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As Maduro hangs on, US may rethink Venezuela oil sector waivers Fuel for Thought

After nearly a year of sanctions on Venezuelan oil exports have failed to force President Nicolas Maduro from office, the US may effectively remove Chevron and other US companies from the South American nation, potentially quickening the collapse of the country’s oil sector.

The Trump administration may let a waiver allowing Chevron, Halliburton, Schlumberger, Baker Hughes and Weatherford International to continue certain work with PDVSA, outside of US sanctions, expire on January 22.

In October, the US Treasury Department extended that waiver, known as General License 8D, for three months. It was the second extension of that waiver, initially issued in January 2019, when the bulk of US sanctions on Venezuelan oil flows went into effect.

The waiver has been extended based on the argument that the presence of US companies is necessary to prevent the complete collapse of Venezuela’s oil sector, easing an expected recovery once Maduro was forced out of power.

But analysts with ClearView Energy Partners believe that Maduro’s persistent hold on power and his latest efforts to take over the National Assembly weaken the argument for allowing the waiver to stay in place. And, with a US presidential race approaching, the Trump administration may be “increasingly wary of the appearance of going soft on Maduro by offering sanctions leniency,” they said.

Some analysts believe that Venezuela’s oil output, which averaged 700,000 b/d in November, could plunge below 300,000 b/d if the waiver is allowed to expire, making this option an attractive one to Trump administration officials eager to ratchet up pressure on the Maduro regime.


But this move will also come with a cost for the Trump administration and may, ultimately, prove ineffective.

Any decline in production may be short-lived if Rosneft, or another Russian or Chinese company, takes control of Chevron’s Venezuelan assets.

Analysts estimate that if Rosneft were to take over Chevron’s operations it could return output to current levels within 45 days.

Chevron, which has cautioned that ending the waiver could leave a post-Maduro government with an irrevocably damaged oil sector, has recently pushed the argument that an expired waiver would simply benefit Chinese and Russian companies, sources said.

“If Chevron is forced to leave Venezuela, non-US companies will fill the void and oil production will continue,” Ray Fohr, a Chevron spokesman, told S&P Global Platts this week.

Refiners move on

With the status of the waiver unclear, Elliott Abrams, State’s special representative for Venezuela, told reporters in Washington that the Maduro regime’s efforts to undermine democracy would be met with severe penalties from the Trump administration.

“We are looking at additional sanctions, personal sanctions, economic sanctions that we think will bring more pressure yet on the regime,” Abrams said.

Sanctions have become a frequent tool of reprimand for the Trump administration, with prohibitions on trade with Iran and North Korea and threats on more.

But US oil sanctions on Venezuela will soon be a year old and US refiners have moved on, importing their last Venezuelan barrel in May, according to the US Energy Information Administration. Yet Venezuelan President Nicolas Maduro remains in power.

Sanctions, analysts believe, may have run their course and the Trump administration may have limited options.

“There isn’t much more room for the administration to ratchet up sanctions against Venezuela, and increased sanctions would anyway be unlikely to spark Maduro’s fall,” said Lisa Viscidi, director of the Inter-American Dialogue’s energy, climate change and extractive industries program.

Analysts believe the next steps may include: new sanctions, targeting specific entities and individuals; an end of sanctions waivers; and legislation by the US Congress.

Secondary sanctions on the table

Analysts have long said the most significant action would be the imposition of secondary sanctions, with the US prohibiting all petroleum trade with PDVSA, Venezuela’s state-owned oil company, modeled after secondary sanctions the US has imposed on Iranian crude oil exports.

Secondary sanctions are “on the table,” Viscidi said.

Similarly, the US could directly sanction Rosneft, the Russian oil company currently facilitating the bulk of Venezuela’s petroleum exports.

Back in August, a senior Trump administration official told S&P Global Platts that the US was prepared to sanction Rosneft if it continued to trade crude oil and fuel with PDVSA.

But analysts believe the administration has been hesitant to impose sanctions on Rosneft, in addition to imposing broader secondary sanctions, because of the impact such a move may have on the larger global market.

“Of course the Trump administration has the option to apply secondary sanctions and target Rosneft, but it has proven to be very sensitive to the global repercussions that could entail,” said David Voght, managing director of IPD Latin America. “Rosneft is clearly bolstering Venezuelan exports, and consequently supporting production, but the company claims that it is doing so within the structure of US sanctions.”

Abrams with State told reporters that roughly 70% of current Venezuelan oil trade is currently handled by Russian companies, including marketing, financing and facilitating ship-to-ship transfers of oil in order to complicate surveillance.

Viscidi said with administration efforts failing to oust Maduro from office, the US Congress is likely to get more involved. One effort may be the Venezuelan Contracting Restriction Act (S. 1151) which was introduced by Senator Rick Scott, a Florida Republican, in April.

The bill would prohibit companies operating in Venezuela from contracting with the US government, forcing international oil companies operating in Venezuela to choose between Venezuela and access to the US market. Viscidi said she expects the bill will resurface sometime in 2020.