Key Takeaway:
Shipowners, operators, and insurers should closely monitor changes to licenses and comfort letters which permit certain trades with Venezuela. Trump and key administration members have a long track record of “maximum pressure” towards Venezuela. Given the speed with which the Trump administration has been changing foreign policy, stakeholders should be ready to alter operations quickly.
Many shipowners and operators have been calling Venezuela based on permissions issued to Western energy companies. The Trump Administration is currently reviewing these permissions. Both the geopolitical situation and strong signals from the administration indicate these permissions could be at risk.
Background
Venezuela is unique because it is one of the few areas which impact the international maritime community but also has an outsize effect on both domestic and foreign policy in the U.S. Indeed, in analyzing how Republicans “conquered” Florida by having it become a solidly red state for Trump when it had previously voted for Obama, Trump’s policies towards Venezuela and Cuba played a significant role in turning Florida red. Similarly, key members of the Florida Hispanic community were outspoken against Biden’s attempts to provide sanctions relief.
The first Trump administration took a “maximum pressure” position on Venezuela, with administration officials such as John Bolton and Elliot Abrams taking the lead on determining policy issues. This culminated in several listings of shipowners related to lifting cargo from Venezuela. The guidelines at the time were murky at best, with an unclear legal regime being bolstered in “regulation by tweet” type warnings to the shipping community from administration officials.
The Biden administration took a different tack on sanctions against Venezuela. While the same legal regime remained in place regarding sanctions, the Biden administration engaged in diplomacy to alter the sanctions regime against the Maduro government. This took on particular import with the advent of the Russian invasion of Ukraine. The Biden administration shifted its focus to pressuring Russia to stop the war, but also had a conflicting goal of preventing tight oil markets. Early in the Biden administration, specific permissions in the forms of comfort letters began to be issued to European energy producers. In broad terms, these allowed the lifting of crude oil by creditors of Petróleos de Venezuela (“PDVSA”) in order to repay debts owed. This allowed shipowners to legally call Venezuela for specific trades and maintain proper insurance coverage while doing so provided certain conditions were met. The Biden administration continued to engage with the Maduro government, culminating in an agreement which provided temporary sanctions relief (general license 44) in exchange for Venezuela engaging in “free and fair elections.” The Maduro government seemingly decided that free and fair elections were not in its best interests, and GL 44 expired, returning sanctions to the status quo.
However, the Biden administration re-engaged with partners operating in the Venezuela oil sector and issued various permissions to creditors of PdVSA to continue limited trade with Venezuela. These again allowed shipowners to transport product in the Venezuela trade without fear of sanctions enforcement. The Biden administration expanded sanctions against members of the Maduro government, but tellingly left exceptions in place to allow this limited trade with Venezuela. Simultaneously, a significant amount of illicit trade continued to occur with Venezuela.
With the re-election of Trump, he and his administration have made no secret of their intent to re-engage in a maximum pressure campaign against Maduro’s Venezuela.
Analysis
The Trump administration has made no secret of its intent to engage in maximum pressure against Venezuela, and the various permissions authorized in the Biden administration for trade with Venezuela are at risk. The current Secretary of State, Marco Rubio, stated that the Biden administration “got played” in negotiations with the Maduro government in granting licenses. He signaled early on that the licenses need to be “re-explored” reasoning that
“Now they have these general licenses where companies like Chevron are actually providing billions of dollars of money into the regime’s coffers, and the regime kept none of the promises that they made.”–Marco Rubio, U.S. Secretary of State
In an in-depth analysis, the Center for International and Strategic Studies (“CSIS”), reports that the exemptions granted by the Biden administration are formally under review. The analysis also lays out the case that the licenses have not been successful in achieving the U.S.’s foreign policy goals. The basis for this assertion is that the various licenses and permissions for oil companies to trade in Venezuela continues to give the Maduro government an economic benefit without any concessions to the U.S.’s interests. The Atlantic Council takes a counter-point, noting that the policies of the Biden Administration re-geared Venezuelan exports to the U.S. and its allies rather than subsidizing China which would have bought at a discount. President Trump seems to support CSIS’ view, stating that the U.S. will likely not be purchasing oil from Venezuela, stating “We don’t need it.” That the President himself holds such a view seems to further imperil existing licenses and permissions.
As the Trump administration moves to normalizing relations with Russia, there is also less of an incentive to engage with Venezuela. One of the more significant impetuses for the Biden administration to negotiate with the Maduro government was to ensure that oil supplies did not tighten amidst Russian sanctions. As Trump moves to resolve issues with Russia, it becomes more likely that additional supplies from Russia will come online, reducing the incentive to provide Venezuela exceptions which run contrary to President Trump’s foreign policy goals.
Conclusion
Early signals from the administration suggest there is significant risk that the various licenses and permissions related to the Venezuela trade could be cancelled. The legal framework of these gives the administration the authority to cancel them, although it would benefit industry to have sufficient notice to alter their operations. Shipowners and operators engaged in the Venezuela trade should ensure that they closely monitor the status of the permission or license they operate under. Companies should also ensure that their sanctions policies are up to date and they are operating in compliance with their own policies in addition to sanctions requirements.