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March 27, 2018
Venezuela’s Petroleum Sector and U.S. Sanctions
In response to the ongoing political and economic crisis in
Contributing factors to Venezuela’s crude oil production
Venezuela, the United States has imposed targeted
decline include (1) using oil revenues for general
sanctions on certain Venezuelan individuals as well as
government programs resulting in limited cash availability
broader financial sanctions on the Venezuelan government
to pay for operational expenses such as oil field services
and the state-owned oil company Petroleos de Venezuela,
contracts, (2) non-optimal reservoir management due to
S.A. (PdVSA). On February 4, 2018, then-Secretary of
inadequate investment in production asset maintenance, (3)
State Rex Tillerson remarked that the Administration is
loss of experienced PdVSA personnel, and (4) government
considering sanction options that may limit U.S. petroleum
policies that affect cash flow and deter private investment.
trade with Venezuela. As Tillerson acknowledged, a
challenge with such sanctions is balancing the desired
U.S.-Venezuela Petroleum Trade
effects on the Maduro government with potential negative
Petroleum trade between the United States and Venezuela is
effects on the Venezuelan people, U.S. consumers, and U.S.
bilateral, although heavily weighted towards Venezuela
business interests. The following discussion examines
crude oil exports to U.S. refiners (see Table 1). Generally,
Venezuela’s oil production, U.S.-Venezuela petroleum
in terms of sanction considerations, the larger the trade
trade, and the potential effect of various types of petroleum
volume the larger the impact of sanctions for each
sanctions on the Venezuelan and U.S. oil sectors.
petroleum category.
Venezuela Crude Oil Production
Table 1. U.S. and Venezuela Petroleum Movements
Production and export of crude oil is a critically important
Thousand Barrels Per Day
element of the Venezuelan economy. According to the
Organization of the Petroleum Exporting Countries, the oil
U.S. Exports to Venezuela
and gas sector represents approximately 25% of

2016
2017
Venezuela’s gross domestic product and accounts for 95%
Crude Oil (to Curacao)
30
15
of export earnings. In 2016, Venezuela produced 2.3
million barrels per day (mbpd) of crude oil; 0.5 mbpd was
Petroleum Products
75
77
consumed domestically and 1.8 mbpd was exported.
Venezuela Exports to the United States
Venezuelan crude oil production has been trending
Crude Oil
741
618
downward since 1998 when oil production peaked at
approximately 3.4 mbpd. Between 2012 and 2017
Petroleum Products
55
55
production has declined by more than 0.5 mbpd on an
Source: Energy Information Administration, Imports/Exports and
annual basis with 2017 production just below 2 mbpd.
Movements, http://www.eia.gov, accessed March 2018.
According to the International Energy Agency (IEA), oil
production is projected to continue declining—even without
Potential Impact of Petroleum Sanctions
the effect of targeted U.S. sanctions—through 2021 to just
Various sanction options on Venezuela’s petroleum sector
over 1 mbpd, less than half of 2016 production levels (see
are reportedly being considered by the Administration as a
Figure 1).
potential means of applying economic pressure on the
Maduro government. Generally, the economic impact of
Figure 1. Venezuela Crude Oil Production 2012-2023
sanctions will depend on the timing (e.g., immediate versus
phased) of each option as well as whether or not such
sanctions are unilateral (i.e., U.S. only) or multilateral (i.e.,
U.S. cooperation with other countries). The following
discussion assumes that potential sanctions are unilateral.
Prohibit U.S. Crude Oil Exports to Venezuela
In 2017, the United States exported 15,000 bpd of crude oil
to Curacao that was used as a feedstock at PdVSA’s
330,000 bpd Isla Refinery. U.S. crude oil exports to
Curacao started in 2016 following a legislative repeal of
restrictions that prevented U.S. crude oil exports to most
countries. Prohibiting the movement of these barrels would
result in PdVSA having to find alternative sources of
similar crude types, which could potentially result in a
short-term price premium for the replacement crude oil.
Source: International Energy Agency, Oil 2018, March 2018.
Given the relatively low volume of crude exports to
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Venezuela’s Petroleum Sector and U.S. Sanctions
Curacao, in addition to global waterborne crude oil trade,
An immediate prohibition on U.S. crude oil imports from
prohibiting these exports would likely have a small and
Venezuela could result in a shock to global oil market and
limited economic impact on PdVSA’s operations.
would create a constraint in the world oil supply system.
