US turns screws on Venezuela as Florida beckons

The election-minded US government is tightening its screws on Venezuela in a controversial strategy that appeals to hawkish Latino voters in Florida but divides their compatriots inside the impoverished country.

From diesel supply to an environmentally sensitive crude transshipment, President Donald Trump's administration is seeking to seal off Venezuelan president Nicolas Maduro's access to the oil market. The moves are expedient pre-election optics but will not spark regime change in Caracas, Venezuela watchers in Washington tell Argus.

As of this week, the US has effectively ended a sanctions exemption for diesel supplied by non-US companies under transactions that had been permitted on humanitarian grounds since the US imposed oil sanctions on Venezuela in early 2019.

India's Reliance Industries was a key diesel supplier in swap transactions for Venezuelan crude, while Spain's Repsol and Italy's Eni were lifting crude as payment from Venezuela's state-owned PdV for their natural gas production and historical debts, with diesel shipped back to balance their books.

"We are trying to stop the export of crude by the Maduro regime in Venezuela, and one of the ways we are trying to stop it is to prevent people from swapping various products for it, not just paying cash for it. So swapping debt, swapping diesel," US special envoy to Iran and Venezuela Elliott Abrams told reporters today.

Because the imported low-sulfur diesel is used for power generation, municipal water supply, agricultural activity, some food distribution and public transport, human rights groups — including UN High Commissioner for Human Rights Michelle Bachelet — had been urging the White House for months to maintain the exception.

That position was recently echoed by Miguel Pizarro, the Venezuelan opposition's UN envoy. Local Venezuelan farmers and businessmen, already hit by a severe gasoline shortage, have warned of dire consequences.

But other senior figures in the US-supported interim government led by Juan Guaido — including influential former political prisoner Leopoldo Lopez, now in self-imposed exile in Spain — support tougher measures to oust Maduro, whom they blame for the once-prosperous country's grave humanitarian crisis.

Aside from the loss of the imported diesel itself, detractors say the situation will open more avenues for opaque oil transactions. Crude exports are already tumbling and storage tanks full. And Repsol and Eni will have no sanctions-permitted mechanism to secure payment for their Venezuelan gas production. With only sporadic high-sulfur diesel production from PdV's crippled refineries, little onshore gas flow and only a partially functional network to distribute the gas, western Venezuela in particular will be pummeled by more blackouts and a loss of domestic gas supply.

Risky business

On the other side of Venezuela, the US is similarly resisting international calls to transfer 1.3mn bl of Venezuelan crude from the impaired Nabarima floating storage unit, which is at risk of causing a catastrophic oil spill in the Gulf of Paria.

Eni, which is PdV's minority partner in the Corocoro offshore field where the vessel has been moored for a decade, wants formal US assurances that the company and its contractors would not trigger sanctions by offloading the oil. Talks with the US State Department have been underway for weeks. Without a swift agreement, Eni's proposal will become obsolete, because PdV is already transferring the oil in a risky barge-based process guarded by the Venezuelan military.

The State Department's Bureau of Western Hemisphere Affairs said today that "Eni is under no sanctions risk to begin immediate emergency repairs to the vessel. We hope a resolution can be found soon."

No mention was made of authorizing an oil transfer.

Eni has said it is ready to carry out the safe transfer once it has approval from the US as well as PdV as the operator of the PetroSucre joint venture.

By Patricia Garip