The Strategist

Experts: Venezuelan oil export nearly stops

06/13/2019 - 12:18

US sanctions against Venezuela resulted in additional drop in production by 35% since the beginning of the year, experts at the Washington Institute of International Finance estimated. Recall that in late January, the United States banned transfer of funds from the United States to the accounts of the main state-owned oil company Petroleos de Venezuela, Sociedad Anonima (PDVSA), effectively stopping the export of Venezuelan oil to the country. Washington also limited possibility of importing petroleum naphtha (necessary to liquefy heavy oil). The interruption in electricity supply and long-term problems in the management of the state-owned company have also had a negative impact on production, according to IIF.

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This decline is unprecedented by historical standards - it was smaller even in Iran after the US left the nuclear deal and renewed the embargo in May 2018. In such cases (IIF analyzed 21 cases, including in Iraq and Libya), on average, production was reduced by 20% over three years. In Venezuela, while maintaining the current rate, the decline is likely to continue. The lack of resources to support infrastructure projects may be even more significant factor than the sanctions as presence of buyers in Asia allows PDVSA to partially redirect export flows. According to the International Energy Agency (IEA), shipments in April fell to 830 thousand bpd (minus 610 thousand bpd to the data of a year ago).

For Venezuela, oil is the latest source of foreign exchange. Reduction in its exports will mean a continued decline in imports, which will exacerbate the shortage of basic consumer goods. If we deduct liabilities on repayment of foreign debt from foreign currency earnings, then the funds for import purchases remain even less. The relationship between production and GDP of Venezuela in US dollars is almost direct - calculations in national currency make hyperinflation and multiple exchange rates difficult. From a peak in 2013, the country's GDP fell from $ 330 billion to $ 80 billion, follows from a model built by the institute's experts based on data on oil supplies and prices. The Central Bank of the country, which published statistical data on the state of the economy at the end of May for the first time in three years, reported that revenues from oil exports in 2018 amounted to $ 29.8 billion compared to $ 31.5 billion in 2017 and $ 25.9 billion in 2016.