By Ian Talley and Bradley Olson
Venezuela's deepening political crisis is threatening to upend
the nation's critical oil industry and further damage an economy
that has already undergone one of the biggest collapses in modern
times.
The economy has contracted by half during President Nicolás
Maduro's first six-year term. Inflation is estimated at more than a
million percent. Widespread shortages of food and medicine have
prompted three million Venezuelans to emigrate, mostly on foot.
Now, Venezuela's opposition, backed by the U.S., Canada and many
Latin American nations, has declared Mr. Maduro illegitimate and
recognized the head of the National Assembly, Juan Guaidó, as a
temporary president until new elections are called. Mr. Maduro has
responded that he isn't going anywhere and has been backed by the
armed forces.
A long and drawn-out stalemate that affects Venezuela's oil
exports, which provide 95% of the country's hard currency income,
could double the size of this year's economic contraction to a 30%
decline in economic output from an estimated 15% decline, estimates
Asdrubal Oliveros, head of the consulting firm Ecoanalitica in
Caracas. That would further fuel the country's widespread hunger
problem.
U.S. officials say they want to divert oil money -- as well as
control over other assets like gold reserves -- away from Mr.
Maduro to the new interim president without stopping crude exports
from the country.
"Diplomatic and economic relations between the United States and
Venezuela must be consistent with the United States' recognition of
Juan Guaidó and the National Assembly," the U.S. Treasury
Department said in a statement late Friday. "The United States will
use its economic and diplomatic tools to ensure that commercial
transactions by the Venezuelan Government, including those
involving its state-owned enterprises and international reserves,
are consistent with this recognition."
While oil exports have dramatically reduced in recent years,
they remain important to global oil markets and to American
refiners, which rely on heavy Venezuelan crude to make fuel.
Venezuela still exports about 500,000 barrels of crude oil to
the U.S. every day. Since much of the rest of its oil output goes
to China and other markets as repayment of loans, the oil it sends
to the U.S. represents the only real cash that the country gets
nowadays, economists say. Companies like Chevron Corp. also have
major investments in Venezuela.
Cutting off Mr. Maduro's oil money could have dramatic effects,
causing Venezuelan oil production to fall another 40% this year,
estimated Francisco Rodríguez, head of Torino Capital. U.S. based
oil-field service providers like Schlumberger still operate in
Venezuela, and the country relies on imports of parts and fuels
from the U.S. to keep its industry going.
Mr. Rodríguez likened the situation to sanctions on Libya in
2011, which caused output there to collapse by 70% or so.
Administration officials are studying the possibility of Mr.
Guaidó establishing separate boards for state oil giant Petróleos
de Venezuela S.A., or PdVSA, as well as U.S.-based refiner Citgo
Petroleum, which is owned by the Venezuelan government, two people
familiar with the administration's thinking said. Those boards, the
thinking goes, could then direct management decisions, including
the use and direction of revenues generated from exports and held
in special purpose accounts in the U.S.
On Thursday, the State Department served notice to the Federal
Reserve that Mr. Guaidó is the agent for access to Venezuelan
assets in U.S. banks.
But no one seems to know how, exactly, any of this will work.
Industry officials knowledgeable about the matter said that simply
having two boards for PdVSA, Citgo and other companies creates a
mountain of legal and regulatory problems.
"It's a mess for creditors, a mess for employees, a mess for
everyone, a mess, a mess, a mess," one of those officials said.
Because Mr. Maduro's government is still in charge of PdVSA and
the oil fields, any payments for oil, or any other allowed
transactions between U.S. firms and Venezuela, could be stuck in
limbo.
"One thing is clear " for companies like Chevron and other big
PdVSA clients, says Gustavo Coronel, the former head of PdVSA in
the early 1990s, now living in exile in the U.S. "They can no
longer send money to the Maduro government."
To overcome legal hurdles with the move, the Trump
administration is exploring executive powers, including the
International Emergency Economic Powers Act, that the White House
believes could help pave the way for a smooth transition of the
assets into the Guaidó government's hands. a person knowledgeable
about negotiations said.
That act grants the president authority to regulate commerce,
including cross-border payments and trade, during a time of war or
after declaring a national emergency. To justify his act, Mr. Trump
could say the political crisis jeopardizes those crude imports
critical to the U.S. energy sector.
Chevron spokeswoman Isabel Ordóñez said in the meantime the
company's "operations in Venezuela continue, and the company is
committed to the country's energy development in compliance with
all applicable laws and regulations," Chevron spokeswoman Isabel
Ordóñez said. She declined to comment about the current situation
in the country.
The Maduro administration could try to divert oil shipments away
from the U.S., its main client, to India, China and elsewhere.
Given that U.S. refineries are specially fitted to handle
sulfur-laden Venezuelan crude, however, that would take time and
come at a steep discount -- hitting the government's cash flow
hard.
"It will be difficult to sell that oil elsewhere, will be
difficult to invoice for that oil, it is difficult to carry out
transactions that don't go through the U.S. or European financial
system," said Mr. Rodríguez. "Would China or India be willing to
take 500,000 barrels of oil overnight?"
Companies that operate in Venezuela or buy significant
quantities of their crude had been told by the White House to
expect more strident sanctions, but none was prepared for a
diplomatic attempt to support a transition government. The
companies, and even some officials they consult with at the U.S.
State Department, were caught completely off guard, the people
said.
"It was total chaos," one company official said of the first 24
hours after Vice President Mike Pence released a video Tuesday
addressed to Venezuelans pledging support for Mr. Guaidó.
Amid the search for cash to finance Mr. Maduro's opposition,
officials have also explored the possibility of financing from the
World Bank or the International Monetary Fund. But those
institutions will wait for broader international consensus before
recognizing a new government in a case like this.
John Otis in Bogotá and Vivian Salama in Washington contributed
to this article.
Write to Ian Talley at ian.talley@wsj.com and Bradley Olson at
Bradley.Olson@wsj.com
(END) Dow Jones Newswires
January 25, 2019 19:08 ET (00:08 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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