Will Venezuelan oil replace Russian oil?

On November 26, the administration of Joe Biden renewed for six months the license of the American company Chevron to expand the development of oil fields in Venezuela and to transport Venezuelan oil to the United States.

Despite the fact that the probability of approval of such a decision was known a few months ago, due to the war in Ukraine and especially the approach of the date of entry into force of the EU embargo on the import of Russian oil (December 5), it caused considerable interest.

The reaction ranges from inflated hopes for a complete replacement of Russian oil and the expectation of radical changes in the global oil market to denial of the possibility of any positive outcome.

The mentioned license allows the production and extraction of oil and oil products by four joint ventures created by Chevron with the Venezuelan state oil company PDVSA. Before the introduction of sanctions in 2019, these companies collectively produced almost 200,000 barrels/day.

The license is defined as “limited” because it involves certain restrictions on the company’s activities. First of all, for now it is about oil production only in the amount necessary to cover Venezuela’s debt to Chevron.

The oil produced by the joint ventures must be sold by Chevron itself and delivered exclusively to the US, with no taxes or interest being paid to the Venezuelan government, nor dividends, including in the form of raw materials, to Venezuela’s PDVSA and any joint venture in which it owns more than 50% of shares. Transactions with any Venezuelan companies linked to Russia and Iran are also prohibited.

According to Bloomberg, Chevron has already started preparing the first batch of 1 million barrels of oil. for late December delivery to US refineries.

The authors of numerous publications in the world media refer to the statement quoted by the Associated Press, allegedly made by a high-ranking American official on condition of anonymity, that the decision to grant a license to Chevron is in no way connected with the efforts of the Biden government to find a replacement for Russian oil against due to the war in Ukraine, to expand production energy carriers in the world and influence the formation of prices on the world oil market. There is some truth in this.

There is certainly no chance of a complete replacement of Russian oil with Venezuelan oil. Venezuela does not produce the necessary amount of oil and is currently unable to quickly establish large-scale production due to wear and tear of equipment, which periodically leads to the shutdown of individual enterprises. Even if production increases to a maximum of 3 million barrels per day, as was the case in the best years, this volume cannot be compared with the 11 million barrels per day produced in Russia until recently.

The same can be said about the possibility of lowering oil prices on the world market, which have increased as a result of Russian aggression and as a result of reduced production by OPEC countries: the supply volumes will not be large enough to significantly affect this.

Substitution of Russian oil was indeed not the main goal from the very beginning of the changes in US policy towards Venezuela. News that the Biden administration is considering Chevron’s request to grant permission to receive Venezuelan oil at the expense of the debt appeared in the world media on February 7, 2022 — even before the start of a large-scale Russian invasion of Ukraine, although already at a time when its probability was seriously considered by American military.

The reason for easing the sanctions was primarily the need for the American economy to restore oil supplies from the country, which has the world’s largest proven deposits (300.878 billion barrels), produced up to 3 million barrels per day in the best years and exported up to 1.8 million barrels. ./day to the USA, its main sales market.

However, it should not be denied that it was the Russian aggression against Ukraine that accelerated the decision-making by the US government and contributed to its reaching agreements with the Venezuelan government on this and other issues.

Caracas has also become more interested in negotiations since the beginning of the aggression: due to fears that the embargo on the purchase of Russian oil will increase competition from Russia in those markets where Venezuela has established itself, especially in the Chinese market, which receives almost 70% of its oil/

The American government has assured that further easing of sanctions will depend on the willingness of the Venezuelan government to cooperate with the opposition and hold democratic elections.

Unfortunately, the supply of Venezuelan oil is not relevant for Ukraine so far due to its limited volume: without supplies from other countries, it will not be able to help dislodge Russia from the world oil market and deprive it of profits in this field in the near future. In this case, the efforts of the Biden government aimed at diversifying the oil market, including helping to overcome the aggressor, are more important for Ukraine.

Also, unfortunately, Caracas still largely remains a friend of Moscow, although it condemns the war. Venezuela still receives information mainly from Russian sources and continues to officially support the fake Russian thesis that the US and NATO policies forced Russia to attack Ukraine.

It is unlikely that the Venezuelan government will radically change this position in the near future – unless its negative rhetoric towards the United States softens a bit and it does not express its unequivocal full support for Russia’s actions. However, in each case, Caracas took the first steps towards democratization and establishing relations with the USA.

Oleksandra KOVALYOVA, associate analyst of the Center for Global Studies “Strategy XXI”

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