Industry upheaval: Drilling rigs in the oil-rich Orinoco region. The end of Chevron’s production in Venezuela would remove 200,000 barrels a day from global markets. — Reuters
Washington: The US administration of Donald Trump is giving Chevron Corp one month to stop producing oil in Venezuela, delivering a heavy blow to president Nicolas Maduro’s autocratic regime.
The US Treasury set an April 3 deadline for the oil major to wrap up operations in the country, much less than the normal six-month wind-down period.
The narrow time frame is an unexpected hit to Maduro, significantly ratcheting up pressure on him to quickly make a deal over democratic reforms and accepting more migrants from the United States.
“Closing down Chevron’s operations in a month is an almost impossible task,” said Geoff Ramsey, a senior fellow at the Atlantic Council in Washington. “I would bet the administration is leaving space for the licence to be renewed in April, if new terms are negotiated.”
Chevron, which has a Treasury Department waiver to operate in Venezuela despite US sanctions, is a key driver of the nation’s economic growth.
The company has ramped up production in recent years to supply about 20% of Venezuela’s output, helping inject hard currency into the country’s private sector.
Ending Chevron’s production in Venezuela could eventually remove as many as 200,000 barrels a day from the global market.
Much of that oil is shipped to refineries on the US Gulf Coast, which are designed to process the country’s heavy crude.
It’s unlikely to have an immediate impact on oil prices, especially after Opec unexpectedly decided to lift production this week, beginning with a 138,000 barrel-a-day increase in April.
West Texas Intermediate crude declined 1% to US$67.67 at 4:37pm in New York, on course for the lowest close this year.
Chevron said in a statement it would abide by the Treasury’s decision.
“Chevron conducts its business in Venezuela in compliance with all laws and regulations, including the sanctions framework provided by US government,” the company said. Chevron shares fell 0.7% on Tuesday.
US dollar bonds from Venezuela and its state-owned oil company fell.
Sovereign notes due in 2027 slipped 0.8 US cent to 19.1 US cents on the US dollar, according to indicative pricing data compiled by Bloomberg.
Some critics, including Florida Republican lawmakers, argue that Chevron is providing an economic lifeline to Maduro even after he reneged on pledges for democratic reforms last year.
Trump has also criticised Maduro for failing to accelerate the pace of flights of migrants from the United States quickly enough.
“We are hereby reversing the concessions that Crooked Joe Biden gave to Nicolas Maduro, of Venezuela, on the oil transaction agreement,” Trump wrote last week in a social media post.
Secretary of State Marco Rubio followed up saying he will provide “foreign policy guidance” to “terminate all Biden-era oil and gas licences that have shamefully bankrolled the illegitimate Maduro regime.”
Responding to the measure, Venezuela’s vice-president and oil minister Delcy Rodríguez said on social media that the country will pursue a new oil strategy to “stabilise” output, but didn’t provide details.
Shortly after his inauguration, Trump sent a delegation to Caracas led by adviser Rick Grenell in an attempt to start direct talks with Maduro.
The meeting appeared to be a fresh start after years of tension.
It resulted in the release of six US prisoners and the restart of deportation flights.
It’s unclear if oil sanctions were discussed.
The presence of the Houston-based oil giant brought transparency to Venezuela after a period of sanctions imposed during Trump’s first term.
In those days, the country used small traders and tried to hide cargoes, an expensive way of doing business that resulted in billions of US dollars of lost revenue for state-run Petroleos de Venezuela SA (PDVSA) between 2020 and 2022.
Chevron’s joint ventures with PDVSA are estimated to have contributed about US$4bil in tax payments over the past two years, representing about a quarter of the regime’s total revenue over the same period, according to the Caracas-based consultancy Ecoanalítica.
If the company ceases operations and oil production drops 30%, Venezuela’s economy could shrink by as much as 7.5% this year, according to the Finance Observatory, an opposition-led research group.
The revenue Chevron generates from rising oil production stays in the country and mostly gets reinvested locally through private banks.
That’s helped fuel an incipient recovery that’s seen new luxury stores, retail chains and car dealerships open in the capital even as a majority of Venezuelans continue to live in poverty.
Venezuela’s political situation remains in crisis after Maduro declared victory last year after elections that were widely considered fraudulent.
Following the vote, opposition leader María Corina Machado presented evidence that she says proves Maduro lost by a significant margin. — Bloomberg
