Archives for May 2011

The State Department lists PDVSA, Venezuela’s oil company, as one of their Seven Companies Sanctioned Under the Amended Iran Sanctions Act

These companies are PCCI (Jersey/Iran), Royal Oyster Group (UAE), Speedy Ship (UAE/Iran), Tanker Pacific (Singapore), Ofer Brothers Group (Israel), Associated Shipbroking (Monaco), and Petróleos de Venezuela (PDVSA) (Venezuela).

Specifically,

Petróleos de Venezuela (PDVSA): PDVSA, the state-owned oil company of Venezuela, has delivered at least two cargoes of reformate to Iran between December 2010 and March 2011, worth approximately $50 million. Reformate is a blending component that improves the quality of gasoline. The sanctions we have imposed on PDVSA prohibit the company from competing for U.S. government procurement contracts, from securing financing from the Export-Import Bank of the United States, and from obtaining U.S. export licenses. These sanctions do not apply to PDVSA subsidiaries and do not prohibit the export of crude oil to the United States.

This means CITGO, its American subsidiary, can continue to carry business as usual here in the USA – with Joe Kennedy as its pitchman.

All the same, Venezuela threatens to interrupt US oil supply
The threat came in response to new US sanctions on Venezuela’s state oil company, which currently provides about 10 percent of American oil imports

But for now, the almost 1 million barrels of oil a day that Venezuela sells to the US – 10 percent of US oil imports, more than 40 percent of Venezuela’s oil exports – remain on track. Reuters reports that past threats to interrupt the US oil supply never materialized.
…
The newest round of sanctions mark the first attempt by the US to go beyond Iran in its attempts to halt its nuclear program, which it suspects of being geared toward nuclear weapon production. Past sanctions have targeted Iranian companies and banks.

The sanctions came a day after President Obama signed an executive order giving the State and Treasury Departments more leeway to target companies involved with Iran’s energy industry, The Wall Street Journal reported. The new sanctions prevent PDVSA from competing for US government contracts, getting licenses for US exports, and receiving financing from the US Export-Import Bank.

However, this article in the Wall Street Journal explains that US Sanctions On PdVSA Don’t Hurt US-Venezuela Energy Link

But the fear of disrupting the easy flow of energy into the U.S. may have weakend the sanctions’ potency. By focusing on access to government contracts and financing, the new government sanctions would have next-to-no impact on PdvSA’s oil and refining activities, said Sarah Emerson, principal at energy consultancy ESAI Energy LLC.

Roger Noriega, writing at the American Enterprise Institute (AEI), points out what’s involved in the Iran-Chavez cooperation,

AEI will continue to work with Congress, U.S. law enforcement, and other willing prosecutors to expose and confront this dangerous “caudillo-mullah” axis.

Among the other activities that must be investigated fully and sanctioned urgently are:

—Iran’s mining of uranium and other strategic minerals in Venezuela, Ecuador, Bolivia, and elsewhere.
—Iran’s use of the Venezuelan banking system to circumvent UN sanctions and to project its network into key neighboring countries, such as Brazil.
—Chávez’s material support for a sprawling Hezbollah terrorist network for drug-trafficking, fund-raising, recruitment, training, and operations in the Americas.
—The presence of Iranian military installations, weapons, and other equipment in Venezuelan territory.

Venezuelan blogger Miguel sees the sanctions as a warning,

The sanctions imposed are really mild. Under US law, the Secretary of State had to impose at least three sanctions from the nine possible ones (see Setty’s post). People who took part in the conference call and others I talked to today, indicate the three were chosen such that would not block oil trading between the two countries. The ban on import licenses applies to future ones, not past ones, it may be bad for PDVSA long term, but basically irrelevant at this time. PDVSA does not have any contracts with the US Government and Citgo is exempt from the sanctions. Venezuela has had no access to Ex-Im bank financing for a few years.

Miguel, however, looks at the impact on Venezuela’s finances,

Perhaps the main impact of the sanctions will be on the Government’s finances. Both PDVSA and the Government have been issuing bonds mostly to create the supply for the Central Bank’s SITME system, the only legal mechanism (other than the Central Bank) to move money in and out of the country. In January, for example, PDVSA reopened the 2017, 8.5% coupon bond to pay the Central Bank US$ 1.9 billion (Or was it US$ 2 billion? Or was it US$ 2.4 billion?) which the bank has been selling via SITME. Similarly, in February it sold US$ 3 billion of a PDVSA issue, of which US$ 1 billion was kept by the Government.

The problem is that these bonds were sold at Bs. 4.3 per US$, which means that if they are sold through the SITME, the price of the bond needs to be above 81% for these institutions to break even. With the news today, PDVSA’s and Venezuela’s bond fell and the PDVSA 2022 closed below 80%, increasing possible losses if they began selling it in the SITME system. We suspect these bonds will be under pressure for a while with the news.

Indeed, PDVSA’s bonds plunged this morning. Miguel continues,

The next few days are important, after the initial rhetoric settles down, Chavez is likely to forget the topic. All he wants and needs is to be reelected, Iran may be an ally, but is not worth the sacrifice.

Maybe, maybe not. With Iran pouring money and personnel into our hemisphere, who knows what deal they might come up with to keep Chavez’s cooperation?