PdV braces for sanctions blow, Maduro defiant

Venezuela´s state-owned PdV is bracing for an immediate blow to revenue and refined products supply from sweeping US oil sanctions unveiled yesterday.

The US sanctions are aimed at dislodging Nicolas Maduro from the presidency in favor of Juan Guaidó, the National Assembly speaker whom the US, Canada and most of Latin America now recognize as the legitimate Venezuelan president.

Backed by the military´s senior ranks, Maduro has vowed to stay in power and keep PdV´s US refining arm Citgo in Venezuelan hands. The US sanctions are "illegal, unilateral, immoral and criminal. They are trying to steal Citgo from all of the Venezuela," Maduro said late yesterday, adding that Washington would be responsible for any bloodshed in Venezuela.

PdV is studying "legal, political, operational, technical and commercial actions to defend Venezuela´s interests in the US and in our country," Maduro said.

Stunned oil ministry and PdV officials in Caracas tell Argus they expect crude exports to plunge as US and some non-US buyers sever trade ties with the Venezuelan oil company. Domestic gasoline supply that was already limited by refinery outages will fall to a trickle until the company finds alternatives to US supply that will come at a higher price, the officials say.

"The sanctions are horrible" for PdV and for Venezuela, a PdV executive said.

Venezuela currently imports more than 120,000 b/d of US products, mainly gasoline and naphtha that is critical to transporting and marketing PdV´s extra-heavy Orinoco crude.

The flow of crude to service debt, mainly from China and Russia, could also take a hit from the sanctions, which will extend to non-US crude buyers. Even if buyers outside of the US work around the sanctions by avoiding the US financial market, PdV will need to line up alternative naphtha supply to get the extra-heavy barrels into the market.

Venezuela's outstanding oil debt to China currently totals about $23bn and Russia is owed about $3bn.

Venezuela and its joint venture partners currently export about 1mn b/d of crude, mainly Merey blend and diluted crude oil (DCO). The US is the top destination with about 500,000 b/d, followed by India and China that alternate for second place. The US sanctions will likely also cut a source of supply for Mediterranean region refiners scrambling for alternatives to Iranian crude.

If oil revenue evaporates, PdV will not be able to pay its workers and suppliers that are owed money, and the government would not be able to pay for imports of already scarce food. Any effort by the central bank to print more currency would only aggravate hyperinflation.

The US sanctions shift Venezuelan oil assets into an escrow account for the benefit of the Guaidó administration, which is expected to quickly tap the funds for humanitarian aid for Venezuelan refugees in neighboring countries, led by Colombia. An effort to bring aid into Venezuela through Colombia is also on the table, possibly in concert with a US-led military force.

US secretary of state Mike Pompeo has certified Guaidó's authority to receive and control Venezuelan government and central bank accounts held by the Federal Reserve Bank of New York and US banks, the US State Department said today. It called on other governments recognizing Guiadó over Maduro to do the same.

Support for aid distribution is likely to be addressed by the Lima Group of Latin American countries and Canada which plans to meet in Ottawa on 4 February.