(Reuters) – The United States imposed heavy sanctions on Venezuela’s oil industry on Monday, looking to cut off President Nicolas Maduro’s primary source of revenue.

FILE PHOTO – A general view of the headquarters of the Venezuelan oil company PDVSA in Caracas, Venezuela January 28, 2019. REUTERS/Carlos Garcia Rawlins

The sanctions limit transactions between U.S. companies that do business with Venezuela through purchases of crude oil and sales of refined products. However, there are currently numerous unanswered questions about the sanctions.


The United States is aiming to freeze sale proceeds from Venezuelan state-run oil firm PDVSA’s exports of roughly 500,000 barrels per day (bpd) of crude to the United States. There is also a prohibition on U.S firms exporting diluents – unfinished oils used for blending extra heavy crude – to Venezuela.


Venezuela exports oil primarily to the United States, India, and China, as well as some other nations. Only the United States and India are notable sources of cash, as Russian and Chinese firms currently get shipments of crude through complicated oil-for-loan agreements due to Venezuela’s heavy liabilities with those countries.


The U.S. Treasury Department’s sanctions do not entirely cut off purchases of Venezuelan oil by U.S. refineries. However, they stipulate that refiners cannot make payments directly to PDVSA, but into escrow accounts that PDVSA will not be able to access until the company is controlled by a new government.


Maduro and Manuel Quevedo, who is both oil minister and head of PDVSA, have said that they will not allow vessels loaded with crude oil for the United States to leave the country’s ports without being prepaid. PDVSA on Tuesday said it was considering declaring force majeure on cargoes bound for the United States.


For now, companies can do business but with restrictions. Refineries that import from Venezuela can continue to receive shipments for the next few months before they are forced to shift their supply sources elsewhere. However, since payments cannot be made to PDVSA, this is expected to restrict the flow of crude oil from Venezuela to the United States.

The sanctions did not directly mention swaps and indirect trade with PDVSA that began in recent years with customers including PDVSA’s U.S. unit Citgo Petroleum, India’s Reliance and Russia’s Rosneft.


Chevron Corp, Halliburton, Schlumberger, Baker Hughes and Weatherford International all have operations in Venezuela, and are allowed to continue to engage in transactions and activities with PDVSA and its joint ventures through July 27. Venezuela’s production could fall further later this year if the service companies, which have already reduced operations, finally leave the country.

Chevron has four joint-venture operations in the country, and said it would not comment on the current situation in Venezuela. ConocoPhillips and Exxon Mobil both left Venezuela years ago after late President Hugo Chavez nationalized the oil industry.


Norway’s Equinor has a 9.7 percent stake in a heavy oil project in Venezuela’s Orinoco Belt area, which is majority owned by PDVSA. The company also has a 51 percent stake in a Plataforma Deltana block off eastern Venezuela, and it has 25 employees in Venezuela. “We are just following the situation and making sure that we safeguard our employees,” Equinor’s spokesman said about the political developments and impact on the company’s operations.

Russia’s state-owned oil giant Rosneft and China’s CNPC each hold substantial interests in several oilfields in Venezuela, which dwarf those of any other country. Spain’s Repsol, France’s Total, Italy’s Eni, Japan’s Inpex and India’s ONGC Videsh also own minority oilfield stakes.

Russia’s Lukoil was part of a Russian consortium to develop production in Venezuela but quit several years ago and has since then sharply reduced its presence in the country.


Citgo Petroleum is a wholly-owned subsidiary of PDVSA and operates refining capacity to process about 750,000 bpd. It also distributes fuel to gasoline stations throughout the United States, accounting for about 4 percent of the nation’s retail fuel market.

The United States has exempted Citgo from its sanctions until July 27. However, previous sanctions have already prevented Citgo from sending PDVSA its profits, which had been paid to the parent in the form of dividends.

As of September, the company had about $500 million in cash and a credit line of approximately $900 million, according to a creditor familiar with the company’s financial statements. Citgo is able to keep importing crude oil from PDVSA for three more months, according to the sanctions.


The sanctions expressly prohibit sales of diluents (heavy naphtha) to PDVSA, which are used for making the country’s extra heavy crude oil ready for export.


The OPEC member’s oil production has dwindled in the last two decades, from more than 3 million bpd at the beginning of the century to between 1.2 million and 1.4 million bpd by late 2018. Most of the crude it produces now is heavy or extra heavy.


Venezuela and PDVSA are estimated to owe more than $100 billion to bondholders, suppliers, allied governments, lenders and creditors holding judgments. Some creditors have gone to U.S. courts to try to seize Citgo to satisfy their legal claims.

Reporting By David Gaffen, Luc Cohen, Marianna Parraga, Jessica Resnick-Ault, Dmitry Zhdannikov, and Tom Hals; editing by Diane Craft and Rosalba O’Brien


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