U.S. suspends sanctions on Venezuelan oil, gas production

Eric Martin, Fabiola Zerpa and Patricia Laya, Bloomberg October 19, 2023

(Bloomberg) – The U.S. suspended sanctions on Venezuelan oil, gas and gold production after four years and lifted some restrictions on bond trading, expressing confidence that strongman President Nicolas Maduro is ready to take on all challengers in an open election.

Venezuelan President Nicolas Maduro

In a gesture of goodwill after Maduro’s government entered talks with some members of the opposition, the U.S. Treasury Department said Wednesday it issued a six-month license authorizing transactions involving the oil and gas sector in Venezuela. It also authorized dealings with Minerven, the Venezuelan state-owned gold mining company, and lifted a ban on secondary trading of some Venezuelan sovereign bonds and debt and equity issued by the state oil company Petroleos de Venezuela SA.

The moves are a calculated gamble by the U.S. that Maduro, a long-time vocal critic of U.S. policy who has brutally repressed protests against his 10-year rule, is ready to change his ways after the sanctions further crippled his country’s economy, hastening the exodus of millions of its citizens in search of opportunity.

“We’re in the presence of a new era for Venezuela,” Maduro said on state TV on Wednesday evening. “We are ready for a new era with the U.S., of respect, equality and advancement.”

The measures are a nod to the political agreement signed by the Maduro government with a faction of the opposition in Barbados on Tuesday. They’re “consistent with U.S. sanctions policy, in response to these democratic developments,” the Treasury said in a statement.

Following the issuing of the licenses, Maduro released five political prisoners, including former lawmaker Juan Requesens and journalist Roland Carreño, according to a list published at midnight by the head of the opposition delegation, Gerardo Blyde.

As part of the agreement, the U.S. expects Venezuela to restore by November the political rights of all candidates that have been banned from participating in next year’s presidential elections, according to U.S. administration officials. That includes Maria Corina Machado, considered the frontrunner ahead of Sunday’s primaries, they added.

The U.S. “is prepared to amend or revoke authorizations at any time, should representatives of Maduro fail to follow through on their commitments,” the Treasury added in the statement. “All other restrictions imposed by the U.S. on Venezuela remain in place.”

Still, Machado’s candidacy is no sure thing — she’s currently banned from holding office because of allegations she sought to undermine the regime. If she’s not allowed to run, the U.S. will be in the awkward position of having to decide whether to impose sanctions again.

Earlier this week Maduro said he would “not endorse irregularities” in negotiations with the opposition and made veiled references that Machado would not be able to participate.

Venezuela’s oil exports to the U.S. were halted in early 2019 when the Treasury imposed sanctions on PDVSA, as the oil company is known. Back then, Venezuela exported nearly 365,000 bpd from its ports to the U.S., twice as much as in September.

“This will have broad positive economic consequences for Venezuela because they imply the return of Venezuela to the oil market, even if gradually,” said Michael Penfold, a professor at the Institute of Advanced Studies in Administration in Caracas. “The expectation was that they were going to issue special licenses, and we are seeing a very broad license in response.”

Today’s measures should result in an immediate increase of crude oil exports from Venezuela to the U.S., and of U.S. petroleum products to Venezuela, said Fernando Ferreira, director of geopolitical risk at Rapidan Energy Advisors.

“We have also seen quite a bit of interest from oil companies in Venezuela, so I wouldn’t be surprised to see an increase in activity and production in the coming months,” Ferreira said.

Vice President Delcy Rodríguez said the license allows Venezuela’s Central Bank and another state bank to carry out and receive oil-related payments.

Trading ban. The ban on trading of Venezuelan debt also came into effect in 2019, under former President Donald Trump’s administration.

The two licenses removing a ban on the secondary trading of Venezuelan both sovereign and PDVSA bonds will allow individuals and institutions based in the US to buy the country’s government and oil bonds on the secondary market. They had been limited to only selling the securities.

Earlier on Wednesday, defaulted government and state oil company bonds were trading higher following the announcement of the deal struck between the government and the opposition in Barbados. PDVSA notes maturing in 2026 rose to levels not seen since June 2022.

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