U.S. to oversee Venezuelan crude sales under new strategy

(Bloomberg) – The Trump administration plans to control future sales of oil from Venezuela and use the proceeds to rebuild the nation’s beleaguered economy, Energy Secretary Chris Wright said. 

U.S. Energy Secretary Chris Wright. Image: official portrait

“If we control the flow of oil and the flow of the cash that comes from those sales, we have large leverage,” Wright said at the Goldman Sachs Energy, Clean Tech & Utilities Conference in Miami on Wednesday. “We need to have that leverage and that control of those oil sales to drive the changes that simply must happen in Venezuela.”

His comments shed more light on the Trump administration’s strategy of using Venezuela’s oil industry and exports of the commodity, both as leverage over the country and as a source of revenue that the U.S. can oversee.

President Donald Trump said Tuesday evening that Venezuela would relinquish as much as 50 MMbbl of its oil to the U.S., valued at about $2.8 billion at current market prices. Trump said the cargoes would be sold with proceeds benefiting both countries.

Wright said Wednesday that volume will come from oil in storage in Venezuela. He also said the U.S. government plans to deposit funds from the sale of that crude into government accounts and use them to benefit the Venezuelan people.

Holding the revenue in U.S. Treasury accounts would protect them from Venezuela’s creditors, a person familiar with the matter said. The U.S. will slowly ease sanctions on the country, according to two administration officials.

Trump is pushing for oil U.S. companies such as Chevron Corp., ConocoPhillips and Exxon Mobil Corp. to rebuild Venezuela’s infrastructure and revive production now that the U.S. has removed former President Nicolás Maduro. The Trump administration has already had conversations with multiple oil companies, according to an official. The president is set to meet with energy executives at the White House on Friday, according to people familiar with the matter.

See also: Traders seek U.S. guidance on Venezuelan crude after Maduro ouster

Venezuela’s oil sector has suffered from years of corruption, underinvestment and neglect, and its production is less than 1 MMbpd. Wright estimated that output could be increased by several hundred thousand barrels a day in the short to medium term.

Restoring the industry to its former glories would be a huge undertaking, costing an estimated $10 billion per year over the next decade, according to estimates from Francisco Monaldi, director of Latin American energy policy at Rice University’s Baker Institute for Public Policy.

See also: Chevron shares jump as Trump signals Venezuela oil revival

Venezuela sits atop some of the world’s largest crude reserves, but companies will want to ensure there’s a stable government in place before making any long-term investments. They will also want some degree of confidence Washington will support their presence in Venezuela even after Trump is no longer in office.

The Trump administration has already had conversations with multiple oil companies, according to an official. The president is set to meet with energy executives at the White House within the next week, according to people familiar with the matter.

Secretary of State Marco Rubio also may attend the sit-down that’s being planned, the people said.

Chevron is the only U.S. major operating in Venezuela, working under a special license from Washington. Exxon and ConocoPhillips previously operated inside the country but left after their assets were nationalized by Maduro’s predecessor, Hugo Chávez, in the mid-2000s.

Brent oil futures were little changed Wednesday, trading at around $60 a barrel.