Venezuela back in the international arena
Venezuela crude production
By Patricia Garip / Argus
Petroleumworld 09 14 2021
Consensus around Venezuela's long-odds claim to a chunk of oil-rich neighbouring Guyana was the warm-up for negotiations between Venezuela's government and its main opponents in Mexico earlier this month, to Georgetown's dismay. Substantive progress in the Norwegian-brokered talks ensued, with an agreement to set up a joint working group on social welfare and a parallel review of "overcompliance in the financial system", with US sanctions deemed an obstacle to aid procurement.
The day after the parties signed the two partial accords on 6 September, Venezuela received a first batch of Covid-19 vaccines through the international Covax facility, following a long delay attributed to sanctions-driven impediments in the international banking system. Although sanctions that block use of the US financial system remain in place, banks now have more leeway to engage with Venezuela on humanitarian transactions without fear of falling foul of the restrictions. Next up for Caracas is access to Venezuela's $5.1bn in IMF Special Drawing Rights, which will be critical to scaling up sorely needed medical supplies and food.
The sanctions review is a win for President Nicolas Maduro's government, which has long blamed the measures for undermining Venezuela's oil-based economy and creating widespread hardship. Pointing to Caracas' spotty record on subsidised food, the US-backed opposition fears aid will be politicised and exposed to corruption. It blames Maduro and his predecessor Hugo Chavez for gutting the country's oil industry and plundering its wealth, driving more than 5mn Venezuelans to emigrate. But Maduro's foes have little choice but to give in after the US converged with a more dovish EU posture emphasising carrots over sticks.
The US imposed financial sanctions in 2017 and oil sanctions two years later, with the aim of forcing Maduro out of power. The current US administration of President Joe Biden that inherited the sanctions has signalled a willingness to relax them in tandem with Venezuelan progress toward restoring democracy, with the bar now modestly set at state and local elections on 21 November. Much of the opposition has now abandoned an electoral boycott in favour of re-establishing local power bases, with an eye towards presidential elections in 2024.
Conspicuously absent from the public statements that emanated from Mexico was reference to Venezuelan fuel scarcity that impedes food and aid distribution, agricultural activity, power generation and public transport. State-owned oil firm PdV is eking out barely 100,000 b/d of gasoline and diesel in its neglected refining system, roughly a fifth of pre-sanctions demand.
For now the talks will remain centred on the social sphere. In anticipation of the next round of discussions at the end of September to address the thorny issue of justice, government opponents hope that Maduro will release more political detainees. In the meantime, private-equity investors and creditors are jostling behind the scenes in the hope of lucrative short-term opportunities.
Not surprisingly, Guyana reacted sharply to Venezuela's revived claim to Essequibo province — dubbed Guayana Esequiba by Venezuela — which includes offshore acreage that has put the small country on the global oil map. "Guyana cannot be used as an altar of sacrifice for settlement of Venezuela's internal political differences," the foreign ministry says. ExxonMobil is producing 120,000 b/d of crude at the Stabroek block that partially overlaps the disputed region, and forecasts 800,000 b/d in 2025. That would surpass Venezuela's current output of 500,000 b/d, a far cry from its peak of 3mn b/d (see chart). The Venezuelan accord signed in Mexico reiterates its rejection of the International Court of Justice's declaration of jurisdiction over the issue, and its urging of Guyana to enter direct negotiations.