US Secretary of State reassures lawmakers on process to market Venezuelan oil

US Secretary of State Marco Rubio on Jan. 28 reassured US lawmakers that the Trump administration's process to market Venezuela's oil is on track and is just one part of a broader framework to normalize oil sector operations in the country.

Venezuelan officials have pledged to use some of the funds from US-facilitated oil sales to buy products from the US, including diluent, Rubio said during a US Senate Foreign Relations Committee hearing. Venezuela used to get 100% of its diluent from Russia, and now they get 100% from the US, he said. "They prefer to have ours," he said. "Why? Number one, it's closer. Number two, it's higher quality."

The US has exported 853,000 barrels of naphtha to Venezuela so far in January, according to S&P Global Commodities at Sea data.

Senator Chris Murphy, a Democrat from Connecticut, raised concerns about the process the US used to select the two companies to sell Venezuelan oil and asked whether future marketers would be chosen through an open selection process.

Rubio said the selection of Vitol and Trafigura to market the oil was a short-term fix to prevent production shut-ins and to quickly raise revenue to prevent societal collapse. The permanent structure the US wants to see is a normal oil industry in which companies have licenses, pay royalties, and sell oil directly to the market without a middleman, he said.

Roughly 15.7 million barrels of Venezuelan crude have been exported so far in January, with 7.8 million barrels of that headed to the US, CAS data shows.

The US quarantine and seizure of sanctioned oil tankers near Venezuela has given the US leverage with the interim Venezuelan government, Rubio said. In fact, Venezuelan authorities are now identifying ships they want the US to seize, he said.

This is because some shadow fleet tankers were departing even outside the approval of the Venezuelan state-owned oil company PDVSA, Rubio said. After the US removed Venezuelan President Nicolas Maduro on Jan. 3, about five tankers left without authorization from the Venezuelans, he said.

With the cooperation of the interim authorities, the US seized one of those ships, brought it back into Venezuelan waters and handed the ship off to the Venezuelans, who, in turn, fed it into the mechanism the US is using to market Venezuelan oil, Rubio said.

"Our goal is to rope all of this illegal oil into a channel that goes into this account that ultimately goes to the benefit of the Venezuelan people," Rubio said.

Some proceeds in Qatar

US-authorized traders have already marketed $500 million worth of Venezuelan oil, Rubio said. The US dispersed $300 million of those proceeds to Venezuela and kept the remaining $200 million in an account in Qatar for future use, he said.

The US will conduct a retroactive audit of how the first $300 million was used, Rubio said. But there's another $2.5 billion to $3 billion that will go through a front-end audit process in which the US authorizes how the oil proceeds can be spent, he said.

The account in Qatar is a short-term mechanism that will be transitioned to a US Treasury-blocked account in the US, Rubio said. One of the reasons the administration decided to use an account in a third country is to avoid creditors picking it apart, he said.

Senator Brian Schatz, a Democrat from Hawaii, questioned whether the US has the authority to disperse Venezuelan oil funds from a Qatari account and asked Rubio to send the written deal with Venezuela to the committee for review.

"I think this is novel, I think it's funky, I think it may not even be permissible, but I don't know until I see the document," Schatz said.