Dutch islands revisit oil ties to Venezuela

Three Dutch-controlled Caribbean islands with oil ties to Venezuela will ask The Hague to determine the economic impact of a Venezuelan threat to sever commercial relations.

The initiative comes in the wake of a symbolic 72-hour Venezuelan blockade of air and sea access with the islands, which Caracas says was aimed at tamping down on widespread smuggling of assorted goods, including gold.

The islands form part of a regional refining and logistical network that Venezuela has traditionally used to reach international oil markets. The oil activity provides the islands´ governments with significant revenue.

The islands´ request to the Netherlands will be delivered to the Dutch minister for relations with the islands, Raymond Knops, who is visiting Aruba, Bonaire and Curacao starting today.

The delegation also includes the presidents of the upper and lower houses of the Dutch parliament.

"The request to the Dutch government is to seek clarity from Venezuela given the importance of commercial relations, particularly with (Venezuelan) state oil company PdV being involved in oil industry facilities in the islands," a Curacao government official tells Argus.

Venezuela´s three-day closure that apparently ended today did not affect oil operations. But it could portend more consequential action. "I didn't want to do this...but I am willing to take more radical measures if the governments of these Caribbean islands fail to take steps to control extraction contraband and establish healthy commerce," Venezuelan president Nicolas Maduro said on 5 January. The islands constitute "a mafia that is involved in smuggling tires, oil, shampoo, food, everything."

Any break in commercial ties would damage the economies of the islands that rely on revenue from PdV's current and planned involvement in oil refining, bunkering and storage.

PdV manages the 350,000 b/d Isla refinery in Curacao under a lease agreement with the local government that will expire in 2019. PdV uses century-old Isla to process crude into gasoline, naphtha, diesel, jet fuel, asphalt, base oils and lubricants, and to blend its diluted extra-heavy crude with light crude for export.

PdV's US downstream subsidiary Citgo has leased the mothballed 280,000 b/d San Nicolas refinery in Aruba, saying it plans a $700mn upgrade to process Orinoco extra-heavy crude from Venezuela into intermediate grades that will be shipped to Citgo's US-based refineries in Louisiana and Texas for further processing.

On Bonaire, PdV owns the 10mn bl Bopec oil terminal. But the company could be forced to close the facility by next month if it fails to make repairs to bring it into compliance with international safety and environmental standards, the Dutch government said in December.

Aruba lies 29km off Venezuela's coast. Bonaire is 80km away, and Curacao 64km.

Curacao is seeking to determine if Maduro's statements are based on domestic politics or a change in foreign policy in Caracas, the government said.

It is Venezuela's responsibility to control the smuggling of goods from that country, it said.

The threat by Maduro is likely an attempt to divert attention from the increasing economic problems faced by the ailing Venezuelan economy, and the desire to find "a scapegoat," the Curacao official says.

"It could also be impulsive retaliation for PdV's uncertainty over the Bonaire terminal. It is difficult to see how three small islands can affect an economy the size of Venezuela's."

Aruba is concerned that the position taken by Maduro "does not have negative consequences for the community," the island's government said.

"Merchandising contraband between Aruba and Venezuela should be dealt with in a swift manner."