Venezuela's president Nicolas Maduro is funneling funds from the sale of Venezuelan oil through the Russian state energy giant Rosneft. This avoids the sanctions the US has designed to economically cripple Venezuela and drive Maduro from power.
How the system works
The Moscow Times describes how the system works: "Under the scheme uncovered by Reuters, Venezuelan state oil company PDVSA has started passing invoices from its oil sales to Rosneft. The Russian energy giant pays PDVSA immediately at a discount to the sale price – avoiding the usual 30-to-90 day timeframe for completing oil transactions – and collects the full amount later from the buyer, according to the documents and sources. "PDVSA is delivering its accounts receivable to Rosneft," said a source at the Venezuelan state firm with knowledge of the deals, who spoke on condition of anonymity for fear of retaliation."
The sales are the latest sign of the growing dependence of Venezuela's cash-strapped government on Russia. As the US tries to uses economic warfare against Venezuela it is only natural that Venezuela will be driven into the waiting arms of Russia. The US is responsible in effect for the increasing presence of Russia in Venezuela. China will be interested in developing closer relations with Venezuela too as this anti-Maduro article notes.
Venezuela's economy was already suffering from years of depression with a sharp decline in oil production and oil prices. It had been struggling to finance imports and government spending. Washington has added to Venezuela's problem by waging what is in effect economic warfare on the state. There were tough restrictions placed on the state oil company PDVSA in January this year, added to the sanctions and other measures the US has taken.
As a recent Digital Journal report notes US economic warfare now involves sanctioning the Venezuelan Central Bank: "Treasury is designating the Central Bank of Venezuela to prevent it from being used as a tool of the illegitimate Maduro regime, which continues to plunder Venezuelan assets and exploit government institutions to enrich corrupt insiders," Treasury Secretary Steven Mnuchin said in a statement that accompanied Bolton's speech."
Oil exports crucial for Venezuelan economy
Oil makes up more than 90 percent of exports from Venezuela , a member of OPEC. Income from oil exports constitutes the majority of the state's income. Maduro is right when he accuses the US of waging economic warfare against Venezuela. It is.
This his forced Maduro to try and use US adversaries to circumvent US actions especially a ban on clients paying PDVSA in dollars. Maduro has been in talks with Russia to get around the ban since January. Russia has publicly condemned the US actions as illegal and said it would work with Venezuela to get around them.
Major buyers of Venezuelan oil such as India's Reliance Industries PDVSA's largest cash-paying client has been asked to take part in the scheme by paying Rosneft for its oil. Perhaps the US will now sanction banks dealing with Rosneft. Rosneft did not reply to a request for comment. Venezuela' oil ministry and its information ministry did not respond either.
Russia has a large steak in Venezuela oil
Russia loaned Venezuela almost $16 billion since 2006. The loans are being repaid in oil shipments. Russia has also taken significant stakes in petroleum products. The unusual payment arrangement with Rosneft is one of a series of devices the Maduro government has adopted to obtain cash. This has included selling off Central Bank gold reserves. The UK has refused the Venezuelan government access to its own funds and the US is also keeping Venezuela from its own cash as described in a January Digital Journal article. However, US officials are frustrated at Maduro's ability to counter some of the US economic warfare features. Officials had been hoping for a more dramatic impact that would result in the overthrow of Maduro and the success of their coup with leader Juan Guaido.
Economic warfare has created a crisis in Venezuela
Many western countries have joined in support of the US attempted coup although the UN still recognizes the Maduro regime and agencies such as the Red Cross are working with the Maduro government. Russia, China, Cuba, and others have defended Maduro at the UN. They have provided assistance as well with Russia providing military assistance. This has riled up the US. The US has its own policies to blame for resulting in Russian and Chinese investment in Venezuela which has resulted in their strong support for Maduro. Venezuelan oil exports have halved from the 2.8 million barrels per day when former president Hugo Chavez launched his revolution two decades ago.
Yet the Venezuelan people have so far been able to resist US aggression and fend off the attempted coup. Russia has been a big help in making this possible much to the annoyance of the US.
Rosneft playing a key role in Venezuelan oil
Rosneft has been a key investor in Venezuelan oil. In February of this year, Rosneft estimated its stakes in Venezuelan projects at $2.11 billion. Now Rosneft is also helping by providing cash that will keep PDVSA operational. It can use its large trading division to give it the flexibility to collect from PDVSA clients.
Some within PDVSA are angry with the costs of dealing with Rosneft according to a source, anonymous of course: "Rosneft is buying our oil for cheap and selling us very expensive fuel in exchange. We always owe them money." The PDVSA really has no choice if it wants to exports its oil at all. Why does the source not mention US sanctions as a factor. Without US sanctions Rosneft would not be able to do what it is doing. It would be uneconomical.
The US feels it has some right under the Monroe doctrine to itself exploit Venezuelan oil. While it believes its policies will force Venezuela to return to the arms of the United States it is actually forcing Venezuela into the arms of Russia and China.
Previously published in the Digital Journal
