U.S. Mulls Sanctions on Venezuela’s Oil Sector in Response to Election

July 31, 2017, 3:22 AM UTC
Anti-government activists scatter upon being charged by riot police during a protest against the election of a Constituent Assembly proposed by Venezuelan President Nicolas Maduro, in Caracas on July 30, 2017. Deadly violence erupted around the controversial vote, with a candidate to the all-powerful body being elected shot dead and troops firing weapons to clear protesters in Caracas and elsewhere. / AFP PHOTO / JUAN BARRETO (Photo credit should read JUAN BARRETO/AFP/Getty Images)

Potential U.S. sanctions on sales of light crude to Venezuela’s oil company PDVSA would hamper its already weak refining network while leaving at least one tanker in limbo, according to a source from the state-run firm and Thomson Reuters data.

U.S. officials said the Trump administration is expected to announce new sanctions on Venezuela’s oil sector in response to Sunday’s election of a constitutional super-body that Washington has condemned.

Even though the White House has said that “all options are on the table,” the most likely action, banning Venezuela from importing U.S. oil, could come as early as Monday.

PDVSA has this year imported 87,000 barrels per day (bpd) of U.S. refined products to compensate for its ailing refining network, which has this year operated at less than half its capacity due to lack of crude, frequent outages and lack of spare parts.

About a half of those imports are heavy naphtha, bought by PDVSA to dilute its extra heavy oil output and make it suitable for export. The typical suppliers of this product are trading and oil firms that have close relationship with PDVSA, including Russian energy giant Rosneft.

PDVSA also regularly buys U.S. light crude for processing at its Isla refinery in Curacao and to formulate an exportable Dilute Crude Oil (DCO) blend that is shipped from the Caribbean island to customers in the United States and Asia.

PDVSA has this year bought 19,000 bpd of U.S. crude arriving in Curacao, down from 30,000 bpd imported last year because of payment delays, according to data from the U.S. Energy Information Administration (EIA).

The Aframax tanker Tulip, chartered by Britain’s BP, has been waiting since mid-May around Curacao to discharge some 500,000 barrels of U.S. light crude for which PDVSA has not paid, according to Reuters data and a company source involved in the sale.

Accumulated demurrage charges were $1.7 million as of July 28. U.S. sanctions may prevent the vessel from discharging its cargo, the source noted.

A 100,000 bpd reduction in imported crude and products is seen by analysts and sources as the United States imposing light sanctions. Even at higher prices, PDVSA would still be capable of importing from Rotterdam or any other dynamic market for spot oil cargoes.

The United States, which in July said would take “strong and swift economic actions” if President Nicolas Maduro goes ahead with the Constituent Assembly, could also further sanction senior Venezuelan officials after acting against 13 prominent figures last week.

The Trump administration has also considered measures to restrict access by the Venezuelan government and PDVSA to the U.S. banking system. But it is not clear whether the United States was ready to take such action or would instead hold it in reserve if further escalation was deemed necessary.