The calendar plays against the president of Venezuela, Nicolás Maduro, to comply with the ‘agreements on guarantees for the 2024 presidential elections’. This puts at risk the pumping of 200,000 barrels a day of Venezuelan crude oil, which represents a 25% increase in production. The agreement was signed by the Government and the opposition at the end of October in Barbados under the supervision of the United States. To encourage the signing, Joe Biden’s administration lifted sanctions on Venezuelan oil for six months and the Venezuelan justice system has declared the opposition primaries null and void “for all intents and purposes.”
Venezuela is at the starting block and is not moving forward in its process of celebrating presidential elections in 2024 based on all the precepts of democratic freedom, with guarantees and the endorsement of international observers.
The consensus of several analysts, who take as reference models in which sanctions on Venezuelan crude oil are almost completely removed, suggest that the country could increase its production capacity by 25%, which It would mean about 200,000 more barrels of crude oil per day. The state company Petróleos de Venezuela (PDVSA) and its subsidiaries exported 616,540 barrels of crude oil per day last year, which represented a drop of 2.5% compared to 2021. The country extracted 3.2 million barrels ago three decades.
The lifting of these sanctions is beginning to be noticed among the industry. The largest private industrial group, Coindustria, conducted a survey showing that its industrial capacity increased by 36% in the third quarter, compared to 32% in the previous three months. At the same time, the document indicates that industrial confidence increased by 18.7% during the summer months, compared to -16.6% in the second quarter and -43.5% at the beginning of the year.
Among the companies surveyed, it stands out that between 60% and 68% believe that the economic situation is worse than a year ago, but around 70% believe that the economic situation will improve in the next twelve months. Furthermore, 60% believe that their production will be better in the last quarter, despite the fact that 64% of companies assured that their production fell in the third quarter compared to the previous one.
But time and Maduro’s attitude towards the opposition primaries, in which María Corina Machado won, cloud this horizon. The Chavista called the October 22 elections a “fraud” and the continuity of the opposition leader towards the 2024 presidential elections is in question. Despite having won with 92% of the votesthe opposition candidate has been disqualified since 2014 by a Venezuelan court “after she testified about the human rights situation in Venezuela during the meeting of the Organization of American States (OAS),” according to the Human Rights Observatory.
Given this situation, the United States Undersecretary of State for the Western Hemisphere, Brian Nichols, said that “everything is on the table,” including export licenses for Venezuelan oil and derivatives. The American president stressed that If they do not take the agreed measures “we will take away the licenses that we have granted.” Despite everything, Nichols reiterated that he is “confident” that the Maduro government will comply with the Barbados agreements and create a way for Machado to run.
At the same time, the Secretary of State of the United States, Antony Blinken, stated that they hope that the release of American and Venezuelan political prisoners “unjustly detained” will also occur.
But Maduro’s response to these assertions was very clear: he is not going to give in to what he described as “blackmail” from the United States.
Decaying oil industry
The problem with Venezuela’s oil industry is that it is obsolete due to sanctions. The infrastructure is in poor condition and that makes oil extraction in the South American country unprofitable. But the increase in the price of oil in recent months, which reached 100 dollars a barrel between February and August due to the war in Ukraine and is currently close to $89, it makes it more profitable to extract crude oil.
The consensus of analysts assures that the pardon from the United States is the last step towards an “incipient, but significant” recovery of the Venezuelan oil industry. This rebound can raise production to around 750,000 and 800,000 barrels per day (nothing to do with the 3 million it pumped in the 90s).
All this, added to a more vigorous rally in Iran, is what is helping to moderate futures prices this year and is helping to cushion the impact caused by production cuts from Saudi Arabia and Russia.
What is clear is that this move by Joe Biden’s administration is nothing more than an attempt to place more barrels of crude oil on the world market to stop the rise in fuel inflation at the national level.
Francisco Monaldi, a specialist in Latin American energy policy at the Baker Institute of Public Policy at Rice University, believes that the lifting of sanctions on Venezuela could add between 250,000 and 300,000 barrels per day to the market.
It is clear that this will be an important relief for the market. But by some estimates, the global oil market is facing a huge deficit that not even the 300,000 more barrels of crude oil that Venezuela’s goal will contribute to alleviating this situation. “They are a relative drop in the ocean of the global scenario,” said senior oil market analyst at Rystad Energy, Sofia Guidi Di Sante.
But Venezuela’s cruise industry doesn’t just need a lifting of sanctions. For the country to become an important player in the oil market again, it needs “legal and economic guarantees,” said the oil contractor for the Venezuelan state of Zulia, César Parra.
At the same time, the former Minister of Petroleum and Mining of Venezuela, between 2002 and 2013, Rafael Ramírez, assured that only through the rule of law, gaining governance and legitimacy, “the country will be able to successfully govern its oil activity again. and its national resources” with a national recovery plan.