El Taladro Azul Published Originally in Spanish in LA GRAN ALDEA
M. Juan Szabo and Luis A. Pacheco
The Trump presidency has been dynamic and disruptive in its first months, attracting significant media attention in US domestic politics and worldwide. His politicized and confrontational leadership style has kept him at the center of news coverage.
Trump has been the predominant actor in recent weeks regarding the oil market. For example, the harsh trade war of tariff impositions carried out by the White House occupant could reduce global oil demand. In parallel, an executive order from the US administration has toughened oil sanctions against Venezuela, imposing secondary sanctions on Venezuelan crude buyers.
Additionally, compliance with oil sanctions against Iran has been strengthened, freezing the flow of Iranian crude to China. These actions could significantly reduce the crude supply in the market, generating a bullish perception reflected in this week's trading.
VENEZUELA
THE NOOSE TIGHTENS
After nearly a decade of irrelevance in the oil market, Venezuela returns to the spotlight in a scenario of strangulation of its oil sector that depends, in the short term, more on the actions of external actors than on what the Venezuelan regime can or cannot do.
The cancellation and subsequent extension of licenses for oil operations in Venezuela, particularly for Chevron, Repsol, Global Oil Terminals, and Maurel & Prom, which represent around 30% of the country's total production, along with an executive order from President Trump that would impose tariffs on products from countries that buy Venezuelan crude, would seem to constitute a stranglehold on the Venezuelan economy. It should be remembered that the main foundation of the country's economy is its ability to generate foreign currency by selling its hydrocarbons.
Nevertheless, there are always various interpretations of events and angles that may go unnoticed. This combination of American threats, like a pressure vise, must be evaluated in the context of that country's renewed efforts to enforce sanctions on Iran's oil exports, a stagnant US oil industry, uncertainty in international reactions to the war of tariffs, and secondary tariffs, and the obstacles encountered in seeking a resolution to the military conflicts in Ukraine and the Middle East. This geopolitical and economic framework, multivariable and unpredictable, makes it difficult to determine a single outcome.
It seems easy to deduce that the objective of this combination of reinstating sanctions on multinational oil activities in Venezuela and the executive order imposing secondary tariffs on Venezuelan crude buyers is to exert maximum pressure, this time in the form of an economic blockade. If the blockade were to be effective, the regime would be without a good part of its foreign currency income. What is less clear, or at least public, is the final objective of the Trump administration in Venezuela.
In practice, the results of the coercive measures against Venezuela depend on the reaction of countries confronted with secondary tariffs and also on the rigor and effectiveness of the White House in giving coherence with other existing tariffs in the framework of those countries' trade relations with the US. Each country’s positioning will reflect its commercial interest, generally a function of the magnitude of trade and the geopolitical stance each country wants or can take against the US, particularly in the Venezuelan case.
We observe, for instance, that India does not seem willing to pay the additional 25% tariff on its products, nor does it plan to antagonize the world's leading power. According to a Reuters report, the Indian oil company Reliance will cease purchasing Venezuelan oil after receiving the shipment that is currently in transit. It is also reported that Repsol (Spain), ENI (Italy), and Maurel et Prom (France) will be notified that their licenses or comfort letters will be revoked.
The position of China could be very different. Hitherto, the Chinese government has been cautious not to acquire sanctioned crude nor allow tankers sanctioned by the US in its ports; hence, all the transshipments, name changes, intermediate sales, and other maneuvers that have had to be used to maintain a relatively constant flow of Venezuelan crude to Chinese refineries. However, regarding the executive order, which would impose a 25% tariff on the enormous flow of products to the US for relatively insignificant crude purchases, the reaction may not be purely economic.
Chia has already protested the executive order's nature, and it will probably be the first and perhaps only geopolitical negotiation that Secretary of State Rubio will have to make on this matter. Several VLCCs (very large crude carriers) are on their way to the port of Jose or are anchored nearby, waiting to load Venezuelan heavy crude for delivery to China.
Spain complained about the measure and threatened to take retaliatory measures. Still, for now, the tanker heading to Venezuela was diverted and did not reach the port of Jose, indicating that most countries are unwilling to expose all their trade with the US to the threat of secondary tariffs.
