The US appears to be easing Venezuela sanctions, allowing Chevron to pump oil

The Biden administration is preparing to scale back sanctions against Venezuela’s authoritarian regime to allow Chevron corp.

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to resume pumping oil there, paving the way for a potential reopening of U.S. and European markets for oil exports from Venezuela, according to people familiar with the proposal.

In exchange for the significant sanctions, the government of Venezuelan President Nicolás Maduro will resume long-suspended talks with the country’s opposition to discuss the conditions necessary to hold free and fair presidential elections in 2024, the people said. The U.S., Venezuela’s government and some Venezuelan opposition figures have also worked out a deal that would free up hundreds of millions of dollars in Venezuelan government funds frozen in U.S. banks to pay for imports of food, medicine and equipment for the country’s battered power grid and municipal water systems.

US officials warned that the deal could fall through because it is conditional on Mr. Maduro’s top aides are resuming negotiations with the opposition in good faith.

If the deal goes through and Chevron, along with US oil service companies, is allowed to work in Venezuela again, it will bring only a limited amount of new oil to the world market in the short term.

Venezuela was once a major oil producer, pumping more than 3.2 million barrels a day in the 1990s, but the state-run industry has collapsed over the past decade due to underinvestment, corruption and mismanagement. Sanctions instituted by the Trump administration put a further dent in production and forced Western companies out of the country.

Any shift in U.S. policy that brings back Western oil companies would send a psychological signal to the market that more supply is on the way, the people said. Word of a possible US rapprochement with Venezuela is emerging just as OPEC+ nations led by Saudi Arabia and Russia agreed to cut production in response to falling oil prices, angering the Biden administration.

But engaging Venezuela, which sits atop some of the world’s largest oil reserves, could serve as a long-term strategy for the U.S. and European countries trying to secure new sources of energy as Russia’s war in Ukraine drags on and raises commodity markets, said Francisco Monaldi, a Latin America energy expert at Rice University.

“Whose [oil] prices are going down, all this can change,” said Mr. Monaldi. “But for now, this is their obsession.”

President Nicolás Maduro maintains an authoritarian grip on Venezuela.


Photo:

Getty Images/Getty Images

The US-Venezuela deal, the terms of which are expected to be strengthened later this month, is the latest sign that Washington is willing to wind down a pressure campaign against the Maduro government that it inherited from the Trump administration.

There are potential pitfalls. The proposal is angering some of the regime’s staunchest enemies, who say the strategy will give Mr. An opportunity for Maduro to maintain his authoritarian grip on the country with few concessions. On the other hand, it may be unpopular with some in the Maduro administration.

“Inside the regime, you have hardliners who are very critical of Maduro’s neoliberal turn,” said Geoff Ramsey, director of the Venezuela program at the Washington Office on Latin America. “And within the opposition you have players who are very interested in doing everything to continue the interim government,” he said.

Some Venezuelan opposition leaders said fresh money could embolden Mr. Maduro, whose government has in recent years sidestepped US sanctions by selling its heavy crude oil to China and other Asian buyers at deep discounts.

Chevron spokesman Ray Fohr did not comment on the proposed deal, but said that in Venezuela “we have dedicated investments and a large workforce that relies on our presence.” He said the company is in compliance with the current sanctions framework.

Ali Moshiri, a former Chevron executive who oversaw the expansion of the company’s operations in Latin America and worked closely with Venezuelan officials, said the Biden administration’s shift appears to reflect political pressure that has come with rising energy prices and tightening global supplies.

“It makes a lot of sense for the Biden administration to ease some of the sanctions on Venezuela to allow more resources to help us lower energy prices,” said Mr. Moshiri, who estimates the country could reach 1.5 million barrels in day in production for two years if Chevron and other companies can work freely.

Talks between U.S. and Venezuelan officials have been quietly underway since at least March, but picked up steam on Saturday when Venezuela released six U.S. citizens and one U.S. permanent resident who had been jailed in that country. In return, the United States released two men – nephews of the Venezuelan first lady Cilia Flores – who had been convicted of drug trafficking.

The Caracas office of Chevron, which says it is complying with the sanctions.


Photo:

Carlos Garcia Rawlins/Reuters

A US official said the swap created some “new opportunities” between the two sides that did not exist a week ago.

Wall Street firms and American investors had also been pressing the Biden administration for months to lift sanctions to recover billions of dollars in debt and strike business deals with Caracas. The toughest sanctions came in 2019, when the United States and dozens of its allies declared opposition leader Juan Guaidó the legitimate president of Venezuela. However, his movement failed to dislodge Mr. Maduro, and most countries now openly trade with the Maduro government.

A spokesman for Mr. Guaidó did not respond to questions seeking comment. The opposition leader has said he has nothing to do with the recent prisoner exchange and is against the pressure on Mr. Maduro is relieved.

The U.S. Treasury Department’s Office of Foreign Assets Control, which administers sanctions against Venezuela, is preparing to issue one or more licenses to Chevron to operate its four existing joint venture oil projects with the state oil company, Petróleos de Venezuela SA, or PdVSA. Chevron’s deal with Venezuela gives it full operational control and runs about 1,000 pages, people familiar with the document said.

Opposition leader Juan Guaido, who is opposed to easing the pressure on Mr. Maduro.


Photo:

GABY ORAA/REUTERS

With Chevron in charge of all aspects of the projects and the US giving approval to export oil, Venezuela could regain the relevance in the oil market that it enjoyed in the early 2000s, when it was one of the largest exporters of crude oil to the U.S. The country now exports about 450,000 barrels a day and could double that number in a few months, people familiar with Venezuela’s oil industry say and are optimistic about its prospects.

“There are no plans to change our sanctions policy without constructive steps from the Maduro regime,” said Adrienne Watson, spokeswoman for the National Security Council.

The Treasury Department and the State Department did not immediately respond to requests for comment. Venezuela’s state oil company and its information ministry did not respond to detailed emails seeking comment.

Among the potentially important projects in Venezuela is the Perla offshore gas field, operated by Repsol on

of Spain and ENI SpA in Italy. Shell is also monitoring progress on a possible rapprochement between the United States and Venezuela to implement a tentative offshore gas deal off eastern Venezuela that would supply a condensing plant in neighboring Trinidad and Tobago, according to people familiar with the company.

The gas projects are particularly relevant at the same time as Europe is trying to replace interrupted gas supplies from Russia ahead of winter.

“There could be a domino effect there in terms of getting things going,” Mr. Monaldi, who is Venezuelan. But he added that the oil fields are so degraded by underinvestment that Venezuela would be hard-pressed to increase production significantly over the next two years, even with help from foreign companies.

“I don’t think it would be relevant to broader energy markets in the short to medium term,” he said.

Write to Vivian Salama at vivian.salama@wsj.com and Kejal Vyas at kejal.vyas@wsj.com

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