The U.S. government announced on April 17 that it is reimposing oil sanctions on Venezuela after the country’s president Nicolás Maduro failed to uphold a deal that would allow for a free and fair presidential election.
The U.S. Department of the Treasury did not renew General License (GL) 44, which expired on April 18 and allowed transactions related to oil and gas operations in Venezuela despite U.S. sanctions. Instead, the Treasury issued a temporary license, GL 44A, which gives U.S. persons until May 31 to wind down transactions previously authorized by GL 44.
Entering into new business, including new investment, is prohibited during the 45-day wind-down period, unless a license is granted.
The reimposition of oil sanctions, which the U.S. threatened back in January as Kharon previously reported, came in response to Maduro preventing the opposition Unitary Platform’s presidential candidates, María Corina Machado and her successor Corina Yoris, from running for office. On April 19, a day after the reimposition of sanctions, the opposition announced little-known Edmundo González, who had been able to register with the electoral council by a March deadline, as their new candidate.
There have been speculations about whether the Biden administration would follow through on its threat, given concerns over Venezuelan migration to the U.S., oil prices, and market opportunities for U.S. adversaries.
Ultimately, the U.S. opted for the reimposition of oil sanctions while highlighting that it will consider requests for specific licenses that would allow companies to continue their business activities on a case-by-case basis. Unlike general licenses, specific licenses are not made public by the government.
The U.S., however, did not revoke other existing authorizations related to Venezuela’s oil and gas sector, including GL 8M and GL 41, allowing some oil firms to continue their business operations. U.S.-based Chevron, Italy’s Eni, and Spain’s Repsol are among the companies with licenses to continue business operations with Venezuela’s state-owned oil company, Petróleos de Venezuela (PDVSA). On May 3, the Treasury awarded a specific license to France’s Maurel & Prom to continue oil operations.
Days after the April 18 expiration of GL 44, a Canadian energy company created through a merger with a Texas-based company announced that it had signed a deal with PDVSA to develop five oil fields. According to the company, the agreement was signed on April 17, the day before the expiration of GL 44, and was thus in compliance with U.S. sanctions. However, to continue operations beyond May 31, the company will need to acquire a specific license.
According to FAQs issued on April 17 by the Treasury, the U.S. “will continue to assess sanctions policy towards Venezuela in light of actions taken by Maduro and his representatives as the country approaches the July 28 election,” indicating that democratic progress could continue to play a role in sanctions relief.
U.S. Assistant Secretary of State for Western Hemisphere Affairs Brian Nichols said in a recent interview that the acceptance of González, the opposition’s presidential candidate, by the electoral authorities is “a very important positive step” and that the U.S. remains “open to reciprocating to those positive steps going forward.”
Fears that the wind-down period would not be enough to complete business transactions led several oil tankers to pull out of Venezuela’s waters without loading cargo. Venezuela’s oil exports declined by 38 percent in April, to 545,000 barrels per day (bpd) of crude and fuel, compared to 873,500 bpd in March. This mainly affected shipments going to Asia, which declined by 64 percent. Meanwhile, exports to the U.S. increased by 34 percent.
The six months of sanctions relief under GL 44 had allowed Venezuela to increase its oil exports to pre-pandemic levels. The long term impact on the oil market remains to be seen and will depend on the issuance of licenses. Analysts expect that shipments to Asia, which account for the largest share of exports, will return to being sold at a discount via opaque intermediaries.
With the reimposition of sanctions, Venezuela is looking for other ways to make a profit from its oil sales. According to media reports, PDVSA is planning to increase its use of digital currencies, such as Tether, in its oil contracts as a means to bypass sanctions. In response to this reporting, Tether, a major stablecoin pegged to the U.S. dollar, said that it will block payments made to U.S.-sanctioned entities.
The U.S. has also kept in place licenses authorizing secondary trading of certain Venezuelan sovereign bonds and PDVSA debt and equity. However, for holders of Venezuelan government or PDVSA defaulted debt, the reimposition of sanctions on the oil company dampens hopes of a debt restructuring in the near term as the sanctions prevent the issuance of new debt.
It has been estimated that Venezuela might owe around $154 billion to creditors. Venezuela has recently hired a financial adviser to provide an overview of its foreign debt obligations, potentially preparing for debt restructuring.
