On 23 January 2019, the United States recognized Juan Guaido as the new interim President of Venezuela. This aligned with statements from the U.S. Secretary of State Mike Pompeo that Nicolas Maduro is no longer the legitimate President of Venezuela. Two days later, the Trump Administration announced sanctions against that nation’s state-owned oil and natural gas company (PdVSA).

In their official statement The U.S. Department of the Treasury said, “Today’s designation of PdVSA will help prevent further diverting of Venezuela’s assets by Maduro and preserve these assets for the people of Venezuela. The path to sanctions relief for PdVSA is through the expeditious transfer of control to the Interim President or a subsequent, democratically elected government.”

Below are ten key points related to the production of oil in Venezuela:

  1. The sanctions aim to isolate oil money away from Maduro: Under U.S. sanctions, companies can continue to import oil from Venezuela to American refineries, but the funds generated must be held in blocked accounts that are not accessible to the Maduro regime.
  2. PdVSA has been a vehicle for corruption. According to the Treasury Department a variety of schemes have been designed to embezzle billions of dollars from PdVSA for the personal gain of corrupt Venezuelan officials and businessmen, in amounts that reach into the billions of dollars.
  3. The economic collapse is not new. Since the installment of a socialist government in 1999, up to four million Venezuelans have fled the nation. Maduro blames his nation’s economic perils on sanctions and an international campaign to isolate the South American nation. His critics (such as Transparency International) say that Venezuela ranks as one of the most corrupt nations in the world.
  4. Venezuela has not been able to meet crude oil commitments to existing customers. Crude output from this OPEC member nation is near its lowest levels in 70 years amid an economic crisis and what critics have called mismanagement under Nicolas Maduro. According to S&P Global Platts, the PdVSA processed less than a third of its 1.6 million bpd of refining capacity during 2018. Venezuela’s rig count, a loose barometer of future production, fell to 27 in December 2018 from 48 in January, according to Baker Hughes International Rig Counts.
  5. The U.S. buys a substantial amount of Venezuelan Oil. According to Barclay’s s shipments to the U.S account for about 75 percent of the cash Venezuela gets for crude shipments. Heavy crude from Venezuela is used to produce diesel and other high-margin products.
  6. India and China could buy more. Under U.S. sanctions, if Maduro does not step down, Venezuelan oil would be cut off from Gulf Coast refineries, force PdVSA to send more crude to Asian countries such as India and China. As a result, prices of heavier U.S. crude grades rose in January.
  7. Key infrastructure is aging. Until the mid-1980s, the Superior Oil Company had major investments in Venezuela. Experienced service companies from the U.S. installed and maintained infrastructure. Since Superior was acquired by Mobil in 1984, the condition of infrastructure has declined. This problem was exacerbated by problems with service and construction companies getting paid.
  8. They have a major border dispute with Guyana. According to multiple reports, under Madura, Venezuela planned to remap its Caribbean oil and gas prospects in 2019. Included in the mapping survey are areas also claimed by Guyana, Grenada, and Saint Vincent. Guyana has U.S. backing for its ownership claim over the waters.
  9. Maduro has harassed oil companies. For example, in December 2018, the Venezuelan navy intercepted two ships conducting seismic studies for Exxon as the oil major began preparations to develop giant deep-water reserves off the coast of Guyana. This led to one of the ships moving away from the border between Guyana and Venezuela, while the other left the region altogether.
  10. And threatened more harassment. After intercepting the Exxon vessels, Maduro issued a decree stating that Venezuela’s continental shelf is open for oil exploration, but he also included plans to assert “maximum legal security to the maritime spaces of Venezuela.”

By Greg Leatherman, Managing Editor, ON&T

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