To gauge the effectiveness of sanctions, there is nothing like measuring the rebound generated when they are removed. The recent decision of the US Government to suspend the prohibitions on Venezuelan oil for six months from October 18, among other economic relief measures, has generated a radical change in the country’s forecasts. According to the latest estimate from Ecoanalítico, an independent consulting firm in Caracas, Venezuelan GDP would go from declining by 0.7% this year to improving by 9.4% in 2024.
Transfers on the high seas, ghost ships with GPS disconnected, barter, cryptocurrencies, and doubtful collection percentages that were close to 15%. They were the costs of a black market that has ceased to be necessary for Venezuela since the Government of Nicolás Maduro reached an agreement in Barbados with the opposition to release political prisoners and remove disqualifications from rival candidates, among other democratic restoration measures.
According to Alejandro Grisanti, director of Ecoanalítico, the boost to next year’s GDP will come in three ways: the improvement in the sale price of hydrocarbons, the reactivation of the Venezuelan private sector, and production expansions. The first is the easiest to understand: under sanctions, Venezuelan oil was sold as smuggled in the Asian market at a discount of between 25% and 40% on its real market price, in addition to higher transportation costs, collection and manipulation.
According to the estimates of the expert in the Venezuelan oil industry and professor at Rice University (in Texas), Francisco Monaldi, ending the costs of the black market will mean going from 11,000 million dollars in annual hydrocarbon exports to about 16,000 million Dollars. An injection more than enough to stimulate the rest of Venezuelan economic activity, as Grisanti predicts.
The other consequence of the lifting of sanctions is a small increase in oil production, a variable that had already been improving with the permission obtained in 2022 by Chevron to sell Venezuelan hydrocarbons in the United States in exchange for the profits attributable to PDVSA, the Venezuelan oil company. , will be used to settle debts with American creditors.
In Grisanti’s estimates, the particular permit granted to Chevron and the general one granted in October to the entire sector could allow it to approach one million barrels per day in 2025, compared to the 750,000 that Venezuela produces today. An improvement that remains insufficient for a country that has the largest proven crude oil reserves in the world and is capable of producing two million barrels per day. “Chevron has already added 135,000, by the end of the year it will reach 150,000, and in each of the next two years it could add another 50,000,” says Monaldi. According to his estimates, the sum of projects from the Italian Eni, the Spanish Repsol; and the French companies Perenco and Maurel & Prom (the latter controlled by the Indonesian state company Pertamina) could add another 70,000 barrels per day in the same period.
The big question is what the Chinese CNPC is going to do, which has traditionally been the second customer of Venezuelan crude oil after Chevron. The state oil company has already announced in the Reuters news agency its intention to buy 265,000 barrels a day paying in cash, a detail that according to Monaldi is relevant because it implies that China is not demanding, for the moment, payment in kind of “the 12,000 millions of dollars that Venezuela owes at least.”
Wait and see
“A purchase of 265,000 barrels per day would open the door for CNPC to invest again in its project and daily production to increase by another 100,000 barrels,” says Monaldi. “Now, if I were in your place, the logical thing would be to wait to see if the permission granted by Washington is renewed, and whether or not the electoral cycle of the United States and Venezuela ends up ruining this peace.”
Waiting to see what happens is perhaps the phrase that best defines the current moment in Venezuela. In the short term, no one doubts that income will multiply with the elimination of black market costs, but the medium term remains as mysterious as ever. Hence the safeguard that, according to Monaldi, all European oil companies are going to demand before embarking on significant production expansions: “They are going to ask for a contract equivalent to the one Chevron has, which is not putting fresh money into the project, but rather reinvesting the cash flow that the project generates, that is, he is practically not risking anything because that was the only way in which they were going to allow him to use the cash flow,” says the expert.
In the short term, the consensus among analysts is that the United States is not going to back down with a reimposition of sanctions, despite the Venezuelan Government’s decision to disqualify María Corina Machado as a candidate after obtaining an overwhelming victory in the presidential primaries. the opposition.
The White House feels obliged to maintain the suspension of sanctions because it has to guarantee a minimum legal security for its oil sector, but also because of its genuine interest in thawing the relationship with Caracas. “In the region, the Biden Administration was receiving a lot of pressure from left-wing governments that had welcomed Maduro back and the sanctions were pushing Venezuela towards Iran and Russia, among other undesirable actors for the United States,” he says. Risa Grais-Targow, Venezuela specialist at the consulting firm Eurasia Group. “Reducing migratory pressure on the southern border is also a major concern for Biden, as is the global price of oil.”
If those are Biden’s reasons, Maduro’s main motivation for reaching an agreement was to generate cash flow that would allow him to increase social spending ahead of the 2024 presidential elections. The goal, says Grais-Targow, is to get elected president with elections that at least appear clean to legitimize himself in the face of the international community and pressure for the withdrawal of more sanctions. “In a sense, these elections represent something new for him because they are the first in which the opposition really competes, after they decided to boycott the previous ones by not running.”
The need for that cash flow is also the reason why no one trusts that the extra 5 billion dollars that Venezuela will receive at least after the temporary lifting of sanctions will be primarily destined for the reinvestment that the country’s oil fields so desperately need. whose characteristics require permanent drilling to maintain production. According to Monaldi, “right now there is only one drill in the country, compared to the 50 that there were when Venezuela produced two million barrels per day.” And he adds: “It is true that Chevron has said that it is going to put in two more drills, and that would leave the total at three, but to achieve the significant increase that Venezuela has the capacity to generate, at least 20” would be needed.
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