US directs Chevron to stop Venezuela exports: Update

Updates throughout.

Chevron will be able to continue operations in Venezuela but will no longer be able to export oil from its joint ventures with state-owned PdV under the terms of a restricted sanctions waiver issued by the Treasury Department today.

Chevron until now has been exempted from the US oil sanctions imposed in January 2019, allowing it to continue operations in Venezuela and to lift crude cargoes from its joint ventures.

The company's authorization to operate in Venezuela will be renewed until 1 December after the current one expires on 22 April, the Treasury Department said today. US services giants Halliburton, Schlumberger, Baker Hughes and Weatherford also won a reprieve through 1 December.

But the renewed authorizations come with strings attached, including a prohibition on drilling, lifting, purchasing or processing Venezuelan-origin crude or oil products. The US companies' activities will be limited to maintenance of essential operations and contracts.

The new sanctions waiver condition will prevent Chevron from lifting its share of crude from its PetroPiar heavy crude upgrading joint venture with controlling shareholder PdV. The US major lifted a cargo of 26°API Hamaca synthetic crude from PetroPiar in January, after the Orinoco-based project resumed upgrading operations at the end of 2019. At the time, Chevron declined to comment on the loading except to say that international crude marketing activities that ultimately pay for expenses related to maintenance of operations were permitted under the Treasury license in effect at that moment, and to reiterate its compliance with all laws and regulations.

The status of heavy crude exports from Chevron's PetroBoscan joint venture with PdV in western Venezuela is less clear under the new rules.

Venezuela was producing around 700,000 b/d of crude overall at the end of March, Argus estimates — almost half the pre-sanctions level.

The key unanswered question now is whether amending the terms of Chevron's Venezuela license will deliver a fresh blow to the country's flagging oil industry, and bring President Nicolas Maduro's government down with it. The US is hoping the crises descending on Caracas from the oil price crash and the pandemic will persuade elements surrounding Maduro, including senior military officials, to abandon him and sign on to a transitional power-sharing plan culminating in new elections. The plan offers Venezuela a phased dismantling of the sanctions.

Notably, the 1 December expiry of the new sanctions waiver falls after US presidential elections in November, but just before Venezuela's National Assembly elections that are supposed to take place around early December.

With the new restricted waiver renewal, the White House appears to have been influenced by an argument that Chevron's technical expertise has allowed PdV to maintain production not only at their joint ventures but at related operations, helping the Maduro government to survive despite the sanctions.

Among Venezuela's US-backed political opposition led by Juan Guaido, the case for keeping Chevron in place under the current waiver conditions to help rebuild the country under a future democratic government was eclipsed by the hawkish view that the US major was providing an indirect lifeline to Maduro. The major has not violated the terms of its sanctions license. But the US began to reconsider its sanctions approach to target any company involved "in anything that is helping the Maduro regime even if it is not providing direct income," deputy assistant secretary of state Carrie Filipetti said last week.

Supporters of further waiver extensions argued that forcing Chevron to leave Venezuela would allow Caracas to nationalize US assets and potentially hand them to Russian or Chinese state-controlled companies and maintain production levels. Chevron itself has long contended that it is a "constructive presence" in Venezuela, with operations and social activities that support hundreds of local families.

Hanging by a thread

Neither PetroPiar nor PetroBoscan that are controlled by PdV makes economic sense in the current oil price environment. This makes a potential takeover of Chevron's Venezuela oil assets by a Russian company less likely, the US State Department said. And Treasury is examining the operations of Rosneft's successor in Venezuela, the department's senior sanctions enforcement official, Office of Foreign Assets Control director Andrea Gacki, said on 17 April. US sanctions imposed in February and March have forced Russian state-controlled Rosneft to transfer its Venezuela oil assets to an unnamed entity owned by the Russian government.

With or without Chevron in country, Venezuela's oil industry is hanging by a thread after last month's oil price crash sparked by a supply glut and demand collapse caused by the Covid-19 pandemic. But the Maduro government now relies less on oil and more on opaque revenue streams — Washington accuses Caracas of profiting from gold sales and drug trafficking.

By Haik Gugarats and Patricia Garip