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US lawmakers blast change in policy towards Venezuela; oil projects could increase

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(S&P Global Platts) Details remained scant May 18 on a US policy shift that could chart a path for US companies to again invest in and operate Venezuelan oil projects as the Biden administration has reportedly begun to ease oil sanctions on the country.

While the administration has yet to officially announce any changes to US policy towards the regime of President Nicolás Maduro, several lawmakers put out statements criticizing a policy shift they contend was aimed at restarting dialogue between Maduro’s ruling government and the US-backed, opposition Venezuelan Unitary Platform.

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The press office of opposition leader Juan Guaido late May 17 announced plans to restart political dialogues with the Maduro government in Mexico.

The potential lifting of oil sanctions appears to have been dangled as a carrot to bring the Maduro regime back to the negotiating table. As a first step, media reports May 17 indicated that the US Treasury Department had issued a license to Chevron to resume talks with the regime to negotiate and potentially restart operations in Venezuela. Sanctions on Carlos Erik Malpica-Flores, former vice president of finance for Venezuela’s state-owned PDVSA and nephew of Venezuela’s first lady, may also be lifted, according to reports.

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“The US should only consider recalibrating sanctions in response to concrete steps in negotiations, not simply in response to cheap talk from a criminal dictator,” Senate Foreign Relations Committee Chairman Bob Menendez, Democrat-New Jersey, said.

“The onus for action is on Maduro, and the last thing we should be doing is giving him a ‘well done’ prize as opposed to sending his murderous regime a ‘do better’ message in exchange for relief,” Menendez continued. “We have placed the effectiveness of our sanctions on the line without clearly defining the parameters of what we expect in a final agreement.”

Bilateral talks between the US and Venezuela that secured the release of two detained US citizens in March stoked concerns over who the US may call upon to shore up global oil supplies as it and other countries ratchet up sanctions and other measures against Russia over its invasion of Ukraine.

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As the US looks for ways to ease pain at the pump domestically, its conversations with adversarial oil-producing nations have spawned criticism, both at home and abroad, that it might turn a blind eye to past human rights abuses to cut deals with countries that can help bring down prices.

Secretary of State Antony Blinken in March told reporters that the US has “a set of interests with Venezuela” that includes “maintaining a steady supply of energy through our diplomatic efforts.” But he stressed that the US could pursue those interests while still “centering human rights in our foreign policy.”

Biden administration faces hurdles with any potential Venezuela oil deal

 

Neither the State Department nor the White House, Treasury or Chevron had responded to requests for comment as of press time.

Double standard

Menendez suggested the White House was applying a “double standard” in its willingness to work with Maduro to secure oil supplies while banning foreign oil from “regimes in terrorist states like Russia.”

He urged the Biden administration to “refrain from lifting any additional sanctions until Maduro makes concrete concessions at the negotiating table.”

Senator Jim Risch of Idaho, the top Republican on the Senate Foreign Relations Committee, in a May 17 statement, went a step further and said the administration should “reverse course and increase pressure on the Maduro regime and its enablers.”

“Instead of increasing energy production here at home, our president is turning to #Venezuela – an authoritarian regime with a history of egregious human rights violations,” Risch said in a May 18 tweet. “We should be producing oil here at home, not begging autocracies for bailouts.”

House Energy and Commerce Committee Republican Leader Cathy McMorris Rodgers, in a statement referencing “the Biden administration easing energy sanctions on Venezuela,” argued that the US “did not need to import oil from Russia, and we do not need to turn to Venezuela now.”

Rather, she called on President Joe Biden “to unleash American energy,” and end policies that are standing in the way of the domestic production of “millions of additional barrels of oil per day.”

Senator Lisa Murkowski, Republican-Alaska, similarly asked the Biden administration to realize that “domestic supply matters” and “reverse its anti-supply actions,” during a May 18 GOP press conference on record-high gasoline prices.

The Biden administration “needs to restart our development programs, it needs to start approving crucial projects that deliver greater supply,” she said. “It’s a pretty simple choice here. We can pick Alaska over Iran. We can pick Wyoming over Venezuela.”

General License 8

The Trump administration imposed sanctions on PDVSA in January 2019. Those sanctions cut off flows of Venezuelan crude to US Gulf Coast refiners and others. The Biden administration last year reportedly came close to allowing crude-for-diesel swaps to restart on humanitarian grounds but ultimately decided to keep the ban in place.

The Treasury in November extended a waiver until June 1, 2022, that allowed Chevron to continue limited operations in Venezuela. That waiver, known as General License 8, was extended on the argument that the presence of US companies would be necessary to prevent the collapse of Venezuela’s oil sector and ease an expected recovery once Maduro was forced out of power.

However, Maduro has held onto power despite US pressure, with his party sweeping the country’s local and regional elections last year.

The new license from Treasury might allow Chevron and potentially other companies to negotiate new bargains “to invest in Venezuelan oil projects; produce and export oil, and receive revenues from oil sales; materially control production and export activities (i.e., as opposed to working through PDVSA); pay royalties to the Venezuelan government (in addition to taxes and the dividend-sharing structure of prior contracts); and recover past debts, including unpaid dividends,” analysts at ClearView Energy Partners said in a research note.

“Even before Russian President Vladimir Putin’s further invasion of Ukraine on Feb. 24, we thought the Biden administration might be lowering the bar for the Maduro regime to win relief from US petroleum sanctions,” they added, noting that “contract negotiations could mark a first step in a multi-phase process.”

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