Earlier this year, there were high hopes surrounding the lifting of US sanctions on Venezuela in the face of oil shortages and rising prices, due to the Russian invasion of Ukraine, allowing gold black to come out of the South American oil giant again. But that hasn’t materialized yet. Although some allowances have been made for oil trading, Venezuela’s statement to the world is clear: it is ready to pump and export huge amounts of its crude whenever it gets the chance.
No matter how many times the US government rejects Venezuelan calls to end sanctions and close the supply gap left by Russian energy sanctions, the South American oil major will not give up its bid to stimulate crude exports. President Madero said this week that Venezuela was ready to resume oil production and export to the rest of the world whenever the opportunity was given. At an event held during OPEC Secretary General’s visit to Caracas Maduro said “Venezuela is ready and willing to fulfill its role and supply, in a stable and secure manner, the oil and gas market that the world economy needs.
The country’s dictator has allayed fears that Venezuela’s oil industry is far from recovering, after years of low production and underinvestment. Its production currently stands at around 700,000 bpd compared to 2.3 million bpd two decades ago. This comes from US sanctions imposed on the trade in Venezuelan crude, which previously provided around 96% of the country’s revenue.
In May, President Biden made some concessions to sanctions, allowing Venezuela to export oil to Europe in exchange for debt. Italian company Eni and Spanish oil major Repsol have been authorized to ship Venezuelan crude to Europe in a swap oil for debt, helping to fill the void in the region. It was not the change that Venezuela was hoping for, but it has sparked greater optimism that more concessions can be made in the months ahead.
But in August, Maduro decided to suspend oil-for-debt shipments in Europe, saying he wanted refined fuels from Eni and Repsol in exchange for crude instead of the current deal. Venezuela has struggled to find refined fuels in recent months, with many of its refineries in poor condition. It has already been traded crude to condense with Iran to support itself, circumventing US sanctions against both countries. If Venezuela can import more refined oils, it could better support the recovery of its oil industry, with several operations requiring diluents to continue. So far, Europe has not accepted this request, again leaving a gap in supply.
But what oil potential does Venezuela have? The South American oil giant has the largest crude reserves in the world, measured at around 18.2% of global oil barrels in 2016. And although current production is low due to sanctions, Maduro believes the country could quickly increase its production by several hundred thousand. barrels of oil per day. However, a significant long-term increase in production would require significant foreign investment in oil exploration and infrastructure.
broken hardware, abandoned oil fields, and lack of talent are just some of the challenges energy experts point to as barriers to long-term production success. This, coupled with political uncertainty, has deterred many oil companies from investing in the region, despite the abundance of reserves. Currently, US oil major Chevron, Italy’s ENI and Spain’s Repsol continue to operate in the country, with others, such as ExxonMobil, having pulled out following industry sanctions.
The question of the “lesser of two evils” has arisen in recent months. A lot of questions whether sanctions against Venezuela should be eased to reduce the burden felt by Europe and North America due to the loss of Russian oil supplies. However, Venezuela’s close political ties with Cuba, China and Russia have led many to be more critical of this option. This back and forth put a relaxation of sanctions on hold for several months. Yet some now wonder if the sanctions on Venezuelan oil ever worked.
From the start, there was no clear analysis of the expected outcome of the sanctions. Former Assistant Secretary of State for Western Hemisphere Affairs Kimberly Breier suggested the sanctions were enacted with little assessment of the consequences or potential impact on Venezuelan citizens. She said“There was absolutely no evidence ‘that the oil sanction would cause Maduro to step down and yet Bolton ‘created the hope that somehow it was going to magically happen.”
This has led to a massive economic downturn in the country, a severe fuel shortage and poor living conditions for Venezuelans. This has not, however, stopped the country from selling its oil, as it continues to have trade relations with Iran and China. So, with questions about whether the sanctions were functional to begin with, a global supply shortage, and Madero’s desire to resume the country’s oil operations as soon as possible, the tides may soon be changing for Venezuela.
By Felicity Bradstock for Oilprice.com
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