Dissabte, 16 Febrer 2019

The vice tightens around Venezuela


The Latin American nation is in a vicious circle. Oil exports are its largest source of income, and falling oil prices since 2014 coupled with Washington’s sanctions have thrown the country into a tailspin.

Spending cuts have severely impacted the oil sector. The country’s refineries, storage facilities and oil tankers have fallen in disrepair.

With a natural 25 percent decline rate, Venezuelan oil fields require constant maintenance, something the Venezuelan government is no longer able to finance. As a consequence, the country which sits on the world’s largest oil reserves has reached its lowest production rate in almost three decades.

The situation has deteriorated until Venezuela was ranked as the world’s second least reliable country to invest in, preceded only by Haiti. After seizing several foreign companies’ assets on its territory and defaulting on two of its US bonds, the country’s access to international credit was drastically reduced.

Long term allies such as Cuba, China and Russia have kept supporting the struggling nation. Together, Russia and China have lent Venezuela over $77 billion in oil-for-loan deals. Nonetheless, Caracas has tested their patience to a high degree.

By the beginning of 2017, Venezuela had delayed over 13 million barrels of crude and refined oil products to China and Russia. As underlined by the Council on Foreign Relations, the country can barely deliver enough oil to pay for interest payments of its Chinese loans.

The Latin American nation is in deeper financial trouble as it is struggling even to pay for shipping fees to charter oil to China and Russia. To stay afloat Caracas has to rent more than double the number of oil tankers it usually rents to complement its own fleet. The latter is obsolete and leaking Venezuelan ships are not accepted in international waters and other countries’ ports because of environmental regulations.

In the past two years a new tendency among Venezuela’s creditors and expropriated investors started to threaten the country’s capacity to deliver its main customers. When tankers containing Venezuelan oil are not delayed or cancelled, they are at risk of being seized by foreign companies.

Each of these companies are owed millions of dollars by Venezuelan state-owned Petróleos de Venezuela (PDVSA), either for unpaid shipping fees as is the case of Russian Sovcomflot or for unpaid compensation for nationalised assets such as US ConocoPhillips.

Since 2016, several Venezuelan oil tankers have been seized in the Dutch Caribbean islands. Curaçao, Bonaire, Aruba and St. Eustatius are key trading hubs for Venezuela which operates several of the terminals, refineries and storage facilities located on these islands. Last year, a quarter of PDVSA’s oil exports were sent from these islands, mostly to its two biggest Asian clients: China and India.

The latest seizure occurred at the beginning of May after ConocoPhillips received court attachments freezing Venezuelan assets on these islands to enforce an arbitration award that PDVSA refused to pay. The seizure included 4 million barrels of Venezuelan crude oil stored at a US-owned terminal on St. Eustatius island.

Among all claimants, ConocoPhillips has the highest claims. It has been suing the state-run oil company before the International Chamber of Commerce and the World Bank’s International Centre for Settlement of Investment Disputes since 2007 when Chavez’s government nationalised Conoco’s assets.

The court’s final decision could take months as it did with the previous seizure. In late December 2017, Proteo oil cargo was seized in Curaçao and released only three months later, after PDVSA reached an agreement with the undisclosed claimant.

In Conoco’s case, things could go further. ConocoPhillips Chief Financial Officer Don Wallette recently confirmed that the US company “intend[s] to be aggressive and persistent” in its legal battle against PDVSA. This time the company is targeting not just a cargo but PDVSA’s key processing, storing and blending facilities in the Caribbean.

ConocoPhillips has not been the only company seeking payment through seizure of PDVSA’s property.

The threat of seizure is now coming from long term allies who are losing patience with PDVSA’s delayed payments and deliveries.

Nevertheless, this is usually a difficult task for PDVSA’s claimants. Firstly because the Venezuelan company is careful to load its oil in ships owned by the client, this way the cargoes are not at risk of being seized. Secondly, creditors do not know the exact shipping routes of the cargoes, unless these companies own the ships that PDVSA rents.

Sovcomflot’s ships represent 15 percent of the tankers PDVSA rents. Tensions between the Russian shipper and PDVSA grew as the Venezuelan company was not able to fulfil the agreed payment schedule. Sovcomflot, which sued PDVSA before St. Maarten court for unpaid shipping fees amounting to $30 million, eventually imposed garnishment on the Moscow Stars and the NS Columbus, two of Sovcomflot’s ships leased to PDVSA.

The Venezuelan oil company was ordered by court ruling to sell the cargoes and deposit the proceeds into an escrow account.

Growing tensions with Russia are not a good sign for the Latin American nation.

Russian companies such as oil giant Rosneft are reselling so much Venezuelan oil that they have appropriated Venezuela’s top customers such as India.

Moscow has also gained ownership interests in major oil fields in Venezuela in exchange for extending loans to Caracas.

As China is becoming reluctant to extend new loans to the struggling nation, Russia appears as the only potential creditor. Desperate for cash, Caracas has already offered Moscow significant shares in the world’s largest oil fields, the Orinoco Belt, as well as the country’s top producing region, the Maraico Lake.

Lucrative oil-for-loan contracts and more management control over Rosneft-PDVSA joint projects are also on the table.

Has the Latin American nation become so desperate that it is ready to sell out its precious resources?

Diane Pallardy studied an MA in Politics and International Relations at the University of Kent, and MA in World Politics and Fossil Energy at the Higher School of Economics, in Moscow.


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