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New sanctions are placed on Venezuela’s oil company Publication info: The Economist (Online) ; London (Jan 29, 2019).

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ABSTRACT (ENGLISH) PDVSA’s vital role in buying the support of the armed forces for Mr Maduro explains the decision by the US

Treasury on January 28th to impose further sanctions on it. [...]the PDVSA piggy bank is almost empty. According

to calculations made by Siobhan Morden of Nomura, a bank, before the latest round of sanctions, PDVSA was set

to produce less than 1m barrels per day over the course of 2019. FULL TEXT The United States raises the pressure on Nicolás Maduro

There was a time when PDVSA, Venezuela’s state-owned oil company, commanded respect in the industry. Over

the past two decades it has become little more than a despot’s piggy bank. The firm’s oil exports to America are

the principal source of new dollars for Nicolás Maduro’s beleaguered government.

PDVSA’s vital role in buying the support of the armed forces for Mr Maduro explains the decision by the US

Treasury on January 28th to impose further sanctions on it. The risk is that such measures will increase the misery

for Venezuelans in a country that has lost nearly half of its economic output since 2013. About a tenth of the

population has fled hyperinflation and shortages of food and medicines.

PDVSA has been mismanaged for years. In 2003 Hugo Chávez, Mr Maduro’s predecessor, sacked almost half of

the company’s staff. He went on to take controlling stakes in international firms’ projects in the country.

ExxonMobil and ConocoPhillips left. Instead of reinvesting PDVSA’s profits to boost production, Chávez tapped it

to fund welfare spending. Production declined during Chávez’s presidency, but it has plunged during that of Mr

Maduro: output in 2018 was 30% below what it was a year earlier, according to OPEC.

Professional employees have mostly left. A purge in 2017 saw around 70 PDVSA staff arrested, including its

president. It is now run by a general with no oil expertise. It has defaulted on most of its debt and its domestic

facilities are regularly robbed by staff and roaming gangs.

As a result, the PDVSA piggy bank is almost empty. According to calculations made by Siobhan Morden of

Nomura, a bank, before the latest round of sanctions, PDVSA was set to produce less than 1m barrels per day over

the course of 2019. After deducting all the other claims on that output, including payments in kind to Russia and

China, she reckons that the regime would have been left with only $234m to help pay for the loyalty of the armed

forces.

Now even this amount is under threat. Despite its woes, PDVSA continues to eke out some barrels. In October

Venezuela exported 570,000 barrels a day to America, more than all but Saudi Arabia, Canada and Mexico. The new

sanctions block company assets under American jurisdiction. American companies can still buy Venezuelan crude,

but payments will be placed in escrow accounts. PDVSA will obtain access to those accounts only after the

company comes under the control of Juan Guaidó, who declared himself acting president on January 23rd, or of a

democratically elected leader.

If Mr Maduro were to continue to make sales to America, in other words, he would be weakening himself and

creating a pot of money that his rival could use to entice the armed forces to his side. So Mr Maduro must search

for export markets elsewhere, most probably in Asia, which will mean a reduction in revenue, due to higher

transport costs. Importantly, the Treasury seems also to be prohibiting American firms from selling diluents,

products that PDVSA mixes with its viscous crude so that it can be transported through pipelines. Without

American diluents, PDVSA will have to buy them from elsewhere, probably at a higher cost. That will squeeze

PDVSA’s margins further, along with the amount of money available to the armed forces. The vice around Mr

Maduro steadily tightens. DETAILS

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Subject: Sanctions; Armed forces; Shortages; Petroleum industry

Location: China Mexico Russia United States--US Venezuela Canada Asia Saudi Arabia

Company / organization: Name: Organization of Petroleum Exporting Countries--OPEC; NAICS: 813910

Publication title: The Economist (Online); London

Publication year: 2019

Publication date: Jan 29, 2019

Publisher: The Economist Newspaper NA, Inc.

Place of publication: London

Country of publication: United Kingdom, London

Publication subject: Business And Economics

Source type: Magazines

Language of publication: English

Document type: News

ProQuest document ID: 2172913452

Document URL: https://search.proquest.com/docview/2172913452?accountid=14553

Copyright: Copyright The Economist Newspaper NA, Inc. Jan 29, 2019

Last updated: 2019-01-31

Database: ABI/INFORM Collection

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