Spanish oil company Repsol and Italy’s Eni will begin shipping Venezuelan oil to Europe as early as July, five people familiar with the matter told Reuters. This will resume the oil-for-debt swaps, which were suspended two years ago, when Washington intensified sanctions against Venezuela. The oil from Venezuela is intended to help Europe ease its dependence on Russian crude.
The president of Venezuela, Nicolás Maduro, confirmed in a televised press conference that the United States had authorized Chevron, Eni and Repsol to exploit their gas and oil deposits in Venezuela. “Steps are being taken, the first steps. About a week ago, the United States took small but significant steps by granting licenses to the US company Chevron, the Italian company ENI and Repsol,” he said. But while Chevron has been allowed to resume operation in the country, it has not yet been authorized to export oil to the US.
🇻🇪📺 Presidente @NicolasMaduro: "Estados Unidos hace una semana dio unos pasos leves, pero significativos al entregar licencias a Chevron, Eni y Repsol para iniciar procesos que lleven a producir gas y petróleo en Venezuela para exportar a sus mercados naturales".#EnVideo pic.twitter.com/On3HnGhiZp— Petróleos de Venezuela, S.A. (@PDVSA) June 5, 2022
The change in position comes after the US authorized European oil companies to operate in Venezuela in a bid to promote dialogue between Maduro and Venezuelan opposition groups. The green light from Washington to resume flows of oil from Venezuela to Europe could provide a symbolic boost for Maduro. US authorities communicated the news to the companies last month, but the details and the resale restrictions had not been communicated until now.
The administration of US President Joe Biden hopes that Venezuelan crude oil will help Europe reduce its dependence on Russia and redirect some of Venezuela’s cargoes from China. The volume of oil expected to be supplied by Eni and Repsol from Venezuela is not large, according to one of the sources, who said that any impact on world oil prices will be modest. Eni and Repsol did not respond to requests for comment.
Repsol’s financial exposure to Venezuela at the end of 2021 amounted to €298 million. According to the Spanish company’s 2021 financial statements, this amount includes: “the US dollar financing granted to the joint ventures Cardon IV, S.A. and Petroquiriquire, S.A., amounting to €166 million and €304 million, respectively, and trade receivables from [Venezuelan state-owned oil company PDVSA] Petróleos de Venezuela, S.A. amounting to €344 million [...] less provisions for liabilities and charges amounting to €500 million.”
The US State Department gave the two European companies the go-ahead to resume shipments in a letter, the sources said. According to the sources, the two European energy companies, which have joint ventures with Venezuelan state-run oil company PDVSA, can count the crude cargoes toward unpaid debts and late dividends – something that has not been possible until now. Instead, the companies have been counting new investments and work carried out in Venezuela for the production of crude and gas.
A key condition of the arrangement, according to one of the sources, is that the oil received “has to go to Europe. It cannot be resold elsewhere.” Washington believes that PDVSA will not benefit financially from these cash-free transactions, unlike Venezuela’s current oil sales to China. Beijing has not signed Western sanctions against Russia and has continued to buy Russian oil and gas despite US appeals.
Washington has not made the same allowances for US oil company Chevron Corp, India’s Oil and Natural Gas Corp Ltd (ONGC) and France’s Maurel & Prom SA, which also lobbied the State Department and the US Treasury to take oil in return for billions of dollars in accumulated debts from Venezuela. All five oil companies halted swapping oil for debt in mid-2020 in the midst of former US president Donald Trump’s “maximum pressure” campaign that cut Venezuela’s oil exports but failed to oust Maduro.
The Biden administration held its highest-level talks with Caracas last March. In response, Venezuela released two of at least 10 jailed US citizens and promised to resume talks with the opposition. Maduro has yet to agree on a date to return to the negotiating table. Republican lawmakers and even some of Biden’s fellow Democrats who oppose any thawing of relations with Maduro have criticized the government’s approach to Venezuela as too one-sided. Washington maintains that further sanctions relief on Venezuela will be conditioned on progress toward democratic change as Maduro negotiates with the opposition.
Last month, the Biden administration authorized Chevron, the largest US oil company still operating in Venezuela, to enter into talks with the Maduro government and PDVSA about future operations in Venezuela. It was at this time, Reuters sources say, that the State Department sent secretly sent letters to Eni and Repsol saying that Washington “would not object” if they resumed the oil-for-debt deals and brought the oil to Europe. In the letters, the US assured European companies that they would not face penalties if they took shipments of Venezuelan oil in exchange for collecting outstanding debt, said two people in Washington.