To measure the effectiveness of sanctions, there is nothing better than measuring the recovery that occurs when sanctions are lifted. The US government’s recent decision to suspend Venezuelan oil bans for six months from October 18, among other economic relief measures, has led to a radical change in the country’s forecasts. According to the latest estimate from Ecoanalítico, an independent consultancy in Caracas, Venezuela’s GDP would rise from a 0.7% decline this year to an improvement of 9.4% in 2024.
Transfers on the high seas, ghost ships with GPS turned off, barter transactions, cryptocurrencies and dubious debt collection rates that were close to 15%. It was the cost of a black market that is no longer necessary for Venezuela since Nicolás Maduro’s government reached a deal with the opposition in Barbados to release political prisoners and lift the disqualification of rival candidates, among other measures to restore democracy .
According to Alejandro Grisanti, director of Ecoanalítica, the increase in GDP next year will occur in three ways: the improvement of the sales 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 on the Asian market at a 25 to 40% discount to the actual market price, in addition to higher transportation, collection and manipulation costs.
According to estimates by Venezuelan oil industry expert and professor at Rice University (in Texas), Francisco Monaldi, ending the costs of the black market would mean that annual hydrocarbon exports would fall from $11,000 million to about $16,000 million. An injection more than enough to boost 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 improved when Chevron received permission in 2022 to sell Venezuelan hydrocarbons in the United States in exchange for profits attributable to the Venezuelan PDVSA oil company . , is used to pay off debts to American creditors.
Grisanti estimates that the individual permit granted to Chevron and the general permit issued in October for the entire sector could see oil prices approach one million barrels per day in 2025, compared to the 750,000 that Venezuela produces today. An improvement that is still insufficient for a country that has the largest proven crude oil reserves in the world and is capable of producing two million barrels a day. “Chevron has already added 135,000, by the end of the year it will be 150,000, and each of the next two years could add another 50,000,” says Monaldi. According to their estimates, the sum involves projects from the Italian Eni and the Spanish Repsol; and French companies Perenco and Maurel & Prom (the latter controlled by Indonesian state-owned Pertamina) could add another 70,000 barrels per day over the same period.
The big question is what China’s CNPC, traditionally the second largest customer of Venezuelan crude after Chevron, will do. The state oil company has already announced in the Portal news agency its intention to buy 265,000 barrels per day for cash, a detail that Monaldi said is relevant because it implies that China is not currently demanding payment in kind. the $12,000 million that Venezuela owes at least.”
let’s wait and see
“A purchase of 265,000 barrels per day would open the door for CNPC to reinvest in its project and increase daily production by another 100,000 barrels,” says Monaldi. “If I were you, the logical thing would be to wait and see whether the permission granted by Washington will be renewed and whether the electoral cycle between the United States and Venezuela will ultimately ruin this peace.”
Waiting to see what happens is perhaps the phrase that best describes the current moment in Venezuela. In the short term, no one doubts that revenue will multiply with the elimination of black market costs, but in the medium term it still remains a mystery. Hence the assurance that, according to Monaldi, all European oil companies will demand before embarking on significant production expansions: “They will ask for a contract equivalent to Chevron’s that does not put any fresh money into the project. Rather, he reinvests the cash flow that the project generates, that is, he risks practically nothing, because that was the only way they could allow him to use the cash flow,” says the expert.
In the short term, analysts agree that the United States will not relent by reimposing sanctions, despite the Venezuelan government’s decision to disqualify María Corina Machado as a candidate after she won a landslide victory in the presidential primaries.
The White House is committed to maintaining the suspension of sanctions because it needs to ensure a minimum level of legal certainty for its oil sector, but also because it has a genuine interest in thawing relations with Caracas. “In the region, the Biden administration came under intense pressure from leftist governments that had welcomed Maduro back, and sanctions pushed Venezuela toward Iran and Russia, among other actors undesirable to the United States,” he says. Risa Grais -Targow, Venezuela specialist at consulting firm Eurasia Group. “Reducing migration pressure at the southern border is as big a concern for Biden as the global price of oil.”
If these are Biden’s reasons, Maduro’s main motivation for a deal was to generate cash flow that would allow him to increase social spending before the 2024 presidential election. The goal, says Grais-Targow, is to be elected president in as many elections. Given the pressure from the international community and the pressure to lift further sanctions, he at least seems ready to legitimize himself. “In a way, these elections represent something new for him because they are the first in which the opposition actually runs after it decided to boycott the previous elections by not running.”
The need for this cash flow is also why no one trusts that the additional $5 billion that Venezuela will receive, at least after the temporary lifting of sanctions, will go primarily to the reinvestment that the country’s oil fields so desperately need require permanent drilling to maintain production. According to Monaldi, “there is currently only one drilling rig in the country, compared to 50 when Venezuela was producing two million barrels a day.” And he adds: “It is true that Chevron has announced that it will install two more drilling rigs and that leaves it “The total number is three, but to achieve the significant increase that Venezuela can generate, at least 20 would be required.”
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