U.S. Leaves The Door Open for Oil Majors to Operate in Venezuela

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The United States appears to be inclined to let international oil companies with existing operations in Venezuela continue pumping crude in the country holding the world's largest crude oil reserves.

Despite the recent return of the U.S. sanctions on Venezuela's crude production and exports, the White House seems unwilling to rattle the oil market and prices-and by extension, U.S. gasoline prices-too much ahead of the November U.S. presidential election.

In October 2023, the U.S. introduced a temporary sanctions relief until April 2024 that allowed the production, lifting, sale, and exportation of oil or gas from Venezuela, and the provision of related goods and services, as well as payment of invoices for goods or services related to oil or gas sector operations in Venezuela.

The six-month sanctions relief followed commitments by Venezuela's Nicolas Maduro to ensure fair elections this year.

As a result, the top international oil trading houses returned to the business of trading with oil from Venezuela, and so did some oilfield services providers to help international majors extract crude from their joint-venture operations with Venezuelan state oil firm PDVSA.

However, given the lack of progress in Maduro's promises for fair elections, the U.S. snapped back the sanctions on Venezuela's oil.

But this time, more special licenses exempting foreign oil producers from the sanctions could be coming. The previous sanction period before October 2023 had carved out a license only to U.S. supermajor Chevron.

Related: Oil Prices Remain Under Pressure Despite Rising Gasoline Demand

In the middle of April, the six-month temporary oil sanctions relief the U.S. granted Venezuela last October expired, and the Biden Administration moved to reimpose those sanctions.

The move was met with backlash in Caracas, which described the return of the sanctions as a U.S. attempt to "control and manipulate the Venezuelan oil industry". Nicolas Maduro was given every opportunity to comply with the conditions of the sanctions relief, but has continued to work to ban, arrest, or otherwise prevent the rise of a solid opposition candidate for presidential elections scheduled for July 28.

The General License 44, which authorized transactions related to oil or gas sector operations in Venezuela, expired at 12:01 a.m. on April 18. However, the United States issued a 45-day wind-down license and Treasury's Office of Foreign Assets Control (OFAC) also will consider requests for specific licenses to continue activities beyond the end of the wind-down period on a case-by-case basis, the State Department said.

One of these specific licenses has been granted to Spanish energy major Repsol, which has existing oil production in Venezuela, alongside U.S. Chevron, Italy's Eni, Maurel & Prom, and Shell.

Repsol has been granted a license from the U.S. Treasury Department to continue and expand its oil and gas business in Venezuela, sources with knowledge of the decision told Reuters this week.

Repsol, in joint ventures with PDVSA, has stakes in the offshore gas Perla Field (CardÃ³n IV), one of Latin America's largest offshore gas fields, a 60% stake in the onshore Quiriquire gas project, and interests in the Petrocarabobo heavy crude project and the Petroquiriquire joint venture.

Just before the expiry of the six-month U.S. General License, Repsol signed an agreement with PDVSA to add two fields to its joint operations in Venezuela, which would double its oil production in the country.

More special licenses could follow for oil majors to operate in Venezuela's oil industry.

The U.S. Treasury is currently reviewing up to 50 individual license requests from companies willing to do energy business in Venezuela, a U.S. official said this week.

The U.S. "is seeking a Goldilocks solution to sanctions on Venezuela," said David L. Goldwyn, chair of the Atlantic Council's Energy Advisory Group and a nonresident senior fellow with the Council's Global Energy Center.

Despite the return of the sanctions, "the US Treasury Department was clear that it welcomes, within the next forty-five days, requests for specific licenses that serve US interests," Goldwyn said.

"The impact on the global oil market remains to be seen. Much depends on how many private companies apply for debt or product swaps and on whether the small but significant oil projects in Venezuela apply for licenses as well."