How Venezuela's Election Unrest Will Impact Global Oil Markets
Venezuelan President Nicolás Maduro has been declared the winner of a controversial presidential election, sparking widespread protests and international condemnation.
Despite the re-election of Maduro, the United States has maintained sanctions on Venezuela's state-owned oil company, PDVSA, with limited exceptions for certain transactions.
Venezuela's oil industry continues to face significant challenges, including underinvestment, mismanagement, and a lack of skilled workers, hindering the country's economic recovery.
Last week, Venezuela’s sitting President Nicolás Maduro was declared the winner of the country’s presidential vote, plunging the country into widespread protests amid glaring election irregularities. The 61-year-old Maduro beat the elderly opposition candidate, 74-year-old Mr González Urrutia, despite exit polls showing the latter garnering 65% of the vote. The relatively unknown González was selected as a last-minute stand-in for opposition powerhouse Maria Corina Machado, who was blocked by the Maduro-controlled Supreme Tribunal of Justice from running for any office for 15 years. The charismatic 56-year-old former lawmaker swept the opposition’s October primary with more than 90% of the Unitary Platform, a coalition of Venezuela’s main opposition parties. Machado initially picked a college professor as her substitute on the ballot, but her choice was rejected after the ruling party-loyal National Electoral Council also barred her from registering.
Not surprisingly, the opposition has claimed fraud, with the U.S. and EU foreign policy chiefs and various regional neighbors expressing disapproval. As you might expect, Mr Maduro’s authoritarian allies in Russia, China, Iran, and Cuba have wasted no time congratulating him.
That said, Maduro’s latest power grab is unlikely to affect global Oil & Gas markets in any material way. Last month, The United States Office of Foreign Assets Control (OFAC) eased some sanctions on Venezuela but retained sanctions on Venezuela’s state-owned oil company, PDVSA. OFAC issued a new license allowing certain transactions related to the export or re-export of liquefied petroleum gas (LPG) to Venezuela until July 8, 2025. However, transactions with Petróleos de Venezuela, S.A., the Venezuelan state-owned oil and natural gas company in which PdVSA has a 50 percent or greater interest, remain prohibited under the sanctions imposed by various executive orders. The previous general license permitted transactions related to oil or gas sector operations in Venezuela but expired on April 18. The United States holds that Venezuela President Nicolas Maduro and his representatives have failed to fully meet the obligations outlined in the electoral roadmap signed with the opposition in Barbados in October 2023.
The United States is now considering fresh sanctions on Venezuela following Sunday's disputed presidential election. However, U.S. officials are not currently considering any changes to Chevron Corp.’s (NYSE:CVX) license or to other individual authorizations. Chevron's license has become a flagship mechanism to recover debt by exporting Venezuelan crude, a model that is copied by other companies with operations in the country. Chevron has ramped up deliveries of Venezuelan crude to the United States since early 2023; however, its ~200,000 bpd of heavy crude arriving into the U.S. represents less than 1% of the more than 20 million barrels of crude processed by U.S. refineries every day. According to Reuters, widespread post-election protests have so far not affected Venezuela’s oil flows. Previously, PdVSA instructed joint ventures and its own operational areas to work with reduced staff and an increased level of security due to the electoral process, which typically requires the mobilization of the military. However, the company has relaxed the order in recent days, with most PdVSA executives and staff working normal shifts. According to Reuters, Venezuela’s crude production averaged 922,000 barrels per day in June.
Venezuela's crude oil production averaged 884,000 barrels per day (bpd) in the current year, good for a 15%Y/Y increase above the same period of 2023. However, current production remains well below the 3.2 million bpd peak in 1997 before late President Hugo Chavez took office. Venezuela has lost about two-thirds of its crude production capacity over the past decade thanks to a lack of investment, exodus of skilled workers, mismanagement and corruption at PdVSA. The same problems have plagued the country's gas industry, which remains severely underdeveloped. After peaking at 1.12 trillion cubic feet (Tcf) in 2001, Venezuela's natural gas production halved to 563 billion cubic feet (Bcf). The country's gas output - which is now half of what it was in 2016 - is not enough to meet domestic demand despite Venezuela having the largest reserves in Latin America. Venezuela’s gas producers have now restored to flaring, or burning off, a large portion of production. Venezuela has 196 trillion cubic feet in proved reserves compared to 432 trillion cubic feet by the United States, despite the Latin American country having less than a tenth of the population of its much larger counterpart.
The National News
It’s hard to see a meaningful revival of Venezuela’s energy industry under another Maduro government. Falling oil production has had a severely adverse effect on the economy with GDP currently a third of what it was a decade ago. As Robin M Mills, chief executive of Qamar Energy, and author of The Myth of the Oil Crisis, has observed, we are more likely to see ‘‘…the combination of repression, continuing backing from the military and remaining loyal “Chavistas”, some Russian assistance, a tepid response from leftist Latin American democracies, and distribution of dwindling petrodollars, keeps Mr Maduro in power. Blaming sanctions and Washington’s meddling provides easy excuses for the country’s dysfunction.’’
By Alex Kimani for Oilprice.com
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