Saturday, July 04, 2020

Russian oil giant Rosneft pulls out of Venezuela amid U.S. squeeze on Maduro

Mar 29. 2020
Facebook Twitter

By The Washington Post · Isabelle Khurshudyan, Anthony Faiola

MOSCOW - Russia's state-controlled oil giant Rosneft announced Saturday it had stopped operations in Venezuela and sold its assets to a company wholly-owned by the Russian government in a shake-up of a key economic lifeline for embattled Venezuelan President Nicolás Maduro.

Rosneft, Russia's largest oil producer, had taken over an increasing share of Venezuela's oil industry and reaped huge profits from exporting its crude, propping up the Maduro regime in the process.

But it was unclear whether the move would alter the Russian relationship with Maduro, or whether it amounted to an attempt to dodge U.S. sanctions and assuage the fears of Rosneft's foreign investors.

In February, the Trump administration announced sanctions against the trading and marketing arm of Rosneft, but not the parent company, Rosneft Oil. Two weeks ago, the Treasury Department blacklisted TNK Trading International, a Swiss-based unit of Rosneft, ramping up its pressure campaign on the Russian oil ties to Venezuela.

Rosneft's chairman, Igor Sechin, is a close ally of Russian President Vladimir Putin and has directly supervised the company's Venezuela operations. Both Rosneft and Sechin are also under limited U.S. sanctions related to Russia's actions in Ukraine, including the annexation of Crimea in 2014.

Global companies, including BP and the Qatar Investment Authority, own substantial minority stakes in Rosneft, which said it was selling its Venezuelan operations to "protect" its shareholders.

"We protect our shareholders' interests and make decisions in accordance with our duty to our shareholders," Rosneft spokesman Mikhail Leontyev told the Interfax news agency Saturday.

Venezuela's Ministry of Communications did not immediately respond to a request for comment.

Rosneft said it was selling to a company completely owned by the Russian government. The sale includes what had been its signature partnership in Venezuela - Petromonagas - as well as smaller operations, including Petroperija, Boqueron, Petromiranda, Petrovictoria, oil-field services companies and commercial and trading operations.

The company added that it would be receiving a settlement payment worth a 9.6 percent share of Rosneft's equity capital, which will be held by a subsidiary. Analysts placed the value of the deal at $4 billion.

The move comes as Venezuela's oil industry, collapsing for years, has gone into complete meltdown, with production falling to less than 500,000 barrels a day, the lowest production since 1940. Amid the global economic downturn due to the coronavirus pandemic, the price for some Venezuelan oil has slipped.

Rosneft for months had been aiding Venezuela to get around U.S. sanctions on Venezuela's oil sector, handling nearly 80 percent of its oil output, and earning an estimated windfall of $120 million a month.

In February, after the U.S. slapped sanctions on Rosneft's trading arm, the firm began to back off its shipments of Venezuelan oil.

Venezuela in recent weeks has relied instead on an oil-for-food deal with a Mexican firm, while selling the bulk of its remaining output to India. Under U.S. pressure, however, Indian refiners Reliance Industries and Nayara Energy are planning to wind down purchases of Venezuelan oil in April, the Reuters news agency reported last month.

"This shows the effectiveness of sanctions," said Russ Dallen, a managing partner at Caracas Capital Markets, a financial and consulting firm that tracks Venezuelan oil. "Rosneft needed to find a way out."

The fallout for Maduro from the Rosneft sale now, experts say, depends on the intentions of the new, Russian-state buyer. Should it shelve or sell off the Venezuelan investments, the move would sting Maduro's government at a time when it is facing a convergence of crises.

On Thursday, the United States indicted Maduro and more than a dozen current and former Venezuelan government officials on narcoterrorism charges, offering a $15 million reward for information leading to the authoritarian leader's arrest and conviction.

Although Venezuela has the world's largest proven oil reserves, its refining capacity is relatively minimal, and an increasingly acute gas shortage that has led to massive lines in the capital of Caracas.

In addition, Maduro is struggling to cope with coronavirus pandemic amid widespread poverty, failures in the water and power grids, and a fleet of broken hospitals.

But the Rosneft sale could also signify Moscow's decision to redouble its interest in Venezuela through a new, wholly-owned Russian state firm.

"Everything depends on what the new Russian owners do with this," Dallen said.

 

- - -

Faiola reported from Miami. The Washington Post's Ana Herrero in Caracas contributed to this report.

Tags:
Facebook Twitter
More in News
Editor’s Picks
wmg-logo
Top News
wmg-logo