- Revoking Chevron’s license in Venezuela could drive oil sales back underground, reducing transparency and benefiting corrupt intermediaries.
- Sanctions on Venezuela have had mixed effects.
- Removing licenses may disrupt Venezuela’s foreign exchange market and private sector.
On 26 February, U.S. President Donald Trump announced his intention to end General License 41, which allowed Chevron to operate in Venezuela despite sanctions. Meanwhile, there are other “specific licenses” for oil and gas companies at risk. The U.S. Treasury’s Office of Foreign Assets Control (OFAC) had created a system to monitor at least part of Venezuela’s oil industry by waiving sanctions for certain American, European, and Indian companies but with strict limitations.
Four corporations that were authorized by licenses or comfort letters—Chevron, Repsol, Maurel et Prom, and Eni—contributed to a production of 325,000 barrels per day (bpd) in January, to the country’s total of 1,068,000 bpd, according to PDVSA, the state-owned energy company. Mukesh Ambani’s Reliance Industries and Harry Sargeant’s Global Oil were also authorized to ship Venezuelan petroleum products.
What does it mean if the “Chevron License” is over? Is there a way to know who will be the winners and the losers after Trump’s decision? How will the revocation impact the oil market, geopolitics, and the Venezuelan economy?
We have one benefit. We have seen how financial and economic sanctions were introduced and intensified from 2017 to 2020 under the first Trump term and then how they were eased via licenses under Biden. While there are many more variables at play affecting Venezuela’s politics, economy, and its oil sector, we can form a good understanding of who wins and who loses with tougher sanctions.
What was the purpose of the Chevron license? The Chevron authorization, and later the specific licenses, were carefully designed to maximize recouping debt and minimize cash flows to the Venezuelan state in a country with an oil sector that has the highest government take in the world.
Juan González oversaw policy towards Caracas under the Biden administration, as National Security Council Senior. He was the lead designer of General License 41. He says that the idea was to allow Chevron to recoup its debt while bringing transparency to the sector and limiting cash flows to the Maduro government.
“Before the Chevron license, Venezuela sold all its oil on the black market, pocketing every dollar. With the license, most of the oil revenue [from joint ventures with Chevron] went to pay off debt, leaving the regime with less money—not more. Revoking it doesn’t punish Maduro; it just drives oil sales back underground, undermining U.S. leverage,” says Gonzalez. Under the license, “the regime only got taxes and royalties, and the rest went to Chevron.”
Many foreign policy analysts have argued that sanctions can work as a “shock and awe” weapon but that they lose effectiveness over time as targeted states gradually adapt. While some argue that revoking the Chevron license will push oil sales underground, proponents of stricter sanctions believe that cutting off all revenue streams will increase economic pressure on the Maduro government, potentially leading to political concessions.
Who benefits? Corrupt officials like opaque systems.
A strict sanctions environment is where shady intermediaries and corrupt officials are allowed to flourish. The targeted state has no choice but to hide data on production, exports and revenue, at the expense of transparency and accountability.
In the Venezuelan case, we have seen shadow fleets charging higher freight costs for older, rundown tankers. Shipping companies also had to turn off radars at sea and carry out ship-to-ship transfers. There would also be added layers of separation between PDVSA and the final buyer. Altogether, exports became riskier and more costly, benefitting intermediaries.
Certain PDVSA managers have also profited. There is the infamous corruption scandal where the then Oil Minister Tareck El Aissami flourished under the strictest period of sanctions. In March 2023, it was leaked to Reuters that PDVSA had $21.2 billion in unpaid bills from intermediaries.
El Aissami managed the oil sector from April 2020 until his downfall in March 2023, when the scandal was uncovered. In that time, he constructed an opaque system to produce and sell Venezuelan oil. He did manage to ramp up output, from a trough of 393,000 bpd in June 2020 to 754,000 bpd when he was forced to resign.
But with virtually all transactions carried out with cash and crypto, and sales numbers hidden from the public, El Aissami and his associates were able to divert billions of dollars. The final count of all the damages caused is not available to the public.
“Grey market” importers in China buy at a discount
In a scenario of all-out sanctions, even major Chinese companies shied away from Venezuelan oil. But there are always willing buyers, in black or “grey” markets, with a low-enough price. And that is the key: in the period from 2019 to 2022, the discount of Venezuela’s Merey to the Brent benchmark could be as high as $35.
PDVSA still exports part of its crude via Malaysia, where it is rebranded, and then on to China. However, their share fell in the last two years as more North American, European and Indian buyers were allowed by the OFAC to enter the market.
In the book On Sanctions in Venezuela, economists Asdrubal Oliveros and Juan Palacios show that in 2023, the U.S., Spain and India represented 34% of Venezuelan oil exports, while China and Malaysia took 51.6%. In 2024, their shares virtually inverted, with 56.2% going to the first group and 26.8% to the second.
Diluent imports: Iran says “take it or leave it”
The Orinoco Oil Belt, the formation with the largest known reserves of crude, has mostly extra heavy oil, like bitumen. It is too sticky even to move through pipelines, so it needs to be mixed with diluents, like gas condensate at a ratio of 3.5 to 1. Later, other petroleum products are needed to refine heavy crude for a final product, like car fuel.
Many of these diluents are produced locally, but a vital share is imported. For decades, the U.S. was the main oil partner, and thus provided the lion’s share. At the toughest point of sanctions, Iran became the sole provider of diluents for Venezuela.
Currently, there are series of OFAC licenses and comfort letters for U.S., European and Indian companies to swap vital inputs for Venezuela’s oil industry, as a way to pay part of their bill with PDVSA.
However, between 2020 and 2022, Iran was the only source of diluents. There really was no one else. In Venezuela, many will remember waiting with anxiety for the arrival of Iranian tankers, also targeted by sanctions themselves, which would be essential to produce car fuel. Many external observers then were shocked to see that a petrostate needed oil imports.
An Atlantic Council paper shows that from July 2021 and July 2023, Iran gave Venezuela 35 million barrels of condensate, in return for 47 million barrels of crude, with most shipments sent for China at steep discounts. That was not a bad deal for Iran.
Who loses?
The Venezuelan foreign exchange market might stand to lose the most, and with it the private sector. Chevron, as well as the other oil companies, have to make large payments in bolívares, such as for taxes, covering the payroll, and purchasing services.
Even while the Venezuelan economy is highly dollarized, many transactions are carried out in the local currency—though using the dollar to set the price. Furthermore, the OFAC licenses authorize companies only to pay in bolivars, as opposed to the greenback.
Energy corporations thus sell hard currency through private banks, which are then bought by local companies, for example, if they need to buy imports. Without licenses, the market dries up. Corrupt officials such as Tareck El Aissami had no need to trade in their dollars, instead stashing away whatever they do not spend on consumption.
Asdrubal Oliveros, a Venezuelan economist, argued in a radio interview that 85% of the nation’s income comes from oil exports, which would be about $15 billion. “The net effect [of removing GL 41] is that the country would lose $3.1 billion this year.”
On the other hand, some policymakers contend that removing sanctions too soon could provide the Maduro government with financial relief without securing meaningful democratic reforms.
By Elias Ferrer via Orinoco Research
Energy News Beat