With U.S. Embargo Lifted, Venezuelan Oil Exports Bounce Back

Oil exports from Venezuela have surged upwards since the end of the U.S. embargo and the capture of former dictator Nicolas Maduro. Under American management, oil cargoes rose to 800,000 bpd in January, up from about 500,000 bpd under U.S. Navy blockade in December. 

Vitol and Trafigura reportedly reached an arrangement to buy the initial surge of bottled-up oil at Venezuela's loading terminals and anchorages, and the work of shipping it is proceeding. Two additional trading houses, Mercuria and AD Commodities, have filed papers to get U.S. Treasury licenses for the trade, reports Bloomberg. 

According to Secretary of State Marco Rubio, the arrangement with commodity traders is temporary, and the U.S. wants to normalize Venezuela's oil export industry in the long run. The Office of Foreign Asset Control last week opened up a general license for oil trade with Venezuela for existing U.S. entities, so long as the payments are moved into designated U.S. Treasury accounts. Transactions involving counterparties in Russia, Iran, North Korea, Cuba or China are still prohibited. 

There are unanswered questions about China's access to the market: U.S. officials have said that Maduro's ouster was motivated in part by a desire to deny China a foothold in South America, and that excluding China would be a priority going forward. So far, per Bloomberg, Chinese-linked entities have not been given a Treasury license to buy from Venezuelan state oil company PDVSA, and U.S. companies are still prohibited from buying from Chinese-Venezuelan oil E&P venture PetroSinovensa.

Part of the process of unwinding the bottled-up crude is in offloading sanctioned tankers and sending the oil out to normal buyers, not just commodity trading houses with a higher appetite for risk. On Monday, tanker Folegandros got underway from Venezuela, bound for an unknown European destination, and an LPG tanker departed Venezuela for the U.S. East Coast - both signals of a normalized international trade. 

Proceeds of the initial sales were routed to a bank account in Qatar, an unusual arrangement that Secretary of State Marco Rubio has described as a short-term workaround to avoid legal exposure. Venezuela's government owes about $150 billion to U.S. and foreign creditors, and funds landing in an American bank account would be vulnerable to court seizure for unpaid debts. But Venezuela needs that money immediately to pay public servants' salaries, Rubio said. The executive order that outlines the Venezuelan oil sales plan, EO 14373, specifically points to “the possibility of attachment or the imposition of judicial process” in the U.S. court system as a foreign policy problem, and sets up a mechanism for Treasury-managed accounts within the U.S. for Venezuelan oil funds (as referenced by OFAC last week). But until that mechanism is finalized, Rubio said, the Qatari bank account is a fast way to conduct transactions and get Venezuela's oil industry working again.

Lawfare notes that there is an additional consideration: it is very hard for the administration to protect the funds against attachment for court judgments related to terrorism cases. Venezuela had ties to several designated terrorist organizations, including FARC, Tren de Aragua and others. Some of these groups are vulnerable to court judgments in the hundreds of millions of dollars - and Venezuela's oil funds could potentially be seized by the plaintiffs in these cases if the money were within U.S. jurisdiction.