(Argus, 25.Jul.2019) — A US government decision over Chevron’s expiring license to work in Venezuela is the first test of its willingness to ease sanctions that have so far failed to bring about regime change.
Under oil sanctions imposed on 28 January, the US Treasury gave Chevron and a clutch of oil services companies until 27 July to continue operating in Venezuela. At the time, Venezuela’s opposition and its White House backers conveyed confidence that President Nicolas Maduro would quickly fall.
Six months later, Maduro is still in place, and Chevron, Venezuelan state-owned PdV’s most consequential foreign partner in its deteriorated oil industry, might be forced to withdraw.
The White House appears to be divided over whether to maintain the sanctions deadline, issue a new license or implement a compromise 90-day extension for the US major.
Last month the US extended a sanctions exemption for Swedish niche refiner Nynas, a 50:50 joint venture between Finland’s Neste Oil and PdV. Like Chevron, its exemption was due to expire on 27 July, but will now run until 25 October.
But the imminent call on Chevron has higher stakes for Washington. Allowing the company to stay might convey weakness, while forcing it to leave could fuel perceptions that sanctions are aggravating Venezuela’s crisis by further crippling the oil industry.
The US added more Venezuelans to the targeted sanctions list today, which could be seen as a way to look tough ahead of clearing Chevron to stay in the country.
PdV officials say privately that Chevron’s withdrawal would deal a heavy blow to the industry, which is already producing only 750,000 b/d — half the volume of a year ago. Maduro has threatened to expropriate Chevron’s assets if it leaves, offering them to China and Russia instead, but the PdV officials say Chevron’s expertise would not be easily replaced.
Opposition leader Juan Guaido, who is widely recognized by western countries as Venezuela’s interim president, issued a symbolic decree this week meant to guarantee that Chevron’s assets would not be expropriated if it has to go. But he has no power to enforce it. Officials close to him say Chevron would play an indispensable role in Venezuela’s reconstruction by rapidly rebuilding its strategic industry.
Chevron said it is “hopeful” that its license will be renewed, in order to continue its “constructive presence” in Venezuela. “Chevron’s legacy in Venezuela dates back to the 1920s. We hope to continue our long history in the country.”
The Chevron decision could color Washington’s approach toward other sanctions restrictions. According to opposition officials and financial sector executives, the Guaido team is seeking US Treasury clearance to negotiate with bondholders to delay paying $842mn in principal on a PdV 2020 bond that is backed by shares in PdV’s US refining subsidiary Citgo. The principal and $72mn in interest are due in October.
The opposition already made a $72mn interest payment on the bond in May, using PdV funds in the US that Washington freed up for this purpose, after the sanctions jeopardized Venezuelan state control over Citgo. The PdV 2020 bond was the only debt that the Maduro government had been steadily honoring until the opposition stepped in last May.
The controversial May payment set a precedent for the far more substantial October obligation that the Guaido-led opposition, which has no revenue of its own, will now try to postpone by negotiating to pay the interest now, but not the principal. The bondholders have signaled a willingness to proceed, but the approach requires permission from the Treasury Department, which has so far given a cold shoulder to the Wall Street creditors.
A more contentious potential break with the sanctions regime is a proposed oil-for-aid program that would allow limited oil sales — including to the US that is now off limits — in exchange for controlled aid purchases. The mechanism would effectively require the government and opposition to recognize each other and work together to implement it.
Vocal advocate Francisco Rodriguez, chief economist of New York-based Torino Capital, told Argus that a controlled oil sales mechanism would prevent a looming humanitarian catastrophe. He proposes a system with safeguards and oversight by Venezuela’s opposition-controlled National Assembly and international groups to prevent the corruption that undermined Iraq’s oil-for-food program almost two decades ago.
Potential corruption is not a reason to dismiss the idea, Rodriguez argues. “Opposing this is like saying Latin America should not build any more infrastructure because of Odebrecht,” he said, alluding to the region-wide corruption scandal led by the Brazilian engineering firm. Venezuela’s imminent catastrophe should be enough to bring both sides together, he said. “Venezuelans should not be held hostage to the political conflict.”
Rodriguez’s critics say the idea pins the blame on sanctions for a crisis that began long before they were imposed, and would give oxygen to Maduro. They cite Rodriguez’s association with former presidential hopeful and Lara state governor Henri Falcon, a Venezuelan politician who is distrusted by Guaido’s circle for what is seen as an accommodating approach toward Maduro.
Rodriguez confirmed that two opposition parties, including Falcon’s Avanzada Progresista, support his proposal. Neither of the groups are part of Venezuela’s mainstream opposition coalition.
Prominent detractors include Harvard professor Ricardo Hausmann, Venezuela’s former planning minister and currently Guaido’s representative to the Inter-American Development Bank.
“If you want to avoid more deaths in Venezuela, propose ways to remove Maduro, not ways to tighten his power or excuse his disaster,” Hausmann said on Twitter in response to Rodriguez.
But the oil-for-aid idea appears to be gaining some traction as the conflict drags on. The political cooperation that would be required to implement an oil-for-food mechanism might sow the seeds of a national unity government that would break the current impasse, a former senior US government official tells Argus.
On 23 July, Rodriguez presented his proposal before a US congressional committee on economic sanctions and human rights in Venezuela.