India sticks to Venezuelan crude, stops products sales

India´s two leading refiners will continue to import Venezuelan crude but will no longer supply oil products to Venezuela´s state-owned PdV because of US sanctions, Indian downstream executives told Argus.

"We will continue to buy Venezuelan crude until the US stops us," one of the executives said.

The remarks were made on the sidelines of a conference where Venezuela´s oil minister and PdV chief executive Manuel Quevedo pledged to keep crude flowing.

"We have a good relationship with India and we want to continue this relationship," said Quevedo, whose presence at Petrotech 2019 outside New Delhi was not previously announced. "India certainly has a good and healthy relationship with us."

He said Venezuela plans to double crude exports to India from more than 300,000 b/d at present.

Quevedo highlighted Venezuela´s role as the 2019 rotating president of Opec, a largely ceremonial post but one that Caracas is touting as a platform to assert its political legitimacy abroad at a time of deepening political turmoil at home.

Reliance and Russian state-controlled Rosneft´s Indian refining unit Nayara have been among the leading buyers of Venezuela´s heavy sour crude in recent years. The two have combined crude-processing capacity of 1.76mn b/d.

Indian imports of Venezuelan crude reached a monthly high for 2018 of nearly 400,000 b/d in November, before falling back to 203,000 b/d in December, according to Indian customs data.

Reliance in particular is a regular buyer of PdV´s Merey and diluted crude oil (DCO) grades and had been a steady supplier of products, especially naphtha that is used as a diluent in DCO.

But the product sales were routed through Reliance´s US subsidiary, exposing the company to the new US sanctions that immediately cut off US sales of diluent to PdV starting at the end of January. The sanctions apply to non-US companies that use the US financial system or US brokers.

In the case of Nayara, PdV´s crude sales go toward servicing oil-backed debt to Rosneft.

PdV is also slowly paying overdue upstream dividends to India´s state-controlled ONGC by nominating crude buyers that pay the Indian company for the shipments instead of PdV.

India´s position on Venezuelan oil has similarities to its approach toward Iran, which is also subject to US sanctions. Indian refiners buy Iranian crude but in this case payments go into escrow. The Iranian government and its state-owned oil company NIOC can use the funds for food and medicine, and to invest in India.

The US sanctions on PdV that Washington announced on 28 January effectively cut off Venezuela´s crude exports to the US, which had been running around 500,000 b/d, or roughly half of the total. The sanctions require US buyers to deposit payments for Venezuelan crude into an escrow account for the benefit of Venezuela´s self-proclaimed transition government during a wind-down period that has stranded scores of oil tankers around the US Gulf coast and in Venezuelan waters.

The US was not only the largest market for Venezuelan crude, but also the main one that generated cash flow for the Venezuelan government. Much of Venezuela´s crude is bartered for products or used to pay debt.

The US sanctions are aimed at forcing Venezuela´s sitting president Nicolas Maduro to step down in favor of the National Assembly speaker Juan Guaido, whom the US, Canada and most of the EU and Latin America recognize as Venezuela´s legitimate president.

Maduro has refused to cede power and accuses the US and its allies of orchestrating a coup attempt. Since last week, he has been overseeing military exercises in anticipation for what he says is a US-led intervention, which Washington denies.

India has maintained a low profile on the controversy. Maduro´s main international backers are Russia and China. In Latin America, the Venezuelan leader is supported by Cuba, Bolivia and Nicaragua. Mexico and Uruguay have taken a neutral stance and are calling for dialogue. Guaido and his emerging transition government say previous dialogues have been used by Maduro as a ruse to prolong his regime that is starving Venezuela´s people.

Maduro has the support of senior military ranks that are embedded in lucrative illicit activities such as drugs trafficking and fuel smuggling.