The Strategist

US sanctions make Venezuela scale down oil prices

11/12/2019 - 09:15

Venezuela is forced to sell oil at reduced prices, since US sanctions against the government of President Nicolas Maduro are having an increasingly negative impact on its most important source of income, the Financial Times writes with reference to analysts.

Voice of America
Voice of America
According to them, since the imposition of sanctions, the country has been experiencing problems with the purchase of necessary materials for the oil industry, as a result of which it has to offer cheaper oil blends at a great discount.

The Financial Times notes that oil provides more than 90% of Venezuelan export revenue, and the country's ability to sell it abroad is critical for Maduro if he wants to stay in power. Since the beginning of this year, the United States has sought the removal of Maduro and replacement of him with opposition leader Juan Guaidó.

Although these efforts have not yet been successful, oil production in Venezuela continues to fall due to sanctions and is now at its lowest level since the 1940s.

Before Washington imposed sanctions on the oil industry in January this year, Venezuela imported naphtha - mainly from the United States - and mixed it with viscous oil, which was then sent to refineries in the Gulf of Mexico. This mixture was sold at a discount to Brent at about $ 7 a barrel.

But analysts with the Financial Times said that Venezuela’s growing lack of access to naphtha, which is used to dilute viscous oil and transport it through pipelines, made the country sell another, less profitable blend of oil produced internally. 

Lack of access to naphtha is additionally complicated by a shortage of marine vessels. As countries are turning away from Venezuela, either because of a desire to isolate Maduro, or because of fear of violating US sanctions, the number of tankers calling at Venezuelan ports has declined.

Washington’s punitive measures mean that Venezuela has lost access not only to its largest market - the United States, which until this year bought about 40% of the oil exported from the country, but also to other markets. Even the Chinese state corporation China National Petroleum Corp., one of the largest buyers of Venezuelan oil, said it had suspended purchases.


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