Rosneft Dodges US Sanctions by Transferring Venezuela Operations to Russian State Firm
Moscow insists that its support for the Venezuelan government and role in its oil industry will remain unchanged.
Mérida, March 30, 2020 (venezuelanalysis.com) – Moscow-based energy giant Rosneft has sold its entire Venezuelan portfolio to an unnamed firm owned by the Russian state.
As part of the deal, the company will liquidate its shares in the Venezuela-based PetroMonagas, PetroPerija, Boqueron, PetroMiranda and PetroVictoria extraction and processing projects. It will also sell all oil-related services and trading units it possesses in the country.
Speaking to reporters Saturday, Rosneft spokesperson Mikhail Leontyev said that the surprise “manoeuvre” looks to “protect shareholders’ interests.” Apart from the Kremlin’s majority stake, British Petroleum and Qatar’s QH Oil Investments both own significant shares in Rosneft.
Following the announcement, Russian Ambassador to Venezuela Sergey Melik-Magdasarov was quick to quell fears of a rift between both nations.
“Don’t worry! This is about Rosneft’s assets being transferred to Russia’s government directly. We keep moving forward together!” the diplomat wrote on Twitter.
Two Rosneft subsidiaries, TNK Trading International and Rosneft Trading, were both hit by US secondary sanctions in February and March under the legal framework established by Washington’swide-reaching embargo of August 2019. Following the sale of its Venezuelan portfolio, Rosneft representatives called on US authorities to “fulfil their promises” and lift the sanctions against both firms.
While the US has so far refrained from targeting the subsidiaries’ parent company, Rosneft PJSC, which accounts for 5 percent of global oil production, analysts have pointed out that its substantial exposure in the western financial system makes it vulnerable to the measures.
Speaking to Bloomberg, former Russian diplomat and foreign policy analyst Vladimir Frolov explained that the surprise sale of Rosneft’s operations does not equate to “Russia walking away from [Venezuelan President Nicolas] Maduro” but rather a “shielding” of the firm from “a blanket embargo on all Rosneft exports.”
Analysts have also drawn parallels with Russia’s strategy of protecting state-run banks Sberbank and VTB in 2018 after US sanctions were announced against the country’s defence industry. At the time, Moscow passed the industry’s accounts to the newly constituted Promsvzyabank, which had no exposure to US financial markets.
The Kremlin has been one of the strongest critics of the US’ sanctions regime, with government spokespersons once again taking aim at Washington on Friday, describing the measures as “an instrument of genocide.” In the context of the COVID-19 pandemic, a range of multilateral organisations have added their voices to the chorus criticising US unilateral coercive measures, which they argue severely compromise the Venezuelan state’s capacity to respond to the health crisis.
Sanctions, as well as brain drain, lack of investment and mismanagement, have contributed to a collapse in Venezuela’s oil output, which has plummeted from 1.911 million barrels per day (bpd) in 2017 and stabilised currently around 750,000 bpd. Oil revenue represents approximately 95 percent of Venezuela’s hard currency earnings, on which it depends for vital imports of food, medicine and inputs.
In 2019, threats of sanctions warded off a number of the commercial partners of Venezuela’s state-run oil firm PDVSA, producing bottlenecks at local storage facilities and restrictions on foreign-based refineries. Last month, PDVSA was also kicked out of the La Isla refinery in Curacao after the country ended a 34-year lease deal.
Rosneft had reportedly been carrying as much as 60 percent of Venezuela’s oil output before rerouting it to other destinations, with plans to expand in 2020.
Likewise, the oil giant operated multi-million dollar oil-for-debt payment programs with PDVSA, which reduced the Venezuelan firm’s debt levels from US $4.6 billion at the end of 2017 to a reported US $800 million in September 2019. At the time of writing, it is unclear whether these programs will continue after the sale.
Rosneft has also been the principal supplier of gasoline to the Caribbean nation as PDVSA struggles to meet national demand. Venezuela is increasingly dependent on importing fuel to alleviate worsening fuel shortages caused by lower domestic refining capacity and sanctions prohibiting the purchase of gasoline and diluents produced in the United States and elsewhere.
Edited by Lucas Koerner from Santiago de Chile.