Sanctions imposed by the Trump administration are significantly reducing oil exports from Venezuela, posing a major threat to the beleaguered socialist nation’s economy.
Trump announced sanctions on Venezuela, which is home to the world’s largest oil reserves, in January, after that nation’s National Assembly invalidated the 2018 re-election of incumbent President Nicolas Maduro over election irregularities.
Despite the opposition of most countries around the world Maduro – whose main allies now are Cuba, Russia and Iran – refused to leave office, in apparent defiance of the Venezuelan constitution and elected assembly.
Recent data published by Reuters shows that Venezuela is exporting a mere 920,000 barrels per day. That is a decline of almost 40 percent from the roughly 1.5 million barrels per day Venezuela exported during the three months prior to the sanctions.
“Oil sanctions [could] break the back of the Maduro regime because that’s their only viable lifeline to foreign currency at this point,” said Tim Samples a Latin American oil expert.
The Trump administration’s sanctions also targeted the U.S. export of chemicals known as diluents. These chemicals are needed to pump Venezuela’s tar-like crude oil. Much of Venezuela’s oil is classified as “extra-heavy” in terms of its viscosity as opposed to lighter crude oil found in the United States and elsewhere. This makes the oil more difficult to refine and gives U.S. sanctions extra bite because Venezuela has long relied on American refineries that are designed to refine this type of oil.
Samples, who is also a professor at the University of Georgia, also said that the shutdown will have consequences for US refiners due to the large flotilla of tankers currently in the Gulf of Mexico that will need to be reassigned. However, the sanctions will likely have larger global impacts as well he explained. Russia has a strong financial relationship with Venezuela, China due to supply arrangements between the two countries Samples said. On Friday, Venezuela announced that the national oil company, PDVSA would move its offices from Lisbon, Portugal to Moscow, Russia.
U.S. sanctions allow exemptions for oil field service companies – the private operators that provide drilling and other technical assistance to the oilfield operators. Many oil field companies have already halted operations in Venezuela months ago. A senior figure at one of those companies says that most operations have been on hold for over a year due to the situation.
Despite growing international pressure for Maduro to resign his position — Venezuela’s oil and gas energy infrastructure in serious disrepair and overall is at a 30 year low. The oil sector will likely need major upgrades regardless of the political outcome. This is much to the detriment of China which has invested heavily in Venezuela’s oil in recent years. Beijing has supplied Venezuela some $60 billion in credit over the last decade to keep its socialist ally afloat. Venezuela still owes China at least $20 billion despite ongoing oil shipments from Venezuela to China.
“It is likely production could be increased as much as 600,000 barrels-per-day in a matter of months with political will any more will require years of upgrading,” said an oil trader for a major Chinese firm who spoke on condition of anonymity, “Though long-term upgrades could mean that oil upgrades 2 million barrels per day.”
Source: American Media Institute
