US weighs sanc­tions to hit Venezuela's oil rev­enue

Move could re­strict the OPEC na­tion's crude ex­ports

Kuwait Times - - BUSINESS -

HOUS­TON/WASH­ING­TON: The United States is con­sid­er­ing fi­nan­cial sanc­tions on Venezuela that would halt dol­lar pay­ments for the coun­try's oil, ac­cord­ing to a se­nior White House of­fi­cial and an ad­viser with di­rect knowl­edge of the dis­cus­sions. The move could se­verely re­strict the OPEC na­tion's crude ex­ports and starve its so­cial­ist gov­ern­ment of hard cur­rency. Sanc­tions pro­hibit­ing any trans­ac­tion in US cur­rency by Venezuela's state-run oil firm, PDVSA, are among the tough­est of var­i­ous oil-re­lated mea­sures un­der dis­cus­sion at the White House, the two sources told Reuters.

The ad­min­is­tra­tion aims to pres­sure so­cial­ist Pres­i­dent Ni­co­las Maduro into abort­ing plans for a con­tro­ver­sial new congress that crit­ics say would ce­ment him as a dic­ta­tor. Venezuela's oil-based econ­omy is in the grip of a bru­tal re­ces­sion and a lo­cal cur­rency crash, and Maduro has faced months of anti-gov­ern­ment un­rest that has claimed the lives of about 100 peo­ple. Sanc­tions on dol­lar trans­ac­tions would make it even harder for Maduro's gov­ern­ment to se­cure cash for debt pay­ments and fi­nance im­ports of ba­sic goods.

The White House de­clined to com­ment on the sanc­tions un­der con­sid­er­a­tion. PDVSA and Venezuela's Oil Min­istry did not im­me­di­ately re­spond to re­quests for com­ment. The US mea­sures un­der dis­cus­sion are sim­i­lar to those that were im­posed against Iran over its nu­clear pro­gram - which halved Iran's oil ex­ports and pre­vented top crude buy­ers from pay­ing for Ira­nian oil.

The mea­sures were seen as among the most ef­fec­tive eco­nomic sanc­tions ever im­posed and paved the way for a deal that curbed Tehran's nu­clear ac­tiv­ity. Mea­sures on fi­nan­cial trans­ac­tions would give Pres­i­dent Donald Trump's ad­min­is­tra­tion the power to es­ca­late pres­sure on Venezuela by threat­en­ing pun­ish­ment of any US firm do­ing busi­ness with PDVSA or US banks pro­cess­ing any of its trans­ac­tions in dol­lars.

The fi­nan­cial re­stric­tions have been "raised re­peat­edly" in re­cent dis­cus­sions about op­tions for ac­tions against Maduro's gov­ern­ment, said the se­nior White House of­fi­cial, who spoke on con­di­tion of anonymity.

The ad­min­is­tra­tion is also dis­cussing a ban on US oil im­ports from Venezuela, but no fi­nal de­ci­sions have been reached, the of­fi­cial said. Sanc­tions on dol­lar trans­ac­tions could be more puni­tive than an im­port ban be­cause they would make it much more dif­fi­cult for any re­finer or trader to buy Venezue­lan oil - not just cus­tomers in the United States.

The im­pact of sanc­tions on PDVSA would rip­ple across oil mar­kets, forc­ing re­fin­ers to buy al­ter­na­tive sup­plies. The US could use crude from its Strate­gic Petroleum Re­serve (SPR) to blunt the im­pact of any short-term sup­ply short­age, the pol­icy ad­viser told Reuters. The United States bought 780,000 bar­rels per day (bpd) of Venezue­lan crude and re­fined prod­ucts in the first four months of 2017, ac­cord­ing to the En­ergy In­for­ma­tion Ad­min­is­tra­tion, nearly 8 per­cent of to­tal im­ports. PDVSA is a ma­jor sup­plier to Valero En­ergy, Phillips 66, Chevron Corp and PBF En­ergy.

PDVSA's refin­ing unit in the United States, Citgo Petroleum, last month was the sec­ond largest re­cip­i­ent of Venezue­lan crude. It is un­clear how Citgo, be­ing wholly owned by Venezuela, would be im­pacted by US sanc­tions. Citgo op­er­ates three re­finer­ies, pipe­lines and a fuel dis­tri­bu­tion net­work in the United States. The threat of sanc­tions against Venezuela was a key rea­son for talks this week be­tween PDVSA and Ros­neft, Rus­sia's lead­ing state-owned oil firm, which is al­ready un­der US sanc­tions. The ne­go­ti­a­tions in Moscow, re­ported by Reuters ear­lier this week, fo­cused on a pro­posed swap of Ros­neft's col­lat­eral stake in Citgo for a host of other Venezue­lan oil as­sets - a move to avoid le­gal com­pli­ca­tions.

