Washington — Citgo is formally cutting ties with its parent company PDVSA, in order to avoid the impact of US sanctions on the Venezuelan state-owned oil company and keep Citgo's refineries and pipeline systems in operation, sources said Tuesday.
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"What we want is to lift sanctions on CITGO," according to a source close to Venezuelan opposition leader Juan Guaido, who the US and other nations recognize as Venezuela's legitimate president.
A US-based source said Citgo expects to receive a general license, or waiver, from US Treasury as soon as this week, which would prevent the US refiner from being ensnared in US sanctions on PDVSA and the regime of Venezuelan President Nicolas Maduro.
Under the plan, which one source said began over a week ago, Citgo will not buy nor send refined products to PDVSA, will separate the Citgo brand from PDVSA and will unlink Citgo from the Maduro government.
The separation is necessary in order for Citgo to continue to receive letters of credit from banks, a US-based source said.
A Citgo spokesman did not respond to a request for comment Tuesday.
On Friday, Citgo formally confirmed its new board of directors, including Luisa Palacios, an expert in emerging Latin American markets and international affairs, who will serve as Citgo's chairwoman.
On January 28, Treasury unveiled sweeping sanctions on PDVSA, setting an immediate ban on US exports of diluent to Venezuela and requiring payments made to PDVSA to be through blocked accounts, setting up a de facto ban on US imports of Venezuela crude.
The sanctions allowed Citgo's US assets, which include refineries in Louisiana, Texas and Illinois and three pipeline systems, to continue operation, at least until April 28, although revenues would be required to be held in blocked accounts in the US.
"Our goal is to ensure that Citgo remains viable," a Trump administration official said last month. "But, to make sure that Maduro and his cronies are no longer able to loot Citgo in the way that they've been looting it for years."
On February 1, Treasury announced that transactions between non-US firms and PDVSA which involve the US financial system or US commodity brokers would be prohibited after April 28.
The sanctions will leave 370,000 b/d of PDVSA's March crude exports originally bound for the US, including 249,000 b/d of Merey 16 crude and 13,000 b/d of Pedernales crude bound for Citgo, without a destination, according to a technical report seen by S&P Global Platts.
Platts Analytics forecasts that US sanctions will cause Venezuelan crude output, which averaged about 1.2 million b/d in January, to fall to 900,000 b/d in February and then to 950,000 b/d in March.
"Given a mixed history of sanctions leading to regime change, a near-term transition is far from assured," Platts Analytics said in a note last week.
Platts Analytics forecasts Venezuelan output to fall to 825,000 b/d in Q4 of this year, about 340,000 b/d lower than last month's forecast, and then to fall to an average of 750,000 b/d in 2020.
On Monday, US Vice President Mike Pence said the US is set to impose "even stronger sanctions" on Maduro's financial networks.
Sources speculated Tuesday that the Trump administration may accelerate some deadlines for sanctions compliance, including putting an embargo on Venezuelan crude imports into place immediately.
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