The US action is restricting key product imports and cutting off a vital revenue stream, limiting Caracas' ability to find new suppliers
Venezuela's state-owned oil firm PdV is casting a wide net in search of naphtha, gasoline and other oil products as it seeks to counter the impact of US sanctions.
The sanctions announced by Washington on 28 January also effectively cut off the revenue that Venezuela was generating from up to 500,000 b/d of crude exports to the US. While Venezuela exports crude to other markets, mainly China and India, much of that goes toward servicing debt. The sanctions are intended to force sitting president Nicolas Maduro to cede power in favour of Juan Guaido, the national assembly speaker now recognised by most of the western hemisphere and EU countries as Venezuela's legitimate interim president. Maduro vows to fight what he deems a coup attempt and an imminent US military invasion. He is supported by Russia, China, Cuba, Nicaragua and Bolivia.
But fuel is already running low in the Opec country as PdV scrambles to replenish supplies that its crippled refineries have not produced for months. PdV's private-sector suppliers have now mostly withdrawn, including India's Reliance, which had been a steady crude buyer and products supplier. One exception is Spain's Repsol, which has been supplying limited volumes of gasoline in exchange for crude, PdV and market participants say. Repsol declines to comment.
PdV is now approaching state-owned firms such as Algeria's Sonatrach, but guaranteeing payment terms is an obstacle. Cash-poor PdV increasingly has bartered crude for imported products since 2017. In the past year it has paid in oil to service debt to joint-venture partners such as India's ONGC and Repsol, and for an arbitration settlement with US firm ConocoPhillips. The firm has also reached out to allies Iran and Russia.
PdV was importing over 100,000 b/d of products including gasoline and naphtha before the US sanctions. Naphtha, all of which had come from the US, is critical for transporting Venezuela's extra-heavy crude from the Orinoco oil belt as diluted crude oil (DCO). Some of the DCO is exported, while the rest is upgraded into synthetic crude or blended with light crude at PdV's main oil terminal at Jose. Without naphtha, 200,000-300,000 b/d of Venezuela's crude exports are at risk.
Fuel on the fire
Local naphtha stocks used to make DCO are nearly exhausted. PdV and its joint-venture partners are already dialling back well flow rates in the face of storage bottlenecks, a PdV official says. Oil minister and PdV chief executive Manuel Quevedo maintains that the "criminal US sanctions" against the company have not hurt its core operations. But PdV and oil union officials working with the company at Jose say exports have backed up and products imports have stopped. PdV export clients, foreign products suppliers and tanker owners and operators are refusing to load and offload cargoes. Venezuelan security forces this month seized at least two tankers with motor fuel and forced their crews to unload. Up to a half-dozen more incidents at PdV terminals have been reported, with confrontations between tanker crews and PdV officials backed by security forces.
But while sanctions are succeeding in hitting oil industry operations, Venezuela's emerging interim government and its foreign supporters are struggling to deliver humanitarian aid before their impact starts to exacerbate shortages of food, medicine and fuel. Without cash revenue from the US oil market, Venezuela's economic crisis will deepen in a matter of weeks, so the race is on for proponents of a political transition to deliver aid to the country as swiftly as possible. But Guaido and his supporters acknowledge that this hinges on persuading the national guard that controls the nation's borders to switch allegiance from Maduro. So far this has not happened, despite some mid-level military defections this month.
