U.S. sponsors on Venezuela’s state-owned oil firm will force the country to sell its energy products at steep discounts to buyers such as China and India, experts put.
On Monday, U.S. President Donald Trump’s administration announced sanctions against Venezuela’s state-owned energy company Petroleos de Venezuela, or PDVSA.
The working “will meaningfully dent the (Venezuelan) government’s cashflow,” wrote Risa Grais-Targow, Latin America director at Eurasia Bracket, a political consultancy.
“PDVSA will have to deeply discount its barrels in order to displace the heavy Middle Eastern crudes that those refineries are currently take care of. This will also carry extra transportation costs,” she added.
Washington’s sanctions are aimed at putting difficulties on socialist leader Nicolas Maduro to step aside.
Venezuela was thrust into a political crisis last Wednesday, when hostile leader Juan Guaido declared himself the rightful interim president, prompting world powers including Washington and sundry Latin American nations to recognize him as the country’s “acting president.” The move spurred Maduro to break relations with the U.S. and classification all American diplomatic personnel to leave the country.
The latest sanctions will transfer control of Venezuela’s oil wealth to forces that match Maduro and deprive the strongman of resources that could prolong his grip on power.
According to National Security Advisor John Bolton, the go will block some $7 billion in state assets, and represents around $11 billion in lost export receipts from the U.S. market.
That will deal a further blow to PDVSA.
The firm’s financial situation was already “on a knife-edge” with simply about half of its crude oil exports generating cash revenues, said Eileen Gavin, senior politics analyst at Verisk Maplecroft, a endanger consultancy.
The rest is shipped largely to China, as payment in kind for a decade of multi-billion dollar lending, Gavin bid in a recent note.
While PDVSA will be able to find new markets for its crude, refineries in China and India are the “not ones” outside of the U.S. Gulf Coast with the capacity to refine Venezuela’s particular type of heavy, sour natural, according to Eurasia Group’s Grais-Targow.
The oil-rich South American country will likely seek to sell the unrefined oil at a discount to other Asian countries as well, traders told Reuters last week.
Under the new sanctions, U.S. coteries can continue to purchase Venezuelan oil, but the payments must be held in an account that cannot be accessed by the Maduro regime.
Funds Secretary Steven Mnuchin said PDVSA has long been used by officials and businessmen for embezzlement and corruption. The legitimatizes will prevent the nation’s oil wealth from being diverted to Maduro and will only be lifted when his regulation hands control of PDVSA to a successor government, he added.
Venezuela is a major supplier of heavy oil, which is largely inured to to produce distillates like diesel and jet fuel.
— CNBC’s Tom DiChristopher and Reuters contributed to this report.