US-Venezuelan detente on the cards?
Media sources suggest the Biden administration may extend sanctions waivers for Chevron and other US energy companies to continue work in Venezuela in what could be an indication of emerging détente between Washington and Caracas.
Given Biden’s knack for diplomacy, rather than his predecessor’s preference for a more assertive foreign policy, waivers extensions could be on the table for Chevron and upstream services companies Baker Hughes, Halliburton, Schlumberger and Weatherford. They are currently due to expire in June.
Amir Richani, the Latin America analyst for ClipperData, told NGW that overtures from Caracas may have influenced thinking in Washington.
“Several political movements in Venezuela indicate a possible agreement between the government and the opposition on participation in the regional and municipal elections in November,” he said. “This has been conditioned by a set of actions by Nicolas Maduro that are aimed at improving the government’s image internationally and seeking rapprochement with Washington in exchange for sanctions relief.”
That would mark a stark reversal from the foreign policy embraced by former US president Donald Trump, whose Venezuelan envoy Elliot Abrams raised the possibility of military action to remove Maduro from power.
Tough road ahead
Before Trump entered office in 2017, Venezuela was a major crude oil supplier to the US and a major contributor to OPEC production. OPEC placed total Venezuelan crude oil production at only 445,000 barrels/day last month, a trickle compared to peak levels at around 3mn b/d.
Jose Chaloub, a political risk and oil analyst working from Venezuela, believes the nation’s energy sector has a tough road ahead even with sanctions relief.
“It's unlikely to see a recovery of production without a significant loan from diverse multilateral institutions and without any significant political change in Venezuela as the IMF has shown reluctance to deal with the country due to the current political confusion and uncertainties,” he told NGW.
The country, which relies on hydroelectricity rather than fossil fuels for its power, struggles to keep the lights on because of problems with its ageing infrastructure. And the founding member of OPEC struggles mightily to provide gasoline and diesel to the domestic market. Its currency, the Bolivar, is essentially worthless.
Adding to Maduro’s problems is opposition leader Juan Guaido, who is recognised by the international community as the legitimate interim president of Venezuela after questions were raised about the legitimacy of recent elections.
With a less hawkish president in the White House now with Biden, Maduro has expressed willingness to sit down with the opposition, telling state media he was eager to see the results of diplomacy.
Guaido himself has proposed a new round of elections in exchange for sanctions relief.
“Biden has so far sidelined the issue of Venezuela, but Chevron’s license deadline could be Washington’s first response to Maduro's actions,” Richani, a Venezuelan national, said.
Like his “maximum pressure” campaign on Iran, the former Trump administration sought to choke off the financial lifeline for the Maduro government through harsh sanctions. But like former president Barack Obama's efforts at détente with Iran, the Biden administration may be favouring rewards as an incentive for Caracas to align more with international governing norms.
Chevron works in partnership with Petroleos de Venezuela (PdVSA) at four joint-venture projects in the country. In 2019, the last full year for which the company provided data, its Venezuelan crude oil production averaged 34,000 b/d and 7mn ft3/d in natural gas.
Elsewhere, the company said that over the 2019-2020 period, it invested $5mn in programmes in Venezuela aligned with humanitarian efforts at the UN and the US Agency for International Development.
Richani added that Washington may go the extra mile too in that vein by allowing Chevron to lift crude oil for exports and invest more on its Venezuelan assets.
“Also, allowing the resumption of crude for products swaps in the next few weeks would hint towards less tense ties between Washington and Caracas,” he said.
It was Iran that handled most of those swaps during the Trump presidency. Five Iranian tankers carrying millions of US dollars-worth of gasoline and refined products left last year for Venezuela as part of a broader alignment between the two US adversaries. That fuel helped address shortages in Venezuela, while giving Tehran much-needed revenue that would otherwise be realised without sanctions.
That relationship in turn emboldened US opponents at a time when the Trump administration was stepping back from the international stage as part of his America-first agenda. But even with a US envoy to Venezuela mulling military action, and after the US military assassinated a top Iranian general, Tehran remained defiant, saying repeatedly it would help Caracas if requests were made.
Chaloub said that sanctions determinations and the outcome of the Iranian nuclear negotiations go hand in hand. Should a more right-wing candidate like former Iranian president Mahmoud Ahmadinejad win another term and should Washington continue with the Trump level of assertiveness, it would “foster the radicalism of the Bolivarian revolution” in Venezuela, he said.
China too has signalled its willingness to take on petroleum and petroleum products from either Iran or Venezuela, showing just how much the global energy sector overlaps with international relations.
Should Biden succeed in Iranian diplomacy, it could lessen the geopolitical strains already emanating through the so-called Shiite Crescent that reaches all the way to the Mediterranean Sea as Tehran’s cash flow situation improves and soothes its backed-into-a-corner mentality.
For Caracas, time will tell. Guiado’s opposition movement has lacked any real influence in Venezuela, despite his support from the international community. And the political legacy in Caracas will be hard to overcome. Maduro rose to power through a grooming of sorts by the late Hugo Chavez and that legacy runs through the veins of the Venezuelan identity.
But like Tehran, a regime backed into a corner will inevitably punch back. Yet without the stick of sanctions, the US offer of a carrot only become more attractive.