by
Chavez’s government in 2007, prompting several others
to leave.
e US companies were principally engaged in
opening-up the Orinoco Belt, which contains most of
Ven e z ue l a ’s oi l r e se r v e s (see Table D). e Orinoco Belt
consists of heavy and extra-heavy crudes and accounts
forabout1mnbpdofVenezuela’s2.2mnbpdcrudeoil
production. ere are plans to raise Orinoco’s output
by some 4 mn bpd. e Venezuelans have attempted
to replace the departing US rms wit h other oil com-
panies but have failed to secure sucient investment
Table D
Venezuela: Oil Prole, 2016
Proven Reserves 300.9 bn bbl∗
Reserves Remaining 341.1years†
(bn cfd)
Production
Crude Oil 2.2
NGL 0.2
Total 2.4
Consumption
Total 0.6
Net Exports
Total 1.8
∗As of 1.1.17
†Based on 2016 production
Totals rounded
Source: (Reserves) Oil & Gas Journal
(Other) BP Statistical Review of World Energy, 2017/OET
from elsewhere to nance the massive expans ion of the
Orinoco Belt with its high development costs and low
value crude [2].
Too much debt
As well as spending the revenues of PDVSA, the gov-
ernment has also borrowed heavily: both to nance its
own spending and that of PDVSA.President Maduro has
been keen to avoid defaulting on any loans, but this has
involved borrowing further in order to do this. Many of
the loans are repayable in oil, and an increased propor-
tion of PDVSA’s oil sales are being earmarked for this
purpose. Yet more money is being rais ed from asset sales,
which also involve the country’s oil.
In addition to the oil that is tied-up to debt repay-
ments, Venezuela also supplies oil to a number of coun-
tries at below market prices. Some 600,000 bpd of this
is accounted for by sales to the domestic market (see
Table D). ere is also an estimated 80,000 bpd of
crude and products to countries in Central America and
the Caribbean on barter terms, of which Cuba receives
about 50,000 bpd. Oil is also supplied in this way to
Jamaica, Nicaragua and the Dominican Republic under
the scheme, which is known as PetroCaribe.
As well as these below-market sales, Venezuela has
been providing extended credit to countries in Latin
America as part of the government’s policy to increase
Venezuelan economic and political inuence across the
continent, with the aim of detaching countries there
fromtheorbitoftheUS.Inanumberofcases,debtsfor
oilrun-upunderthissystemhavebeenwritten-down
by Caracas. Uruguay, for example, has been allowed to
© 2017 John Wiley& Sons Ltd
To continue reading
Request your trial