Under heavy sanctions pressure from Washington, Venezuela's government is struggling to maintain its oil export lifeline. Such exports account for virtually all of Venezuela's export and fiscal revenue. But though redirecting exports to Asia will buy the Maduro government some time, Venezuela's long-term financial stability will continue to decline in 2019 — leaving the political situation there more tenuous than ever.
Venezuelan state-owned energy company Petroleos de Venezuela (PDVSA) has ordered its European offices in Lisbon, Portugal, moved to Moscow, according to a March 1 report. The announcement coincided with a visit by Venezuelan Vice President Delcy Rodriguez to Moscow to meet with Russian Foreign Minister Sergei Lavrov.
Why It Matters
The move to Moscow could allow Venezuela to shift PDVSA personnel and documents beyond the reach of European investigators and prosecutors — and U.S. sanctions.
In the past month, the company has meanwhile redirected crude exports away from the U.S. Gulf Coast to India and China. Exports to India alone now account for around about 620,000 barrels per day (bpd) of the country's 1 million bpd in exports. This figure suggests that at least for the next few months, PDVSA has averted a sharp decline in exports. And this means that in the short term, the government of Venezuelan President Nicolas Maduro will remain able to fund some food imports — and continue to pay military commanders, whose loyalty Maduro depends on.
The properties of Venezuelan crude and the threat of U.S. sanctions will limit how much of the country's oil exports Asian buyers can absorb over the next few months.
But the long-term outlook for Maduro government's is grimmer. The properties of Venezuelan crude and the threat of U.S. sanctions will limit how much of the country's oil exports Asian buyers can absorb over the next few months. Meanwhile, Venezuelan oil production will continue its decline. As the country's export revenue accordingly continues to shrink in 2019, Maduro's continued governance will become even more reliant on the loyalty of the Venezuelan armed forces — and on the repression of his political opponents amid a surge of popular discontent and a coup threat from some military elements.
The U.S. Treasury Department enacted heavy sanctions on Venezuela's oil sector, including PDVSA, on Jan. 28. The move spurred Venezuela to change its trade patterns in an effort to compensate for the loss of its U.S. market, which until late 2018 had accounted for about half of all its oil exports.