Rubio outlines US plan to revive oil trade in Venezuela’s ‘gangsters’ paradise’
US SECRETARY of State Marco Rubio provided fresh details on America’s plans for Venezuela’s crude exports at a Senate Foreign Relations Committee hearing on Wednesday.
He outlined the interim plan involved trading houses Trafigura and Vitol to sell sanctioned oil, the status of shadow fleet* tanker operations around Venezuela, and the hoped-for transition to a normalised oil trade.
US-licenced moves of sanctioned oil are already boosting tanker moves, according to Vortexa.
The US has licenced 12 crude liftings from Venezuela to the US aboard 10 tankers (nine aframaxes and one suezmax), totalling 7m barrels, plus 6m barrels of discharges of Venezuelan crude to Caribbean storage hubs, Vortexa said in a report on Wednesday.
In addition, nine licenced tankers (six aframaxes and three aframaxes) are currently ballasting toward Venezuela.
The more substantial upside for the tanker business would emerge if America’s audacious plan for the long-term reform of Venezuela’s oil industry doesn’t turn out to be a pipe dream.
“I’m not here to claim it’s going to be easy,” Rubio told senators. “We’re dealing with people who have spent most of their lives living in a gangsters’ paradise.”
Short-term plan for trading houses
The involvement of the two oil trading houses came out of necessity, said Rubio.
“The only reason we’re using Trafi and Vitol is short term,” he explained. “We had to move 50m barrels that were stuck and Venezuela needed to turn that into cash to avert a collapse. The fastest way to do that was for the traders to do it, because that’s the business they’re in. It’s not a permanent structure.
“Here’s the problem we faced. In the short term, Venezuela had no place to put the oil. They were running out of storage capacity. We had to move the oil to market very quickly. The only way to move it to market very quickly was to plug into these two trading companies.
“That’s a short-term fix to a very acute problem,” said Rubio, adding that the alternative was for Venezuelan production to shut down.
The concern of the US was that the government would run out of money, leading to “societal collapse”.
Funds from sanctioned oil sales under the short-term trading mechanism “will meet the needs of the Venezuelan people”, said Rubio. “They need money immediately to fund the police officers, the sanitation workers, the daily operations of government.”
Prior to the US “quarantine” on sanctioned oil in December, he said that “China was receiving oil from Venezuela at a $20 per barrel discount and they weren’t even paying money for it. It was being used to pay down debt they were owed.
“Under the arrangement we’ve entered [with acting president Delcy Rodriguez], oil is sanctioned and quarantined, but we will allow it to move at market prices — not the discount China was getting.”
China is free to buy Venezuelan oil through Vitol and Trafigura, “just like everybody else in the world, at a normal price”, he said, adding that Venezuela’s debt to China is “legitimate, and a future Venezuelan government will have to address it and deal with it as part of a broader restructuring of its debt”.
Fund for sanctioned oil revenues
US President Donald Trump said earlier this month that the US is “going to be taking the oil”. That’s not what Rubio said on Wednesday.
The funds from sanctioned oil sales are, for now, being placed in an account in Qatar; ultimately, sales proceeds will be placed in a blocked US Treasury account.
“We will say what this money can be spent on. They will submit a budget request to us. There will be an audit process to make sure that’s how the money is being spent,” said Rubio.
The Qatar account had initial funds of $500m from sanctioned oil sales, of which $300m has already been disbursed to the Venezuelan government “because they had to make payroll”. The initial disbursement will be audited retroactively.
“The funds are in an account that belongs to Venezuela, but it has US sanctions as a blocking mechanism on it,” he explained. “The money never enters our hands. We only control the disbursement. They’ve agreed to this arrangement, and that’s the key.”
There were two reasons for initially putting the fund in Qatar and not the US, he said.
“First, we had to do it quickly, before we could create the mechanism to move it to the US. The second reason, frankly, is creditors. If any of that money touched a US bank, it would have been immediately seized by a number of creditors, and that would have impeded the Venezuelan authorities’ ability to receive the funds they needed to operate.”
Not only will oil proceeds be used to meet Venezuelan payrolls, they will also be used to buy US diluent, such as naphtha, which Venezuela needs to mix with its heavy crude.
“Venezuela used to get 100% of its diluent from Russia. Now they’re getting 100% from the United States,” said Rubio.
Shadow fleet activity involving Venezuela
“Since [former president Nicolas] Maduro was removed, not a single illegal ship has headed toward Venezuela,” said the secretary of state.
Meanwhile, the new Venezuelan government has cooperated with the US to stop outbound voyages, he revealed.
“The Venezuelan authorities are now identifying ships they want us to grab. About a week and a half ago, we grabbed one of these ships. In the aftermath of [the removal of] Maduro, about five ships took off without the authorisation of the Venezuelans.
“They were controlled by some other network in the country. A lot of this oil was going outside of the [Venezuelan national oil company] PDVSA system.
“The glue that held the Maduro regime together was corruption and graft. He set up a system that guaranteed people a profit. Some people were making that profit from drugs. Some made money from an oil field that was given to them in exchange for their loyalty.
“With the cooperation of the interim authorities, we seized one of those ships, brought it back into Venezuelan waters and handed it back to the Venezuelans, who, in turn, fed it into the short-term [trading] mechanism.”
Regarding the six other tankers the US has seized, Rubio said, “All of these ships either had court orders from a federal judge that allowed us to seize them, or they were flagless vessels in the shadow fleet.
“We seized one where the majority of the crew were Ukrainian. We’ve seized others where the majority of them were Russians, or a mix.
“Our goal is to rope all of this illegal oil into a channel that goes into this account that ultimately goes to the benefit of the Venezuelan people. But this is an interim step. This is not the way we want the oil industry to look in perpetuity.”
America’s end game for Venezuelan oil
“The next phase is a period of recovery, where we want to see a normalised oil industry,” he continued. “The long-term plan isn’t to use these two trading companies.”
The end game is for the transitional fund for sanctioned oil to be wound down after sanctions are removed, and for the creation of “a normal energy programme that sells directly into the market”, with the US “out of the game”, said Rubio.
“I’m not making rosy projections on oil. It’s not a rosy projection. It’s going to happen or not. Oil companies are going to say, ‘OK, this is how much it’s going to cost us on the front and this is how much we’ll make on the back’ and they’ll decide whether it makes sense or not. They’re going to look at Venezuelan law, and Venezuelan authorities, and they’re going to make a determination.
“Within two and a half weeks of Maduro’s removal, Venezuela passed reforms to its hydrocarbons laws that basically rolled back many of the Chavez-era restrictions on private ownership and investments. It doesn’t go far enough, but it’s a big step from where we were three weeks ago.”
Rubio acknowledged the challenge, stating: “We’ve got plenty of oil around the world. Canada produces heavy crude. It’s not like Venezuela is unique. Companies are only going to invest somewhere if they know they’re going to make a profit, and where their land isn’t going to be taken from them, and if you try to, there’s a court they can go to that will enforce their contracts.
“That’s the level of certainty they’ll need in the transition process to normalise the industry. If they don’t have that, they’ll just invest their money in Guyana or some other part of the world. They’re not going to risk it.”
Rubio promised senators that the US would not financially support energy companies’ investments in Venezuela. “There is no world in which the United States is subsidising investment in Venezuelan oil,” he underscored.
“Right now, what you have in Venezuela is a corrupt and broken oil company run by the government that basically takes this money, doesn’t reinvest it at all, and sprinkles it to the people that keep the regime together.
“We just want it to become a normal oil economy. We want it to be a normal, prosperous country, not a playground for Iran, Russian and China in our own hemisphere. That’s the ultimate goal here.”
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