(S&P Global Platts) US oil sanctions on Venezuela could reach a tipping point this summer if a dire diesel shortage further exacerbates a humanitarian crisis that continues to unfold even as President Nicolás Maduro has strengthened his hold on power.
President Joe Biden’s administration faces increasing calls to partially ease sanctions by again allowing crude-for-diesel swaps as a means of humanitarian aid but doing so could indirectly help Venezuela produce more oil while keeping Maduro firmly in office.
The Biden administration is figuring how to seek concessions from Maduro while essentially knowing that ongoing US demands for regime change are unrealistic, energy and geopolitical analysts said.
“Venezuela could face a massive shortage of diesel in the next few months,” said Francisco Monaldi, Rice University fellow in Latin American energy policy. “There’s pressure on Biden to intervene in the humanitarian crisis. On the other hand, they don’t want to be seen as given up on this pressure without any concessions.”
Essentially, a geopolitical game of cat-and-mouse is being played out over Venezuela’s primary fuel source. Although the escalating diesel shortage is a very real issue, Monaldi said, Maduro may intentionally create even more diesel scarcity in order to put additional duress on Biden in an effort to blame the US for much of Venezuela’s economic woes.
Venezuelan state oil company PDVSA’s crude production has plunged from nearly 2.5 million b/d five years ago—and from 1.3 million b/d when US oil sanctions started in January 2019—down to just 300,000 b/d in the summer and fall during the peak of pandemic lockdowns. That is the lowest level for the country with arguably the world’s largest crude oil reserves since the US Energy Information Administration started recording production in 1973.
With exports to China on the rise, Venezuela is currently producing just more than 400,000 b/d and should go above 550,000 b/d by the end of this year, according to S&P Global Platts Analytics projections, and over 800,000 b/d by year-end 2022. Volumes could rise above 1 million b/d if most sanctions were lifted, but the country’s own infrastructure distress would prevent much larger gains.
Venezuela has reported its current output at closer to 500,000 b/d, and the Maduro regime has pledged to raise production to 1.5 million b/d by the end of 2021, but sources do not believe that is feasible.