Venezuela’s Diesel Shortage Raises Expectations about Future Biden decisions

The oil sanctions that Trump imposed on the Latin American country have led to a shortage of that fuel that worsens the humanitarian crisis

The arrival of Joe Biden to the White House has multiplied expectations in Venezuela about the beginning of a new diplomatic approach between Washington and Caracas and the possibility of a relaxation of the sanctions that the Administration of Donald Trump imposed on Chavismo . One of those restrictions consists of the “prohibition” of the exchange of Venezuelan crude for diesel fuel from abroad, necessary to transport food and other essential activities for the lives of citizens. But a careful analysis of the measures shows that it was not formally a ban, but a discretionary decision of the former president and that the best thing for Venezuela is that the United States simply does not do anything about it.

In January 2019, Trump tightened sanctions against the Government of Nicolás Maduro , which he called “corrupt,” and claimed that the measures were necessary so that “they can no longer loot the assets of the Venezuelan people. That decision blocked all the properties and interests of PDVSA , the state oil company, which are subject to US jurisdiction and prohibits US citizens from transacting with them. If a company wishes to do business with PDVSA, it can do so, but the proceeds from the purchase of Venezuelan oil are held in a bank account in the United States that belongs to Citgo., a subsidiary of the oil company in that country. This account is blocked by the US Administration, therefore, the Maduro government stopped having access to the funds.

This is how the barter began. While it couldn’t sell its oil for cash, Venezuela could trade its crude for diesel. In many cases, it did so to pay off debts with refining companies, so the United States did not interfere. By August of last year, 80% of scheduled Venezuelan crude deliveries abroad were through diesel exchanges, according to information from Bloomberg. It was then that the Trump administration lost patience and gave the refiners a deadline: they had until October to make the exchanges. The barter had to end.

This request, however, is not formally included in the sanctions , so an expectation that the Biden administration will allow barter again is not technically feasible. Washington’s previous decision was discretionary and if the State Department under the new Administration wanted the exchanges could continue. It would be enough if the new US authorities, who took office with Biden on January 20, did not interfere.

“Nicolás Maduro is a dictator,” State Department spokesman Ned Price said at a press conference on February 3. “The primary objective of the Biden-Harris Administration is to support a democratic and peaceful transition in Venezuela through free and fair presidential and parliamentary elections,” he said. When asked whether contact with the Venezuelan government will be sought, Price only said it would not be soon.

The exchange issue is one of the many issues associated with US sanctions, says Patricia Ventura, director at IPD Latin America, an energy consulting firm. “We did not expect the sanctions policy to be adjusted immediately, because there are other very clear priorities for the Biden Administration , but the relaxation of sanctions for humanitarian reasons will be addressed sooner rather than later. This would open the door to resume diesel swaps , ”says the specialist.

  • Venezuelan President Nicolas Maduro, gestures while speaking during a press conference at the Miraflores presidential palace in Caracas on February 17, 2021. - Venezuela will kick off its vaccination campaign against covid-19 this Thursday, following the arrival of the first 100,000 of 10 million doses of Russian Sputnik V vaccines, with health personnel and government authorities in the first phase, President Nicolas Maduro said.  (Photo by Yuri CORTEZ / AFP)

    Maduro offers to send gas to Mexico in the face of the crisis due to the storm in Texas

The anxiety and expectations around barters are due to the importance of this fuel for Venezuela. In an online forum coordinated by the non-governmental organization Washington Office on Latin America (WOLA) on February 12, the representative of the Chamber of Transport of the Center of the Country in Venezuela, Marien Vielma, said that 95% of the supplies in the country are transported by land, so they use diesel. “I would say that 100% of goods, merchandise, food, medicine, all essential goods and services are dispatched, they are distributed to vulnerable areas and the entire country by land,” said Vielma.

If in two or three months a solution is not found to the diesel shortage that the country currently suffers, transportation will be paralyzed, Vielma said. “The time comes when we have to look for solutions because we have a shortage that is not discriminating sectors that are encompassing the entire economy of the country,” he said. “This year we see that the consequences will be very strong if in the next quarter we do not resolve, if the national government does not find a way out, that is, the entry of diesel here.”

To this is added the lack of data, since PDVSA has not published information on its diesel inventories. Estimates of how much diesel the country has left to operate varies. It is known that Venezuela imported this fuel until November last year and that the authorities are trying to increase the installed refining capacity, which is currently at 13%, says Ventura.

Venezuela had the capacity to refine all the fuels it needed, explains the economist Francisco Rodríguez, but in recent years the lack of investment, qualified personnel, corruption and the sanctions imposed by the United States have been mixed to bring down the production of its refineries. “There is considerable evidence that the sanctions have affected the operation of the oil industry and refining capacity.”

“Venezuela was a country that was quite integrated and its oil sector was quite integrated with the North American economy. So the inputs that Venezuela receives for its refineries were mainly imported from the United States and as a result of the oil sanctions, these ties were broken. And when you are sanctioned by the United States, it is not so easy to get these things sold to you elsewhere, ”says Rodríguez.

It is not about the Biden government now “turning a blind eye,” says Rodríguez, because that could suggest that there is some irregularity or violation of the law that they have decided to ignore. While Maduro is evading a ban imposed by the United States, what he is doing is not strictly illegal. “What happens is that the United States has the ability to punish the companies that do business with it, with its own instruments, which are discretionary, they are instruments of policy.”

Rodríguez, through his foundation Petróleo por Venezuela, advocates for the creation of a mechanism in which companies can exchange Venezuelan oil for food or medicine without being sanctioned by the United States, which would require that the distribution of resources be supervised by the international community. “This should not be an issue only with respect to diesel, it should be an issue that is discussed more widely with everything that affects the Venezuelan humanitarian crisis, ” says the economist.

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