US Lifts Sanctions on Venezuelan Oil While Imposing Sanctions on Russian Crude Oil

[Photo by Reuters Yonhap News]

[Asia Economy Reporter Byunghee Park] As the United States imposes sanctions on Russian crude oil sales through the introduction of a price cap system, it appears likely to lift sanctions on Venezuelan crude oil. This is interpreted as an intention to offset the shock caused by the reduction in Russian crude oil supply by increasing Venezuelan crude oil supply.

The Wall Street Journal reported on the 23rd (local time), citing sources, that the U.S. government plans to authorize Chevron, a domestic refining company, to produce Venezuelan crude oil.

Chevron Likely to Resume Crude Oil Production in Venezuela

Chevron holds stakes in Venezuelan oil fields through a joint venture with the Venezuelan state-owned company Petr?leos de Venezuela (PDVSA). According to sources, with the U.S. government's authorization, Chevron will regain control over the production and maintenance of oil fields held by the joint venture.

The U.S. government decided to impose sanctions on Venezuela in May 2018, following the Venezuelan presidential election that confirmed the re-election of current President Nicol?s Maduro. The election was held under circumstances where prominent opposition candidates were under house arrest or imprisoned and unable to participate. Consequently, the Venezuelan opposition as well as the international community, including the U.S., refused to recognize Maduro's victory and demanded his resignation. At that time, the Donald Trump administration took measures to exert maximum pressure on the Maduro government, including prohibiting Chevron from producing oil in Venezuela. Before the sanctions were imposed, Chevron produced 200,000 barrels of oil per day in Venezuela until 2019.

Whether Venezuelan Government Reaches Political Reform Agreement with Opposition is a Variable

The WSJ reported that dialogue between the Maduro government and the opposition could be a variable affecting Chevron's oil production authorization.

The Maduro government and opposition leader Juan Guaid?, the 'interim president,' are scheduled to negotiate domestic and international political issues on the 25th and 26th. Guaid?, who does not recognize the 2018 election results, declared himself interim president in January 2019 and has been in confrontation with the Maduro government since. The U.S. government supports Guaid? instead of Maduro. It is expected that the Maduro government and the opposition will seek agreements through dialogue on political reform and holding free and fair elections before 2024.

Earlier, a spokesperson for the U.S. National Security Council (NSC) stated, "The U.S. government has long made it clear that it will provide assistance based on clear measures to alleviate the suffering of the Venezuelan people and restore democracy in Venezuela," adding, "Actions will be taken in cooperation with the Venezuelan opposition."

The Maduro government and the opposition are also expected to agree on how to use $3 billion in overseas government funds frozen by sanctions. According to sources, if the freeze is lifted, the funds are expected to be used for rebuilding power and water infrastructure and humanitarian relief measures.

Venezuelan Supply Unlikely to Increase Significantly in Short Term

The U.S. government began considering quickly lifting sanctions on Venezuelan crude oil after Russia invaded Ukraine on February 24, causing international oil prices to soar. In early March, Juan Gonz?lez, White House senior director for Latin America, met with Venezuelan government officials in Caracas on the 5th.

A Chevron official said, "The introduction of the Russian crude oil price cap is likely to further reduce oil supply," adding, "Additional oil supply must come from elsewhere, and Venezuela could be one of those sources."

However, even if the U.S. government authorizes Chevron's oil production, Venezuelan crude oil supply is not expected to increase noticeably immediately. This is because Venezuela's oil production infrastructure has deteriorated due to sanctions and corruption.

Market participants believe it will take some time for Venezuela to increase its daily oil production to 1 million barrels. Venezuela produced over 3 million barrels per day in the 1990s, but current production is only about 700,000 barrels per day.

The WSJ interpreted the U.S. easing of sanctions on Venezuela as making progress ahead of sanctions on Russian crude oil, as part of efforts to psychologically ease market concerns about supply shortages caused by sanctions on Russian crude oil.

Meanwhile, the Group of Seven (G7) countries, including the U.S., and the European Union (EU) are discussing the introduction of a price cap system as part of sanctions on Russian crude oil. The G7 and EU are accelerating efforts to agree on the price cap criteria, aiming for implementation on the 5th of next month.

This content was produced with the assistance of AI translation services.