From the perspective of Venezuela, the country would lose
Prohibit U.S.-Venezuela Petroleum Product Trade
access to a close-proximity market that provides much-
Venezuela exported 55,000 bpd of petroleum products to
needed cash flow to the government. Venezuela would need
the United States in 2017. In turn, the United States
to find alternative markets for these crude volumes, with
exported 77,000 bpd of petroleum products to Venezuela.
India and China being likely destinations. Initially, in order
Prohibiting Venezuela product exports to the United States
to sell crude to alternative markets, Venezuelan oil may
would result in a small but likely manageable constraint in
need to be price-discounted. The magnitude of this discount
the petroleum product supply system. Venezuela would
is uncertain and the financial impact would depend on the
need to establish alternative markets and U.S. buyers would
prevailing market price of crude oil at the time such a
need to find alternative sources.
prohibition might be introduced.
Preventing U.S. product exports to Venezuela would likely
Venezuela may need to negotiate payment terms for cash
result in a similar outcome. Of the 77,000 bpd of petroleum
transactions with certain buyers in order to compensate for
product exports to Venezuela, approximately 50% is a
any reduced cash flow from U.S. sales. China and Russia
partially refined product called Naphtha. Most of the other
hold debt with Venezuela, much of which is to be repaid by
50% is finished transportation fuels such as gasoline and
crude oil deliveries. China has reportedly been flexible with
diesel fuel. Naphtha is used by Venezuela as a diluent to
Venezuela and has paid Venezuela cash for a portion of oil
assist with production and transportation of heavy crude oil
shipments. Debt with the Russian state-controlled oil
produced in the Orinoco region. Limiting access to naphtha
company Rosneft also includes 49% of collateral in PdVSA
could potentially impact oil production, exports of oil and
refining subsidiary CITGO, with refining operations in
related products, and associated revenues. However, there is
Texas, Louisiana, and Illinois. Furthermore, Rosneft
a global market for both naphtha and transport fuels.
acquired refining assets in India in 2017 and is reportedly
Prohibiting access to U.S. products would require
planning to use Venezuelan crude oil as a feedstock.
Venezuela to find alternative supply, likely resulting in
Rosneft is subject to U.S. sanctions related to events in
some degree of price dislocation—potential price premiums
Ukraine.
that may cause some financial strain on PdVSA and private
oil producers—as alternative sources and markets for
U.S. oil refiners would also be affected by a prohibition on
petroleum products are established.
Venezuela oil imports. Initially, prices for substitute crude
oils would likely rise in order to attract alternative sources
Prohibit Venezuela Crude Oil Exports to the U.S.
of supply (e.g., Canada and Iraq). While there are a limited
Export of crude oil from Venezuela to the United States is
number of U.S. refiners that acquire crude oil from
the largest element of petroleum trade between the two
Venezuela, any crude oil price increase would likely impact
countries. U.S. imports of Venezuelan crude oil peaked in
all refiners. U.S. oil producers, on the other hand, would
1997 at 1.6 million bpd. In 2017, Venezuela supplied
benefit financially from an increase in oil prices.
approximately 618,000 bpd of crude oil to U.S. refineries,
most being located in the Gulf Coast region. However, on a
Over time the world oil supply system would reconfigure in
monthly basis, U.S. imports of Venezuelan crude declined
order to accommodate a U.S. oil import constraint. Crude
from 812,000 bpd in April to 437,000 bpd in December
oil prices would adjust and would ultimately reflect any
2017 (See Figure 2).
inefficiency in the oil transportation system. Arguably, the
oil supply system has been gradually adjusting since at least
Figure 2. Monthly Imports of Venezuela Crude Oil
the beginning of 2017. Venezuela crude exports to the
United States are down considerably and U.S. refiners have
been sourcing heavy crude oil from alternative suppliers.
Oil and Gasoline Price Considerations
Sanctions that might prohibit U.S. crude oil exports to
Venezuela and petroleum product trade between the two
countries would likely have a short term impact on the price
of crude oil and ultimately transportation fuels (e.g.,
gasoline and diesel fuel) for U.S. consumers. An immediate
prohibition of U.S. crude oil imports from Venezuela would
put upward price pressure on crude oil purchased by U.S.
refiners until the supply system adjusts for this constraint.
To the extent that higher crude oil prices are reflected in the
price of petroleum products, U.S. industries and consumers
would also be affected.
Phillip Brown, Specialist in Energy Policy
Source: Energy Information Administration.
IF10857
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Venezuela’s Petroleum Sector and U.S. Sanctions


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