Barter deals

The White House said ear­lier this week that Trump's ad­min­is­tra­tion could take what it called "strong and swift eco­nomic ac­tions" against Venezuela as soon as July 30. Other op­tions un­der con­sid­er­a­tion by Wash­ing­ton in­clude putting more Venezue­lan of­fi­cials and PDVSA ex­ec­u­tives on its sanc­tions list, the two sources told Reuters.

Maduro in­tends to cre­ate a su­per­body called the con­stituent assem­bly this year that would have the power to re­write the coun­try's con­sti­tu­tion. It would su­per­sede other in­sti­tu­tions and re­place the demo­crat­i­cally elected Na­tional Assem­bly. Maduro has de­cried what he calls "im­pe­ri­al­ist med­dling" by US of­fi­cials.

Sev­eral gov­ern­ments in Latin Amer­ica also have called on Maduro to aban­don the assem­bly plan. But of­fi­cials in neigh­bor­ing coun­tries also ex­pressed con­cern that US eco­nomic sanc­tions would trig­ger famine in Venezuela, which is al­ready reel­ing from short­ages of food and medicine.

PDVSA's cash flow has plum­meted in re­cent years, in part due to the Venezue­lan gov­ern­ment's deals to barter its oil to other na­tions in ex­change for fu­els, ser­vices and loans.

Chi­nese and Rus­sian en­ti­ties cur­rently take about 40 per­cent of all PDVSA's ex­ports as re­pay­ment for more than $50 bil­lion in loans to Venezuela and its oil com­pany in the last decade, ac­cord­ing to a Reuters anal­y­sis of its sales. PDVSA also barters with Caribbean na­tions, In­dian re­finer Reliance and its unit Citgo. Al­most all of PDVSA's cash-pay­ing cus­tomers are in the United States and In­dia, and the pre­ferred cur­rency for oil trans­ac­tions world­wide is the US dol­lar.

PDVSA cur­rently col­lects most pay­ments from oil ex­ports us­ing China's Citic Bank, but cus­tomers mak­ing dol­lar trans­fers re­quire a cor­re­spon­dent bank in the United States to guar­an­tee the money ar­rives in China. The Venezue­lan oil firm has been strug­gling to find cor­re­spon­dent banks in the United States since Citibank a year ago sus­pended pro­vid­ing that ser­vice. It would have even fewer op­tions to col­lect dol­lars if the sanc­tions are levied.

The com­pany could seek pay­ment in euros through Euro­pean bank ac­counts, or use other non-dol­lar de­nom­i­nated trans­ac­tions. But the Euro­pean Union could also take sim­i­lar mea­sures to pre­vent trans­ac­tions in euros, fol­low­ing the lead of the United States.

US re­finer­ies

The crude im­port ban has been strongly op­posed by oil com­pa­nies and crude pro­ces­sors be­cause of the im­pact it could have on the refin­ing sec­tor, es­pe­cially on the US Gulf Coast. Ad­min­is­tra­tion of­fi­cials have heard from US re­fin­ers on the hard­ships an im­port ban could have on their busi­nesses and "are now mea­sur­ing its po­ten­tial im­pact on prices, mar­ket move­ment, in­ven­to­ries," the pol­icy ad­viser to the White House told Reuters. Phillips 66 - the third largest buyer of Venezue­lan crude in the United States this year said on Thurs­day that the ad­min­is­tra­tion should "care­fully con­sider" sanc­tions that would af­fect US re­fin­ers and not pre­vent the sale of Venezue­lan crude else­where. Valero did not re­spond to a re­quest for com­ment. Chevron de­clined to com­ment.

Chet Thompson, chief ex­ec­u­tive of trade group Amer­i­can Fuel & Petro­chem­i­cal Man­u­fac­tur­ers (AFPM), has been call­ing and writ­ing White House of­fi­cials, urg­ing they con­sider some­thing other than an Venezue­lan oil im­port ban.

Some re­finer­ies get up to half their sup­ply from Venezuela, he said in an in­ter­view Fri­day. "It's not eas­ily re­placed," he said, adding that the sanc­tions also may not have their in­tended ef­fect. "Venezuela," he said, "will just sell it to some­one else." — Reuters


CARACAS: Peo­ple cheer as the judges named by Venezuela's op­po­si­tion-con­trolled Na­tional Assem­bly for a par­al­lel supreme court, swear in dur­ing a cer­e­mony in Caracas on Fri­day.

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