Modern Oil Boom in Caracas: Navigating US Sanctions
Venezuela's Oil Production Maintains Expansion in Face of Rising Exports and Plummeting Costs
September 12, 2024 (our website) - Venezuela's oil industry experiences another growth spurt, showing resilience despite ongoing hurdles.
August's oil production soared to 874,000 barrels per day (bpd) as per secondary sources in OPEC's latest bulletin, marking a leap from July's 863,000 bpd. This new figure sets a five-year high for the beleaguered industry, demonstrating astonishing growth tendencies.
PDVSA, the Venezuelan state oil company, reported an August production of 927,000 bpd, just a minor increase from July's 928,000 bpd. The tumultuous journey of Venezuela's oil sector continues, with a daunting US sanctions regime remaining a significant challenge.
Venezuelan oil authorities have persistently targeted a 1 million bpd production level, but the US sanctions regime, in place since 2017, has left the industry struggling. The US Treasury Department has administered financial sanctions, an export embargo, secondary sanctions, and numerous other restrictions designed to strangle Venezuela's main source of revenue.
PDVSA gained a temporary reprieve with General License 44, a six-month waiver issued by the Biden administration in October 2023. This allowed PDVSA to expand sales and cargo movement without significant discounts or relying on unreliable intermediaries. Washington, however, reinstated sanctions in April, claiming the Maduro government had failed to honor a political agreement with the US-backed opposition.
The US has long rejected the legitimacy of Maduro's presidential election victory and backed the hardline opposition candidate, Edmundo González. Several US House members have called for tougher sanctions against Venezuela, fueling tensions in the region.
Since the expiration of GL44, the US Treasury has urged international companies to seek permission before engaging with PDVSA, threatening secondary sanctions. Some US and European companies, such as Chevron, Repsol, Eni, Maurel & Prom, and Reliance Industries, have managed to continue operations despite the obstacles.
Indian refining giant Reliance Industries received the green light to restart Venezuelan crude imports, with a portion of the payment coming in the form of naphtha supplies. PDVSA relies on this diluent to convert extra-heavy crude into exportable grades.
ONGC Videsh, India's state-owned oil company, is reportedly lobbying for permission to participate in two projects. This follows PDVSA awarding joint venture stakes to Chinese companies Anhui Erhuan Petroleum Group and Kerui Petroleum in July. The former will join the light crude Petrokariña project in Anzoátegui and Monagas states, while the latter will enter the undeveloped Ayacucho 2 field in the Orinoco Belt.
It remains uncertain whether these companies will confront the US Treasury or disregard the threat of coercive measures.
Despite the US-induced barriers for foreign actors, Venezuelan crude exports increased by 50 percent last month to achieve a four-year high. Spanish refineries have received substantial amounts of Venezuelan crude thanks to Repsol's ventures in the country.
However, this recent production and sales advancement is somewhat offset by a decline in oil prices. The Brent crude benchmark dropped below $70 for the first time since 2021, marking a two-decade low when adjusted for inflation. The Merey grade, Venezuela's primary export, fell from $67.61 to $62.15 per barrel, representing a 17 percent decline since April and a 14-month low.
A foreign currency shortage could strain Venezuela's inflation control measures. A widening gap between the official and black market exchange rates has led the Venezuelan Central Bank to inject rising amounts of US dollars into the forex system.
Analyst Elias Ferrer from Orinoco Research argued that Venezuela's sales discounts, coupled with falling oil prices, make a substantial currency devaluation "inevitable."
Enrichment Data:
Current Status of U.S. Sanctions Against Venezuela
The US has maintained a complex sanctions regime against Venezuela, particularly targeting its oil industry and government entities. Key developments include:
- General License 41B: This license was amended to extend the wind-down period for certain transactions, notably Chevron Corporation's joint ventures in Venezuela, until May 27, 2025[3][4].
- Secondary Tariffs: Introduced on March 24, 2025, under Executive Order 14245, these tariffs threaten a 25% duty on all goods imported from countries that purchase Venezuelan oil after April 2, 2025[3][4][5].
Impact on Venezuela's Oil Industry
The sanctions have significantly impacted Venezuela's oil industry by limiting its ability to export oil and attract foreign investment. Despite this, Venezuelan oil exports to the US reached noteworthy levels, with exports reaching 250,000 barrels per day in January 2025[1].
Navigation by Foreign Companies
Foreign companies face challenges due to the US sanctions and secondary tariffs. They must carefully review and comply with US regulations to avoid penalties. This has led to a cautious approach, with some companies seeking to wind down operations in compliance with US directives[3][4].
Key Challenges:
- Compliance Requirements: Companies must ensure all transactions comply with US sanctions to avoid legal repercussions.
- Economic Risks: The imposition of secondary tariffs could severely impact trade with countries that import Venezuelan oil, leading to economic losses for both Venezuela and its trading partners.
- Strategic Partnerships: Companies may explore alternative partnerships or markets to mitigate the risks associated with US sanctions.
- The modern oil boom in Caracas continues to defy obstacles despite ongoing US sanctions.
- Venezuela's oil production reached an astonishing five-year high in August, screaming resilience.
- PDVSA, the state oil company, reported an August production of 927,000 barrels per day (bpd), a minor increase from July's 928,000 bpd.
- US sanctions remain a significant challenge for Venezuela's oil sector, despite persisting attempts to surpass the 1 million bpd production mark.
- The US Treasury Department has imposed financial sanctions, an export embargo, secondary sanctions, and various other restrictions against Venezuela.
- PDVSA briefly found reprieve with General License 44, a six-month waiver issued by the Biden administration.
- Washington reinstated sanctions on PDVSA in April, citing the Maduro government's failure to honor a political agreement with the US-backed opposition.
- Indian refining giant Reliance Industries received permission to restart Venezuelan crude imports, helping PDVSA overcome the need for unreliable intermediaries.
- ONGC Videsh, India's state-owned oil company, plans to participate in two projects, following PDVSA's partnership with Chinese companies in July.
- The impending US-induced barriers for foreign actors have not deterred an increased 50 percent in Venezuelan crude exports last month.
- Although Venezuela's recent sales advancement is noteworthy, it is somewhat offset by a decline in oil prices, causing a two-decade low when adjusted for inflation.
- A foreign currency shortage could strain Venezuela's inflation control measures, leading to a widening gap between the official and black market exchange rates.
- Analyst Elias Ferrer predicts a substantial currency devaluation due to Venezuela's sales discounts and falling oil prices.
- The expiration of GL44 has prompted the US Treasury to urge international companies to seek permission before engaging with PDVSA.
- Companies like Chevron, Repsol, Eni, Maurel & Prom, and Reliance Industries have continued operations despite the sanctions' obstacles.
- Foreign companies must navigate complex regulations to avoid penalties and comply with US sanctions.
- The imposition of secondary tariffs could lead to economic losses for both Venezuela and its trading partners.
- Companies may explore alternative partnerships or markets to weather the risks associated with US sanctions.
- Compliance requirements have led some companies to wind down operations in accordance with US directives.
- Personal entrepreneurs in the oil-and-gas industry must confront the challenges posed by US sanctions and diversify their business to achieve growth.
- Leadership within the oil industry must leverage fintech, real-estate, and stock-market investments to counteract the impact of US sanctions.
- Navigating career development and policy-and-legislation changes is essential for those seeking success in the oil industry under US-imposed restrictions, emphasizing the importance of education-and-self-development, personal-growth, mindfulness, and lifelong-learning.
