Follow the Oil: The Way the US and Allies Can Ensure Maduro’s Departure
The US and allies should focus all of their diplomatic, financial, and economic efforts on ensuring that Maduro can not continue to prop up his illegitimate dictatorship through PDVSA oil sales.
Despite President Nicolas Maduro’s commitment to honor all debt obligations, Venezuela is in serious arrears. As of two months ago, Venezuela’s external debt stood at USD $156 billion. It’s foreign reserves stand at USD $8.5 billion; just one twentieth of its debt obligations. Maduro and his cronies are measuring their survival in weeks.
At state-owned PDVSA, affairs are in a constant state of chaos. Incompetence is the order of the day. This began long before interim President Juan Guaido issued a direct challenge to Maduro’s legitimacy, and the United States sanctioned Venezuela’s oil industry. Over the course of two decades of Chavismo, the PDVSA began a long and steady process of disintegration that began with the firing of competent employees…who were soon replaced with incompetent, but loyal, Chavistas.
Unsurprisingly, production at the state oil company has precipitously declined, and the company is facing numerous lawsuits from angry creditors who have yet to be paid for a wide variety of financial obligations.
Now, a Hamburg based company, Bernhard Schulte Shipmanagement (BSM), is fed up, and has taken aggressive legal action against PDVSA. They have issued an order to arrest (the legal term for detaining a ship), three of the company’s tankers, until their debts are paid. BSM currently operates 13 of PDVSA’s 32 ships, so this represents a very serious threat to the ongoing operations of the company.
Currently the legal order applies to two tankers in Lisbon, Portugal, the Parnaso and the Rio Arauca, and one in Singpaore, the Arita.
PDVSA owes BSM more than USD $15 million, and the two ships in Portuguese waters have been tied up there since 2017.
Since US sanctions were issued in January, PDVSA’s oil output has fallen from around 1.4 million barrels per day, to a current level of 800,000 barrels per day. Maduro will never be able to pay off bondholders with such output levels, particularly when oil now accounts for 98% of Venezuela’s export earnings.
Policymakers must remember that the PDVSA is not an independent company in any way shape or form. For all intents and purposes, the PDVSA is an extension of the illegitimate regime of Nicolas Maduro. The important decisions made at the company are carried out entirely at the behest of Maduro.
Maduro will also not spend any of the proceeds of PDVSA oil sales to help the Venezuelan people; these funds will be spent to prop up his own regime and further enrich his inner circle.
For the United States, the European Union, and the vast majority of Latin American nations that recognize Guaido as interim president, there is a clear path to hastening Maduro’s removal from office.
They can and should do everything possible to ensure that Maduro can not profit from any oil sales. The US and EU should refuse to do business with any company that is profiting from working with the PDVSA.
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