Stakes look low in Washington’s Venezuela dilemma

  • : Crude oil
  • 24/04/15

The US administration's decision to temporarily lift oil sanctions against Venezuela in October last year relied on the premise that economic incentives would prompt Caracas to hold a competitive presidential election. But either the theory was wrong or the incentives were insufficient to encourage Venezuelan president Nicolas Maduro to consider exiting the scene.

The US wants Venezuela to allow credible opposition candidates to run in the latter's presidential elections on 28 July, and set this as a condition for extending sanctions relief beyond a looming 18 April deadline. But the Maduro government has prevented key opposition leader Maria Corina Machado from running. The main non-government affiliated candidate allowed to run in the election, governor of the oil-rich Zulia state Manuel Rosales, is viewed with scepticism in Washington. An election in which "only those opposition candidates with whom Maduro and his representatives feel comfortable" can participate will not be considered competitive enough for the US sanctions relief to continue, the US State Department says.

Colombian president Gustavo Petro appeared to be mounting a last-ditch effort this week to mediate between Maduro and the opposition. Petro also wants to make it easier for Colombian oil firm Ecopetrol to expand business with its neighbor, including putative plans for gas imports from Venezuela. But doing so requires a massive change of US policy. "The US government looks a little more interested in alleviating sanctions than the sanctioned party," Caracas-based economist Tamara Herrera says. "Barring a grand gesture" by the Maduro government, the US is likely to reimpose sanctions, but perhaps grant specific carve-outs more freely, she says.

Maduro's reneging on last year's accord with the opposition over the competitive election comes as no surprise to Washington-based critics of his government. "We've done everything we can to give economic inducement to the regime to behave differently," think-tank Center for Strategic and International Studies' Americas programme director Ryan Berg says, estimating the benefit to Caracas from sanctions relief at $6bn-10bn since October. "I just don't see that they've really given anything" in return. Leading US senators from both parties agree, calling on the White House this week to reimpose the sanctions after 18 April.

Do the sanctioned crude shuffle

But the six-month period during which Venezuela's state-run PdV was allowed to sell oil freely to any buyer and to invite foreign investment has hardly provided the economic benefits expected in October. India has emerged as a major new destination for Venezuelan crude, importing 152,000 b/d in March.

The sanctions relief has not significantly affected US-bound Venezuelan volumes, which averaged 133,000 b/d last year. Even before the October waiver, Washington had allowed Chevron to lift oil from its joint venture with PdV, solely into the US. That exception for Chevron will remain in place.

Undoing the US sanctions regime against Venezuela has provided unintended market incentives. Chinese imports of Venezuelan Merey, often labeled as Malaysian diluted bitumen, have been lower since October. Independent refiners in Shandong, which benefited from wide discounts on the sanctioned Venezuelan crude, cut back imports to just a fraction of pre-relief levels. By contrast, state-controlled PetroChina was able to resume imports. The possible reimposition of US sanctions is reflected in the widening Merey discount to Brent (see chart).

Venezuela's rekindling of a border dispute with Guyana is also irking many countries that might come to its defence, and US elections in November could make the prospects of a US deal with Maduro even less likely. Hopes for a renaissance in oil or democracy in Venezuela seem ever further away.

Chinese imports of Venezuelan crude

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