- Venezuela continues to face an economic, political and human rights crisis
- Venezuela’s Crude oil production and exports pick up several months post the US sanction
Venezuela’s economic and political crisis seems far from settled since we last published our blog on, “Venezuela facing a deep economic crisis”. As we had pointed out in the previously published blog, the Venezuelan crisis was not one that was orchestrated by external forces nor from internal unrest- it was solely manufactured by those in positions of power and to this very day, it continues to be. Several thousand continue to flee as the country’s human right crisis only seems to deepen by the day. As per estimates, approx. 4.7 mn people (c. 16% of the country’s population) have already fled the country with this number likely to shoot up to 6.5 mn by the end of 2020 as per an estimate provided by the UN Human rights office. The report further states that the Venezuelan economy had contracted by 25.5% in 2019 translating to a cumulative loss in GDP of 62.2% since 2013. With no relief from hyperinflation; food, medicines and other basic commodities continue to remain unaffordable for the masses. Lack of critical supplies and money is leading to heightened levels of malnutrition in children, with estimates that the rate of undernourishment has quadrupled since 2012. The UN Food & Agriculture Organization further finds in its reports that the lives of approx. 300,000 people were at risk due to the scarce availability of lifesaving medications as well as medical treatment. While electricity and water supply is scarcely available for the public, Venezuela has turned into one of the most violent countries in the world.
On a rather positive note, however, even amidst the ongoing political and economic turmoil, PDVSA (Petróleos de Venezuela SA), Venezula’s oil giant has reported a slight increase in the output in November 2019. As per direct reporting to OPEC, Venezuela’s monthly crude oil production increased to 912,000 BPD in November, up 20% from 761,000 BPD in October last year. EIA’s monthly reporting, however, shows a more subdued increase of 8%, with 697,000BPD being produced in Nov 2019, up from 650,000 in the prior month. Exports as well average around 1 mn BPD as the country exported its surplus stored crude.
These stats bear good news for PDVSA who has seen crude oil production plummet severely from 2017’s and 2018’s levels of 1.925 MBPD and 1.431 MBPD owing to US sanctions. The sanctions bore more misfortune to the already debt laden, corrupt and highly mismanaged operations of PDVSA. Prior to the trend reversing in October last year, production figures had steadily fallen owing to implementation of a US oil embargo in January, expanding to a blanket ban on all business dealings with Venezuelan state companies. Additionally, the secondary sanctions applied on third party actors who dealt with Venezuelan state companies, thereby triggering several leading foreign companies to cancel their oil shipments including the likes of CNPC (China’s state oil company). With a view to manoeuvre from this, reportedly PDVSA has resorted to selling a very a large proportion of its crude oil production to Rosneft (Russia’s energy giant), which then reroutes it to destinations like India and China. As per a report published by Bloomberg in December 2019, Venezuela is exporting millions of barrels secretly in an attempt to bypass US controls by turning off the transponders of the vessels as they hit Venezuelan waters. The modest uptick in production numbers also stems from PDVSA resuming oil shipments to Indian buyers such as Reliance Industries after a 4-month long hiatus due to US sanction threats.
In order to further boost the operations of PDVSA, there have also been talks of the possibility of allowing private companies in JVs with PDVSA to operate oil fields by themselves, a policy that was long ago reversed by then President Chavez which mandated PDVSA retain operational control. With a view to attract FDI, Maduro has also loosened the requirement of PDVSA holding a minimum of 60% stake in JVs to mandating just a majority stake as a requirement in the new dealings.
Revival of Venezuela’s oil industry, which accounted for 99% of the legal export earnings of the country in 2018, is pertinent to the Maduro government’s continuance. Gradual degradation of this revenue stream has forced the country’s administration to increasingly depend on illegally mined gold amongst others. Further an increase in the fortune of PDVSA’s will help Maduro sustain his stronghold on the chair that he has been fighting for despite the overwhelming international pressure. That being said, any improvement in the state’s coffers owing to an increase in oil exports is rather unlikely to improve the ongoing economic and human rights crisis as the revenues generated from the clandestine exports is going in repaying off debts to China and Russia. As per Rosneft’s latest quarterly reporting, PDVSA had serviced US$ 300 mn in equivalent crude oil shipments, bringing down the outstanding debt amount to US$ 800 mn, from the previous quarters US$ 1.1 bn and December 2017’s US$ 4.6 bn outstanding debt. While the US’s attempts at ousting Maduro via sanctions has so far failed to say the least, Venezuela is employing different tactics to somehow revive its revenue stream by boosting production or improving exports; albeit these measures will hardly be enough to improve the macroeconomic or living conditions in the country. Already marred by political instability, the elections due in 2020 will have Maduro and US backed Guaidó to face another fight for power and the possibility of more stringent sanctions imposed by the US which could very well reverse the uptick in exports that seem to for now bring in some relief to the state’s coffers.