Biden’s Chevron Deal With Venezuela at Risk From the Start

One analyst says the American government is looking to ‘restore trust’ in the Maduro regime and ‘evaluate progress,’ which could eventually lead to other actions that would benefit Caracas.

AP/Gene J. Puskar, file
A Chevron sign at a Bradenton, Florida, gas station, February 22, 2022. AP/Gene J. Puskar, file

While the Biden administration is attempting to appease Venezuela’s oppressive regime by authorizing Chevron Corporation to renew oil drilling in the country, the deal might be at risk even before it is completed. 

President Biden announced Saturday that some Venezuelan sanctions would be lifted for a limited time, as President Maduro and the country’s opposition reached an agreement on humanitarian relief and a process leading to a national election. Now, though, Caracas seems to be balking, signaling that after reading the small print it may not be as interested in the grand bargain after all.  

While Mr. Biden wants to encourage Mr. Maduro to stay at the negotiation table, there are “several limitations” to his plan, the director of the Americas Program at the Center for Strategic and International Studies, Ryan Berg, told the Sun. 

In talks over the past year, Chevron and the government-owned oil company, Petroleos of Venezuela, known as PdVSA, agreed that profits earned from the renewal of drilling would be distributed toward covering Venezuela’s debt repayment to Chevron, as well as for reimbursement of operational expenses and capital expenses, Reuters reported

Yet, according to a report released by the American Department of Treasury on Saturday, the license does not authorize the “payment of any taxes or royalties to the Government of Venezuela,” nor the payment of “any dividends” to PdVSA. Such constraints would “limit the appeal of sanctions relief on Chevron” for the Maduro regime, Mr. Berg says, adding that the Chevron deal therefore “could be in jeopardy before it even begins.”

“As expected, the license to Chevron was approved. It’s surprising that it does not allow royalty payments and taxes or dividends to PdVSA. It does not create much of an incentive for Maduro,” the director of the Latin America Energy Program of Baker Institute, Francisco Monaldi, said

According to Mr. Berg, the “dilapidated state” of Venezuela’s oil industry will complicate the resumption of operations and production increases at existing sites. Even though Venezuela sits on more than 17 percent of the world’s oil reserves, its oil infrastructure is in shambles due to corruption and years of insufficient investment. 

According to Reuters, the degraded oil equipment and a lack of highly skilled workers — many have fled the country during the Maduro regime — will hamper the industry, meaning the resumption of oil production in Venezuela will amount to about 1 percent of the American demand.

The Organization of the Petroleum Exporting Countries’ latest report tallies Venezuela’s oil production for the last quarter of 2022 at 670,000 barrels a day on average. That is a fraction of the government’s target of 2 million barrels a day. Until 2013, PdVSA was producing more than 3 million barrels a day of crude oil, and the company had more than $230 billion in assets and infrastructure, $84 billion in equity, and $12 billion in profits, according to an Italian international relations think tank, Istituto Affari Internazionali. 

A former director of PdVSA, Jose Toro Hardy, told the Economist that an annual investment of $25 billion would be needed over the next eight years for Venezuela to reach the production levels seen in 2013.

Even though the agreement would not benefit the Maduro regime financially, it could open the doors to other licenses and possibly to lifting more sanctions, a Venezuelan political consultant, Pablo Quintero, told the Sun. 

“This doesn’t bring a short-term benefit for Venezuela,” Mr. Quintero said. Yet, “this is the minimum agreement” established by the American government to “restore trust” in the regime, and “evaluate progress,” which could eventually lead to other actions, Mr. Quintero said.  

On Saturday, the Maduro regime and the country’s opposition resumed their dialogue and negotiation process at Mexico City, where they signed a “social agreement” and created a humanitarian fund, to be administered by the United Nations.  

Shortly after the agreement was signed, Washington issued a six-month license for Chevron to resume its operations in Venezuela and restart joint ventures with PdVSA. “The announcements by the Unitary Platform and the Maduro regime are important steps in the right direction to restore democracy in the country,” the treasury department said

“It is expected that the technologies needed to resume operations will be installed in Venezuela in January or February,” Mr. Quintero said. “The United States has more intentions to seal this deal than Venezuela because of the energy crisis” in America, he added.

Chevron’s external affairs advisor, Ray Fohr, told the Sun that the decision “brings added transparency to the Venezuelan oil sector,” and that Chevron can now “commercialize the oil that is currently being produced from the company’s joint venture assets.”

“We are determined to remain a constructive presence in the country and to continue supporting social investment programs aimed at providing humanitarian relief,” Mr. Fohr said.

Some other foreign companies have also received licenses to expand their operations in Venezuela. In June, the state department authorized an Italian oil company, Eni, and Spain’s Repsol to resume operations in Venezuela in an effort to settle the regime’s billions of dollars of unpaid debt.

The New York Sun

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