Of course, the limitations on placing Venezuelan hydrocarbons will be reflected in production levels once storage capacity in the country, on land or floating, is used up. Venezuela exports over seven hundred thousand barrels per day (700 Mbpd) of oil and refined products destined for China, the US, India, Spain, and Cuba.
The attached graph shows four possible export-level outcomes according to the effect of US measures, assuming their enforcement starts on April 2.
*Own calculations
In the first case, exports would remain at similar levels to current ones while the "wind down" period of the licenses remains in effect. Upon termination of Chevron's activities, as established in License 41-B, and with minimal placement in other markets, exports would be reduced by about 270 Mbpd. Likewise, canceling other OFAC licenses and comfort letters would have an additional negative impact. The last column shows the export component that does not generate income for the regime; therefore, we could assume it is outside the sanctions.
In an extreme case (unlikely, but not impossible) where the measures manage to reduce exports to minimal levels, a large part of the production would have to be shut down due to a lack of storage capacity and diluent for the mixture of Merey-16 and DCO grades; this would mean a de facto oil embargo, with catastrophic adverse effects on the economy, the general population, and the political stability of the regime.
Some analysts maintain that production under OFAC licenses continues until April 2, when the "wind down" process begins, that is, the dismantling of operations carried out by international companies. Volumes produced after that date and until May 27 will not be considered protected by the licenses. This is not very clear yet.
The volumes considered as reductions in each of the graph's columns could be redirected to destinations that disregard secondary tariffs or could be totally or partially exempted from sanctions through bilateral negotiations in the "Richard Grenell" style on matters of returning illegal immigrants, releasing American prisoners, and some points of "commercial coincidence," to call it something. Whether these negotiations include political issues or the crux of the Venezuelan problem is also possible.
So these results, whatever the level of crude production/export and the products that result, make up a highly recessionary scenario that will deepen the country's economic problems. These problems have been dragging on for almost two decades and have worsened with the mere announcement of these recent policies.
Indeed, the regime has tried to mitigate the deterioration of the currency without success. At the end of the week, the Bs./$ exchange rate shot up to above 100 Bs./$, while the official rate was artificially restricted, approaching 70 Bs/$, a gap of 49%. The availability of foreign currency for the exchange market, through different mechanisms, remains low. As in the previous month, public spending continues at abnormally reduced levels, and bank credit is non-existent. This combination determines the deterioration of the economy, feeding the already known vicious circle of falling GDP, devaluation of the currency, and increasing inflation.
While all this is taking place in Venezuela, we should note the visit of Secretary of State Marco Rubio to Guyana and the Caribbean as the Trump administration intensifies its commitment in the Western Hemisphere to promote energy independence and curb illegal migration, drug trafficking, and gang violence. Particularly, in Guyana, Secretary Rubio promised that the US would respond forcefully if Venezuela attacked Guyana amid the territorial dispute between the two countries.
On the domestic front, the regime has taken the repatriation from the US of illegal immigrants as a political flag. It speaks of welcoming with open arms the compatriots that the "Yankee imperialism" has mistreated. In the case of those deported to El Salvador, under the presumption that they are members of the gang called "Tren de Aragua," the regime has raised a protest for the violation of these Venezuelans' right to due process and to have firm sentences before imprisoning them. This moral posing is a crass irony since, in Venezuela, there are hundreds of civilian and military prisoners who have been waiting for years without being tried and without due judicial process.
Regarding the general elections, scheduled for May, the complications of the moment favor a postponement. The "functional opposition" continues campaigning to insist on the convenience of voting without mentioning the fraud of the elections of July 28 last year and ignoring the regime's current weakness in the face of the sanctions, as discussed above.
OIL OPERATIONS
Venezuela is in the midst of a new electricity crisis, especially in the western part of the country, mainly due to the low levels of the reservoirs in the Andes, coupled with the low availability of thermoelectric generation and limitations in the transmission system to bring electricity from Guri. As a result of this crisis, the regime has decreed a reduced work schedule for all non-critical public dependencies, including parts of PDVSA and its subsidiaries. The new workday in public administration is three days a week, for four and a half hours per day—an attempt to put the country to sleep in the face of the crises it has created.
