US Prioritizes Existing Investors in Granting Venezuela Oil Licenses

Shift in Strategy Limits Opportunities for New Partners

by Victor Adetimilehin

The United States is preparing to prioritize issuing limited licenses to operate in Venezuela to companies with existing oil production and assets, according to sources familiar with the discussions. This move marks a significant shift in strategy from the broad license that had eased oil and gas trade restrictions earlier this year.

The new approach aims to incentivize companies like Italy’s Eni and Spain’s Repsol, which have existing projects frozen due to sanctions, to resume operations, recoup debts, and increase global oil supplies. These companies have been struggling to maintain their investments in Venezuela due to US sanctions, and the new licenses would provide some relief.

Limited Openings for New Investors

However, this prioritization will restrict opportunities for new firms seeking entry into Venezuela’s oil sector. Companies like India’s Reliance Industries, which had hoped to secure US approval for partnerships with Venezuela’s state oil company PDVSA, will be left out for now. This could dampen Venezuela’s hopes of attracting much-needed fresh investment in its oil industry, which has been struggling for years under the weight of sanctions and mismanagement.

The limited exemptions under consideration would also hinder Venezuela’s ability to use new partnerships to significantly boost its crude production in the near future. The country’s oil exports had reached around 900,000 barrels per day in March, before the US decided to scrap the broader, election-linked license. This had provided a temporary boost to Venezuela’s oil production, but the return to a stricter sanctions regime is likely to hamper this progress.

Focus on Recovering Outstanding Debts

The US Treasury Department has indicated that the new guidance being prepared will primarily focus on helping foreign firms recover billions of dollars in outstanding debts and dividends from Venezuela. This issue has impacted numerous US, European, and Asian firms in recent years. The sanctions have made it difficult for these companies to collect payments from Venezuela, and the new licenses could provide a mechanism for them to recoup some of their losses.

The proposal would effectively exclude companies with no prior investments in Venezuela, even if they have signed agreements with PDVSA to form new joint ventures. This could limit the effectiveness of Venezuela’s efforts to attract fresh investment in its vital oil industry. Venezuela’s oil infrastructure is aging and in need of significant investment, and without new partners willing to inject capital, it will be difficult for the country to increase production or meet its full potential in the global oil market.

Venezuelan Response

Venezuelan Vice President Delcy Rodriguez has slammed the impact of US sanctions, arguing that they have inflicted billions of dollars in losses on the country’s GDP. President Nicolas Maduro may push for specific US licenses for the oil and gas sectors if he believes they are crucial for attracting new investment or reviving cash-generating businesses. The Venezuelan government is likely to continue lobbying the US for a relaxation of sanctions, but the current political climate suggests that there will be no major breakthroughs in the near future.

The US decision to prioritize existing investors in Venezuela’s oil sector is a significant development that will have far-reaching consequences. While it may provide some relief to companies that have already invested in the country, it will also limit opportunities for new entrants and hinder Venezuela’s efforts to boost production. The coming months will be crucial as Venezuela grapples with the impact of this new policy and tries to navigate the complex web of US sanctions.

Source: Reuters

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