Declining Oil Output Increases Economic Pressure on Maduro Regime

By Mark Browne | September 27, 2017 | 11:16pm EDT
(Photo: Correo del Orinoco/Venezuela Gov’t)

Mexico City ( – The Venezuelan government, dependent upon cash-for-oil loans from China and Russia, is facing a decline in domestic oil production and a bleak outlook for the future of its state-owned oil company Petróleos de Venezuela (PDVSA).

The situation is so dire that Venezuela is importing light crude oil from the U.S. because Venezuela’s refineries can’t process the country’s own heavier crude, according to Miriam Grunstein, chief energy counsel at Brilliant Energy Consulting and a nonresident scholar at the Baker Institute Mexico Center.

The state oil company’s future, she told, looks “very bad.”

Its revenues are “not sufficient to prop up any government” in Venezuela, including the regime of President Nicholas Maduro.

“The national oil company has no liquidity and service companies haven’t been paid. They are importing oil from the U.S. which is absolutely scandalous.”

The country’s oil production has dropped 8.5 percent from October of 2016 to July of this year, according to the economic indicators tracking website Trading Economics.

Venezuelan oil exports to the U.S. are also on the decline.

Venezuela is the third largest supplier of oil to the U.S. (eight percent) after Canada (38 percent) and Saudi Arabia (11 percent), according to the U.S. Energy Information Administration.

The U.S. imported 291.4 million barrels of Venezuelan oil in 2016, down from 351.2 million barrels in 2012 and 496.6 million barrels in 2007.

Russia’s state-owned oil company Rosneft is providing a “critical lifeline” to the Maduro regime with “outstanding loans of $6 billion” in exchange for pre-payments on oil, according to Harold Trinkunas, senior research scholar at Stanford University’s Freeman Spogli Institute for International Studies.

Testifying at a House Foreign Affairs subcommittee hearing earlier this month, Trinkunas said the Maduro regime was forced to hold a “fire sale” of state-owned oil assets this year to “guarantee a $1.5 billion loan from Rosneft,” needed to pay government debts.

Another key backer of the Maduro regime, China, is having its own problems with Venezuela’s declining oil output.

“Venezuela has been one of the largest recipients of Chinese policy bank loans, up to $60 billion since 2007 in exchange for guaranteed deliveries of approximately 500,000 barrels of crude oil per day,” Trinkunas told the panel.

China, however, has been forced to agree to a moratorium on Venezuela’s debt repayments through next January as a result of Venezuela’s economic crisis and slipping oil production.

Trinkunas blamed “corruption, poor maintenance, under-investment,” as well as “incompetent leadership” at PDVSA for the decline in the country’s oil output.

Another key backer of the Maduro regime, Cuba, is feeling the pinch, too, Trinkunas told the hearing.

“The Cuba-Venezuela economic relationship has diminished as the world price of oil has dropped. Venezuela is now less able to continue subsidizing Cuba’s imports due to its declining oil production.”

Meanwhile Iran, a strong ally of Maduro’s predecessor Hugo Chavez, has reduced its involvement with Venezuela’s government.

Cooperation between the two nations has declined as they find themselves in competition on world oil markets, Trinkunas said.

He said Iran has resisted pleas by the Maduro regime to lower its oil output to tighten world oil supplies and increase prices.

According to R. Evan Ellis, senior associate at the Center for Strategic and International Studies, the Maduro regime’s fate is now tied to China more than to any other foreign ally.

The “long-term viability of the Venezuelan regime,” Ellis said in testimony before the subcommittee, depends upon “the work performed by Chinese companies in sectors such as petroleum, construction, and energy.”

Without China’s support, Venezuela would be unable to continue to pump oil from its oilfields.

And Venezuela’s national oil company is three months behind on oil deliveries to both China and Russia.

The Maduro regime is also making it difficult for Chinese companies operating in Venezuela to submit their invoices to China’s banks in order to get paid, Ellis testified.

He also warned the committee that Venezuela has been “exporting military weapons to black markets throughout the world.”

Since 2008, he said, Russia has sold the Venezuelan government between 2,000 and 5,000 portable anti-aircraft missiles.

Those missiles “could present a significant threat to civil aviation if they fell into the hands of terrorists,” Ellis said.

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