Venezuela’s Oil Output Stutters as ‘Irrational’ US Sanctions ‘Imbalance’ Global Market

Caracas, October 13, 2022 (venezuelanalysis.com) – Venezuela’s oil production continues to stagnate amidst a struggling global market affected by Washington’s sanctions and its energy war against Russia.

According to secondary sources from the latest Organization of Petroleum Exporting Countries (OPEC) report, Venezuela registered 659,000 barrels per day (bpd) in September, below the 678,000 bpd pumped in August. For its part, Venezuelan state oil company PDVSA reported 666,000 bpd, slightly less than the previous month’s 723,000 bpd.

While the Caribbean country’s oil industry has undergone a modest recovery tapping around 700,000 bpd this year, production remains largely hindered by ongoing US sanctions.

As part of efforts to oust the Nicolás Maduro government, the former Trump administration imposed crippling financial sanctions against PDVSA in 2017 followed by a full-fledged oil embargo in 2019 as well as secondary sanctions and other measures in 2020. Washington’s economic aggression has cut Caracas off from international markets.

As a result, Venezuela’s oil output fell from around 1.9 million bpd before the first sanctions were imposed to below 350,000 bpd in the second half of 2020. The South American nation has been nearly starved of foreign income.

The slight upward trend in crude output seen over the past two years has been the result of Caracas’ reinforced alliances with China, Russia, and Iran allowing for some reparation works in oil facilities as well as alternate export routes to Asia. Tehran, in particular, has been essential to boost PDVSA’s operations in the country’s main oil-producing region, the eastern Orinoco Oil Belt.

According to Reuters, the Venezuelan company has received over 24 million barrels of Iranian condensate and crude this year while providing 21 million barrels of heavy crude and fuel oil in exchange under a swap agreement.

September’s oil exports were the third-highest level this year, with around 710,033 bpd of crude and fuel and 544,000 metric tonnes of byproducts sent mainly to China, reported Refinitiv Eikon.

Additionally, Venezuela’s exports will soon receive another push with the country shipping some 23,000 barrels of diesel to Saint Vincent and the Grenadines by the end of the month, the nation’s prime minister Ralph Gonsalves announced on Friday.

Speaking to reporters, Gonsalves said he was in talks with Caracas to work out plans for future deliveries, including urea fertilizer and asphalt, as well as the resumption of the PetroCaribe agreement. According to the Vicentian prime minister, the Maduro government will halve existing debts from participating nations while the revamped program will see fuel costs decrease in the region.

PetroCaribe was launched by former Venezuelan president Hugo Chávez in 2005 to supply oil and refined products to 18 Caribbean and Central American countries under long-term and low-interest payment plans or in exchange for goods and services.

It allowed PetroCaribe countries to break dependence on expensive US oil suppliers and fund social and economic development programs. However, in June 2018, PetroCaribe was temporarily suspended after Venezuela’s oil output fell under the weight of US sanctions. The Venezuelan government has pledged to relaunch the program as soon as production recovers.

On July 3-4, the Caribbean Community (CARICOM) issued a statement urging “for the removal of sanctions on Venezuela to allow for countries to benefit from the PetroCaribe initiative.” The Caribbean nations emphasized the importance of the Venezuelan energy sector to the infrastructural needs of the region.

Nonetheless, Washington’s sanctions have remained firmly in place with operational disruptions holding back PDVSA’s recovery, including two fires in oil-producing Anzoátegui state in September.

Recently, Venezuelan Oil Minister Tareck El Aissami condemned the Biden administration’s “irrational” and “senseless” continuation of the Trump sanctions program against Caracas and other oil-producing countries.

“The imposition of sanctions, blockades, and aggressions by the West [the US and its allies] against main oil-producing countries are part of the senseless and irrational measures that have caused an imbalance in energy markets,” stated El Aissami during the OPEC+ countries 33rd meeting last week in Vienna, Austria.

The Venezuelan official went on to praise OPEC’s “transcendental” decision to slash production by 2 million barrels beginning in November to shore up prices. “Stabilizing the energy market is essential to ensure a reliable supply for all countries.”

The production cuts have raised fears of higher fuel prices in the US, which would hurt Democrat prospects in November’s midterm elections as well as the energy war against Russia. Washington had extensively lobbied its Middle Eastern allies not to reduce their output.

The market instability in turn has led to renewed discussions within the White House around easing sanctions against Venezuela.

On October 5, the Wall Street Journal (WSJ) reported that Washington was considering to finally allow US oil corporation Chevron to resume drilling and selling crude from its joint ventures in Venezuela, following months of lobbying efforts.

Biden has kept a near-total ban on Chevron’s operations in Venezuela inherited from the Trump administration’s “maximum pressure” program, which permits the California-based company to conduct only basic maintenance work at its four Venezuelan oil joint ventures, that have a total capacity of 200,000 bpd. Kickstarting its oil projects would additionally allow the firm to use sales to offset some $3 billion owed by PDVSA.

Chevron’s return to Venezuela could likewise help calm a volatile global energy market and alleviate European fears of a widespread recession.

However, in a recent address to the press, the US president clarified that resuming oil exports from Venezuela was only one of several options. “There’s a lot of alternatives. We haven’t made up our mind yet,” he told reporters after calling the OPEC+ decision a “disappointment.” Washington has demanded that the Maduro government re-engages in talks with the opposition as a precondition for any changes to its sanctions policy.

While Chevron maintained a minimal presence, other foreign corporations were forced to abandon operations in Venezuela due to US sanctions and overt threats. This has led Venezuelan state company PDVSA to take control of some key assets to ramp up crude production.

According to Bloomberg, PDVSA recently bought the remaining 40 percent stake of joint oil venture Petrozamora from its partner GPB Global Resources, an Amsterdam-based energy firm that is also under US sanctions.

GPB had previously acquired the stake in Petrozamora from Russia’s Gazprombank in 2019. The oil facility, located in the western state of Zulia, used to produce around 120,000 barrels a day before US sanctions impeded the international company from finding buyers. It is currently some 28,000 bpd.

PDVSA is reportedly aiming to increase Petrozamora’s output to supply the 955,000 bpd-capacity Paraguaná Refining Complex (CRP), the country’s main fuel production hub.

Edited by Ricardo Vaz in Caracas.