The U.S. Department of the Treasury did not renew General License (GL) 44, which expired on April 18 and allowed transactions related to oil and gas operations in Venezuela despite U.S. sanctions. Instead, the Treasury issued a temporary license, GL 44A, which gives U.S. persons until May 31 to wind down transactions previously authorized by GL 44.
Entering into new business, including new investment, is prohibited during the 45-day wind-down period, unless a license is granted.
The reimposition of oil sanctions, which the U.S. threatened back in January as Kharon previously reported, came in response to Maduro preventing the opposition Unitary Platform’s presidential candidates, María Corina Machado and her successor Corina Yoris, from running for office. On April 19, a day after the reimposition of sanctions, the opposition announced little-known Edmundo González, who had been able to register with the electoral council by a March deadline, as their new candidate.
There have been speculations about whether the Biden administration would follow through on its threat, given concerns over Venezuelan migration to the U.S., oil prices, and market opportunities for U.S. adversaries.
Ultimately, the U.S. opted for the reimposition of oil sanctions while highlighting that it will consider requests for specific licenses that would allow companies to continue their business activities on a case-by-case basis. Unlike general licenses, specific licenses are not made public by the government.
The U.S., however, did not revoke other existing authorizations related to Venezuela’s oil and gas sector, including GL 8M and GL 41, allowing some oil firms to continue their business operations. U.S.-based Chevron, Italy’s Eni, and Spain’s Repsol are among the companies with licenses to continue business operations with Venezuela’s state-owned oil company, Petróleos de Venezuela (PDVSA). On May 3, the Treasury awarded a specific license to France’s Maurel & Prom to continue oil operations.
Days after the April 18 expiration of GL 44, a Canadian energy company created through a merger with a Texas-based company announced that it had signed a deal with PDVSA to develop five oil fields. According to the company, the agreement was signed on April 17, the day before the expiration of GL 44, and was thus in compliance with U.S. sanctions. However, to continue operations beyond May 31, the company will need to acquire a specific license.
According to FAQs issued on April 17 by the Treasury, the U.S. “will continue to assess sanctions policy towards Venezuela in light of actions taken by Maduro and his representatives as the country approaches the July 28 election,” indicating that democratic progress could continue to play a role in sanctions relief.
U.S. Assistant Secretary of State for Western Hemisphere Affairs Brian Nichols said in a recent interview that the acceptance of González, the opposition’s presidential candidate, by the electoral authorities is “a very important positive step” and that the U.S. remains “open to reciprocating to those positive steps going forward.”
Fears that the wind-down period would not be enough to complete business transactions led several oil tankers to pull out of Venezuela’s waters without loading cargo. Venezuela’s oil exports declined by 38 percent in April, to 545,000 barrels per day (bpd) of crude and fuel, compared to 873,500 bpd in March. This mainly affected shipments going to Asia, which declined by 64 percent. Meanwhile, exports to the U.S. increased by 34 percent.
The six months of sanctions relief under GL 44 had allowed Venezuela to increase its oil exports to pre-pandemic levels. The long term impact on the oil market remains to be seen and will depend on the issuance of licenses. Analysts expect that shipments to Asia, which account for the largest share of exports, will return to being sold at a discount via opaque intermediaries.
With the reimposition of sanctions, Venezuela is looking for other ways to make a profit from its oil sales. According to media reports, PDVSA is planning to increase its use of digital currencies, such as Tether, in its oil contracts as a means to bypass sanctions. In response to this reporting, Tether, a major stablecoin pegged to the U.S. dollar, said that it will block payments made to U.S.-sanctioned entities.
The U.S. has also kept in place licenses authorizing secondary trading of certain Venezuelan sovereign bonds and PDVSA debt and equity. However, for holders of Venezuelan government or PDVSA defaulted debt, the reimposition of sanctions on the oil company dampens hopes of a debt restructuring in the near term as the sanctions prevent the issuance of new debt.
It has been estimated that Venezuela might owe around $154 billion to creditors. Venezuela has recently hired a financial adviser to provide an overview of its foreign debt obligations, potentially preparing for debt restructuring.