Two accidents in the production fields were reported during the week:
- On March 25, an oil service barge, the Cristi Bay, exploded in Lake Maracaibo, causing the death of three workers and at least six injured. The vessel, owned by Servicios y Obras Sudamericana C.A. (SOSCA), sank after the explosion. That same company suffered a similar accident a few months ago, with the sinking of the Chantise G barge, in which another six workers died. They were carrying out work for EM PetroZamora.
- At the Jose complex, in the eastern part of the country, at the EM PetroCedeño upgrading plant, which currently produces an intermediate stream for feeding the refining complex in Paraguaná, there was a significant leak of poisonous H₂S gas. This gas is difficult to disperse because it is heavier than air. Fortunately, no one was reported affected despite the seriousness of the accident.
Crude production during the last week averaged eight hundred and seventy-two thousand barrels per day (872 MBPD), geographically distributed as follows:
- West 224 (Chevron 106)
- East 128
- Orinoco Belt 520 (Chevron 120)
- TOTAL 872 (Chevron 226)
National refineries processed 220 Mbpd of crude and intermediate products, yielding 80 Mbpd of gasoline and 76 Mbpd of diesel.
The average sale price of barrels marketed under OFAC licenses, net of debt payment, was $51.4/bbl, and the weighted average of all exports was $33.53/bbl. To date, no activity indicative of cessation of operations by licensed companies has been observed. Crude shipments under licenses are proceeding normally, and there is no reason why they should not continue to do so until the "wind down" period of each license begins.
As such, exports to the US are expected to reach 270 Mbpd in March. To China, it could come close to 320 Mbpd, and to India, 66 Mbpd. Reliance, the Indian company, has already announced that, after receiving the shipment in transit, it will suspend the purchase of Venezuelan crude until the situation of sanctions is clarified. Spain will receive 33 Mbpd; the last tanker was diverted before arriving at Jose, as we mentioned earlier. The Spanish government speaks of defending Repsol's rights in Venezuela.
CITGO
In Delaware, a US federal judge faces new disputes between creditors while trying to advance with the auction of shares of PDV Holding, the parent company of the Citgo Petroleum refinery.
- The auction seeks to pay 18 creditors for defaults and expropriations by Venezuela and PDVSA.
- The process was restarted in January after a previous auction failed, where a $7.3 billion offer from Elliott Investment Management was rejected.
- The judicial official in charge of the process (special master) recommended a minimum bid of $3.7 billion from Red Tree Investment (a subsidiary of Contrarian Funds) as a "stalking horse.”
This latest court strategy seeks to unravel a judicial case that is already more than eight years old and originates in the expropriation actions and debts of the administrations of Hugo Chávez and Nicolás Maduro. The probability that this strategy will succeed seems low, especially because Red Tree's offer links the case in Delaware with the case of PDVSA 2020 bonds in New York, of which Contrarian Funds is also a part. Elliott Investment Management protested the court official's recommendation and requested access to the sealed agreement to pay Venezuelan bondholders.
FUNDAMENTALS
Oil fundamentals gave the market a sense of calm, discarding several news items that do not have the entity to cause justified price volatility. The relative stability of the US oil business, virtually constant drilling activity worldwide, and announcements of production openings and monthly compensation for overproduction by OPEC+ have served as mitigating agents to the volatility of oil prices. Commercial crude inventories in the US, reported by the EIA, show a drop of 3.3 million barrels despite an increase in imports of more than 5 million barrels of crude. Distillate and gasoline inventories also showed a slight decline.
Global demand continues to rise according to forecasts; even the latest IEA report makes a rare upward adjustment. Meanwhile, supply growth remains lagging, mainly due to the general decline in production increases in Brazil and Canada. Thus, the gap between demand and supply remains relatively constant.
Talks to resume Kurdish oil exports through the pipeline between Iraq and Turkey remain stalled due to disagreements over payments and contracts. Negotiations, initiated in February, have not yet resolved the nearly two-year blockade that halts flows from Iraqi Kurdistan to the Turkish port of Ceyhan, delaying a scheduled increase of one hundred thousand barrels per day of crude to the market.
Market catalysts are feeding on the complex geopolitical mix of sanctions, tariffs, customer redistribution, and reactive actions. The engine of all this new form of oil market control is in Washington, and it is an integral part of the conception of redistribution of world powers that moves the White House and seeks to resolve the wars that today affect economies and unbalance the traditional forms of oil trade and their supply lines.
