By Daniela Barrios
To this date Venezuela produces about 2M B/D (barrels of oil per day), of which between 600 and 800,000 are sent to China to cover the debt held by Venezuela with that country. This represents around 65 billion dollars. On the other hand, between 80,000 and 150,000 B/D are destined for PetroCaribe while less than 600,000 B/D are needed to cover domestic consumption in the country. The rest of the daily barrels, approximately 560,000 B/D, are sold to the United States, which is the only country that pays them in cash. The barrels sent to PetroCaribe have financing for 5, 10 or even 15 years. In addition to this, the United States sells diluents to Venezuela in order to process the heavy oil and bituminous sands extracted from the Orinoco Belt.
What does this mean? If the United States sanctions Venezuela by limiting the purchase of oil, this could lead to the country’s default and to the suspension of all payments of the Venezuelan debt by the last quarter of this year. In addition, Venezuela imports from the USA are around U.S. $ 200,000 B/D of light crude to delude the nation’s heavy crude oil due to the poor conditions of its refineries. Should the United States halt the sale of light oil and diluents to Venezuela, this could leave the country without the possibility of producing gasoline and other products derived from oil.
Now, why do I speak of the last quarter of the year? Between October and November of the present year, Venezuela must pay more than $2,900 million in expiring debt and interests due. If we add the fact that Venezuela’s International Reserves are currently below $10 billion the future looks bleak. The oil market is currently unbalanced meaning that there does not seem to a possibility that the barrel of oil will rise above $50 U.S. Dollars.
More than 96% of Venezuela’s foreign exchange earnings come from the sale of oil, rendering the Venezuelan government dependent on oil and the United States to not go into default. It is also a country that relies solely on imports of food, medicines and gasoline — given they no longer produce it. So if the United States interrupts the entry of foreign exchange and oil imports, Venezuela’s government could very well be forced to discontinue importing commodities this way, making it a high probability that its GDP will fall more than 15%, being thus the worst economic crisis in the history of Latin America.
Venezuelans have observed the United States as one of the possible messiahs, many people do not understand why the United States has only implemented measures directed at political officials and not an oil embargo. These are individual sanctions that do not affect every-day Venezuelans, meant instead as a measure of pressure. If they were to implement an oil embargo, the government would not have the ability to import a long list of basic goods that could make an internationally recognized problem like scarcity exacerbated through this measure. As such, this individual measure sought to affect regular Venezuelans the least possible.
Currently there is an oil production cut as established by the OPEC-Non-OPEC agreement to restore balance in the oil market. Should the United States stop buying their oil, Venezuela would find it difficult to find others interested in buying their crude, creating a deficit that would lead to the cessation of purchases. Additionally, for the United States, energy supply for domestic consumption is a matter of national security — not covering this deficit would put them in the losing end of this scenario.
This scenario may put the Venezuelan government in checkmate in as far as that they won’t be able to continue importing food, gasoline, medicines, among other basic necessities, consequence of the destruction of the national industry. Without the income brought with the export of oil needed to import any basic products, the Venezuelan people will be left with far-reaching disappointments greater than the ones already existing today.
Daniela Barrios is a political and economic analyst based in Caracas, Venezuela. She is currently the director at L&D Consultores Globales.