With Chevron, Citgo extensions, US preserves Venezuela oil sector options: analysts

A push within the Trump administration to ramp up sanctions on Venezuela's oil sector has again been overcome by the argument that forcing US companies out of the South American nation's key industry would be detrimental to a post-Maduro government.

"There seems to be consensus within the administration that even if they want to be punishing the Maduro government that they shouldn't be punishing US companies," Risa Grais-Targow, the Eurasia Group's director for Latin America, said Tuesday. "In general, there seems to be a desire to continue to support US companies that want to work in Venezuela. They're trying to protect these assets and hold the line."

Early Saturday, the US Treasury Department announced that it had extended for three months a sanctions waiver to Chevron and four US oil services companies allowing them to continue to work in Venezuela with state oil company PDVSA. It also extended a waiver preventing creditors of PDVSA from taking control of US refiner Citgo as a result of missed payments on its 2020 bonds. Both waivers were extended until April 22.

Before the waivers were announced, sources said that administration officials had considered allowing at least the Chevron waiver to expire, in order to increase pressure on the Maduro regime after roughly a year of oil sector sanctions had failed to push him from office.

Some analysts claimed that Venezuela's oil output, which averaged 720,000 b/d in December, according to the latest Platts OPEC survey, could plunge below 300,000 b/d if the waiver was allowed to expire.

But voices for preserving a functioning oil system in Venezuela and maintaining a revenue stream for a potential, post-Maduro government won out, said Frank Verrastro, a senior vice president at the Center for Strategic and International Studies' energy and national security program.

"I think the waiver extensions are directed at preserving options," Verrastro said. "Forcing Chevron and service firms to leave, essentially cedes the space to Russia and to a lesser extent, China. It also doesn't preclude further sanctions, so the waiver extension was not a surprise."

The extensions allow the US to maintain a presence, at least through international oil companies, in Venezuela, and prevent assets from transferring to Russian and Chinese companies, said Paul Sheldon, S&P Global Platts Analytics' chief geopolitical adviser. "But with the 2020 election approaching, and no movement toward regime change, political pressure to ramp up sanctions will rise."

ROSNEFT SANCTIONS

The extensions, at least for the moment, seemed to dampen the prospects of additional sanctions, such as potential actions against Russian state oil company Rosneft, which continues to receive Venezuelan crude as debt repayment and then resells it to China and India buyers.

Asked about potential sanctions on Rosneft during a visit in Colombia Monday, US Secretary of State Mike Pompeo declined to comment specifically, but indicated that further sanctions were coming.

"We don't talk about particular sanctions, but everyone can fully expect that the United States is not done," he said.

A senior Trump administration official told Platts in August that the US was prepared to sanction Rosneft if it continued to trade crude oil and fuel with PDVSA, but analysts said those sanctions have yet to be imposed because of the expected impact they may have on the global oil market.

"It's complicated to go after an economically significant target like Rosneft," said Kevin Book, managing director with ClearView Energy Partners.

Book said instead of broad sanctions, which could impact multinational banks and energy companies, the US may instead target a Rosneft subsidiary or affiliate.

"Doing this in a way that could potentially stop Rosneft from moving cargoes out of Venezuela without inhibiting commercially important operations for IOCs would be very difficult, but not impossible," Book said.