GEOPOLITICS
Russia and Ukraine agreed to a tentative agreement, mediated by the United States, to pause attacks on energy infrastructure and navigation in the Black Sea; however, Moscow then made new demands on the Black Sea agreement. Both parties quickly accused each other of violations. In any case, this highlights the challenges of negotiating a broader peace in that conflict.
French President Emmanuel Macron organized a European summit in which plans to deploy troops in Ukraine were considered to consolidate a possible peace agreement. However, hours after the summit, Vladimir Putin declared that Russia would not accept any troops from NATO members as part of a possible peacekeeping force. Macron and other participants in the Paris summit accused Russia of only pretending to want a negotiated solution. Keir Starmer indicated that "Russia is playing and winning time, we cannot allow them to prolong this while they continue with their illegal invasion."
Additionally, Vladimir Putin proposed putting Ukraine under a temporary government under the umbrella of the UN as part of the conditions for reaching a peaceful solution to the war, an enthusiastic statement that reflected the Russian's determination to achieve his war objectives. Putin affirmed that Ukrainian President Volodymyr Zelensky, whose mandate expired last year, lacks the legitimacy to sign a peace agreement and that any agreement signed with the current Ukrainian government could be challenged by his successors. This suggestion had already been rejected by Washington and European leaders and also, as expected, has received a similar response from the UN itself. The secretary general of the organization, António Guterres, affirmed today that Ukraine has a legitimate government that must be respected.
On the other hand, Ukrainian officials stated on Friday that the terms of an agreement that grants Washington a share in the profits of the extraction and export of Ukraine's abundant minerals have not yet been finalized. However, a summary of the proposals, accessed by the Reuters news agency, showed that the US demanded all of Ukraine's natural resource revenues for years, until Ukraine had reimbursed the cost of all US aid during the war, plus interest. Zelensky reiterated that he accepts the idea of some US participation in the income from exploiting Ukraine's natural resources but will not agree to anything that impoverishes his country.
In the other neuralgic focus, in the Middle East, Israel carried out its first major air strike on the southern suburbs of Beirut in months on Friday, in retaliation for the launch of a missile from Lebanon, in the most serious test of the unstable ceasefire agreed in November.
Regarding Gaza, Israeli Defense Minister Israel Katz warned Hamas that Israel will maintain a permanent presence in parts of Gaza unless the hostages in Gaza are released and that he had instructed the army "to occupy additional areas in Gaza, while evacuating the population, and to expand the security zones around Gaza to protect Israeli communities and IDF soldiers through the permanent maintenance of the territory by Israel."
The US bombed Houthi targets in Yemen again. Aerial recordings indicate that the target was the army headquarters, occupied by the Houthis. This episode has created a mini political crisis in Washington, as it became known that security officials were distributing information about the attack through an unsecured application.
OTHER DEVELOPMENTS
The indirect activities derived from the requirement to comply with sanctions against Iranian oil exports have had notable effects. At least eleven VLCC tankers with Iranian crude have been stranded in Malaysian territorial waters, and floating storage in the area has increased to 18 million barrels, evidence that Chinese refineries continue to postpone their purchases while evaluating the impact of US sanctions. Iran's Oil Minister, Mohsen Paknejad, has declared that the Trump administration’s new sanctions and enforcement efforts against Iran's energy exports have not significantly impacted.
On the issue of logistical control of the Panama Canal, a priority for President Trump, it had been agreed that the Hong Kong conglomerate CK Hutchison would sell its port concessions on both sides of the canal to a BlackRock subsidiary. The definitive documentation was expected to be signed on April 2. However, the signing was postponed and is pending the Chinese government's review of the operation's convenience.
PRICE DYNAMICS
The potential effect of removing relevant volumes of crude from Iran and Venezuela from the market due to US sanctions policies, a demand that seems consistent in its growth, and the general increase in geopolitical risks continue to give reasons for the market to maintain a bullish mood for now. However, prices had setbacks to maintain gains during the week due to macroeconomic uncertainty related to the interaction between sanctions and tariffs.
So the market had another week with slight gains, 2% compared to the previous week. At the close of the markets on Friday, March 28, 2025, the benchmark crude oils Brent and WTI were quoted at $73.63/bbl and $69.36/bbl, respectively.
