Russian oil business in Venezuela hinders dialogue between the US and Maduro

Much has been written about the obstacles that hinder a détente between the United States and Venezuela that would allow the South American nation’s oil to begin to flow more freely to international markets. However, one of them has been overlooked: the presence of a Kremlin-owned company in Venezuela’s oil fields.

The company, called Roszarubezhneft, has a 40% stake in five joint ventures with Venezuelan state oil giant PDVSA. Together, they produce about 120,000 barrels a day of crude, or 15% of the country’s current production.

The economic sanctions that have recently isolated the regime in Vladimir Putinincluding the ban on imports of fossil fuels in United States and the United KingdomAfter the Russian invasion of Ukrainehave pushed oil prices above $100 a barrel and made it difficult to find new supplies to replace Russian crude.

Last weekend, the Biden Administration sent a delegation to Caracas, breaking with a US policy that for years refused to recognize the Government of Nicholas Maduroto discuss a possible suspension of some of the sanctions that have paralyzed the ability of Venezuela to export crude.

The United States would be willing to relax economic pressure on Venezuela depending on the outcome of upcoming talks between Maduro and the opposition, a senior Biden administration official said. This indicates that the president Joe Biden he wants to see progress toward restoring democratic governance before allowing Venezuela to increase its oil exports.

Maduro appears to be giving in to the United States, once a major importer of Venezuelan crude. Days after hosting the meeting in Caracas, he released former Citgo executive Gustavo Cárdenas, a US citizen, and Jorge Fernández, a Cuban-American. The Venezuelan leader also said formal talks with the opposition, which began last year in Mexico and have been on hold for months, should be reconsidered.

Putin-Chavez Agreements

Russian companies increased their presence in the country after the late Hugo Chavez and Putin reached a series of agreements in 2010 as part of Venezuela’s turn towards Russia and China. The new allies filled the void left by a deteriorating relationship with Washington, providing military equipment, loans and investments in the oil industry.

At the height of Russia’s presence in the country, Rosneft, Gazprom PJSC and Lukoil PJSC were among a handful of firms that had stakes in oil fields and a heavy crude refinery on the country’s Caribbean coast.

Russia’s largest oil company, Rosneft, invested more than $7 billion in loans to PDVSA and operations in five onshore companies, and also won two offshore gas operations. Since then, Venezuela has paid its debt.

Dealing with PDVSA has come at a cost. One of the Rosneft companies was sanctioned in 2020 by the United States for maintaining links with Maduro and PDVSA. To prevent further damage, Rosneft sold all assets to Roszarubezhneft. And like other large international oil companies, Russian companies have decreased their production due to lack of financing, maintenance and exodus of qualified personnel from PDVSA.

Venezuela’s crude industry has made a surprising if modest rebound since 2020, even though its total production of around 800,000 barrels a day is a fraction of the more than 3 million barrels that once made it a energy giant. Energy analysts estimate that the industry can further boost production if oil can flow freely and the country can import much-needed parts and equipment.

However, The United States and Venezuela appear far from any agreement that would allow for widespread sanctions relief. On Thursday, White House press secretary Jen Psaki downplayed the likelihood of a deal on oil imports being reached any time soon. On the same day, the Vice President of Venezuela, Delcy Rodríguez, met with the Russian Foreign Minister, Sergey Lavrov, in Turkey to review bilateral relations.

It is not clear how the United States would handle the problem that some of Venezuela’s oil is extracted with the help of Russia.