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Maduro illegitimacy declaration sparks confusion in US oil sector

Highlights

Trump administration seeks to strip Maduro of oil revenues

Questions surround commercial transactions with Venezuela

Treasury guidance could follow sanctions

Washington — The US designation of Juan Guaido as Venezuela's legitimate president has created confusion among refiners, producers, services companies and traders now unsure of the legality of future commercial transactions with state-owned PDVSA, sources told S&P Global Platts Thursday.

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"Literally every company is asking the same question: What does this mean?" one US refining industry lobbyist said Thursday. "Is Maduro PDVSA? No one knows. There's just no specificity."

The US on Wednesday declared the presidency of Nicolas Maduro illegitimate, and recognized Guaido, the head of Venezuela's National Assembly, as the country's legitimate president. Other countries, including Canada, followed the US with similar declarations.

Trump administration officials and supporters of the move said it was aimed at cutting off the Maduro regime from oil revenues.

What "we're trying to do today is look at the issues involved in disconnecting the illegitimate Maduro regime from its sources of revenues and finding ways to transfer those revenues to the new, legitimate government" of Guaido, John Bolton, President Trump's national security adviser, said in an interview with Fox Business Network on Thursday morning.

The "natural resources of Venezuela belong to the people of Venezuela not the dictator Maduro," Senator Marco Rubio, Republican-Florida, tweeted Thursday. "Valero & Chevron should work with President Guaido to make sure payment for oil [reaches] people not Maduro regime."

But sources said the Trump administration has offered no guidance on legal obligations in commercial dealings with Venezuela going forward, complicating crude and refined product trading, joint ventures with PDVSA and investments in the South American country's oil sector.

"Unless there's some kind of formal sanction, I don't think it creates legal trouble," said Joe McMonigle, an analyst with Hedgeye Risk Management. "But, it could present other exposure and risk that private companies just don't want to take."

Elizabeth Rosenberg, director of the energy program at the Center for a New American Security and a former senior sanctions adviser at the Department of the Treasury, said Treasury may issue formal guidance on sanctions compliance obligations related to Guaido's designation. But, Rosenberg said, Treasury is unlikely to issue such guidance if it may be quickly overtaken by potential new sanctions, despite a push from US business interests for additional clarity.

"Treasury is very careful and they're not going to move before they know what is going on, even if they understand there's a screaming urgency from the financial services and energy community to tell them what is going on," she said.

"If they're waiting in the wings with a sanctions action, they're not going to show their cards right now," one source said Thursday.

A Treasury spokesman did not respond to a request for comment.

Maduro's illegitimate status in the US could be particularly problematic for the roughly 500,000 b/d of crude imported by US refineries owned by Chevron, Valero, PBF Energy and Citgo, which is owned by PDVSA. It is also unclear how Chevron's oil production operations in Venezuela may be impacted, sources said.

"Chevron has no comment on the current situation in Venezuela," Isabel Ordonez, a Chevron spokeswoman, said in a statement. "Chevron operations in Venezuela continue and the company is committed to the country's energy development in compliance with all applicable laws and regulations."

Spokesmen for Valero, PBF and Citgo did not respond to requests for comment.

Several sources said this week they expect the Trump administration is awaiting a response from Maduro, such as additional violence in response to protests or the arrest of Guaido, before sanctions are triggered.

It remains unclear what sanctions the administration may impose, but White House officials have said that all options are being considered, including a ban on US imports of Venezuelan crude.

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com