Chevron, Maduro and Trump’s promise on Venezuela, a complex game of petrodollars and licenses

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“We are probably going to stop buying oil from Venezuela. “We don’t need it,” Trump said while signing his first decrees.

The United States, as in 2018, considers the re-election of Nicolás Maduro in last year’s presidential elections to be fraudulent. If Donald Trump took a hard line and revoked the license there would be an immediate impact because US refineries would stop buying barrels from Venezuela.

The Maduro government could relocate the barrels to other markets, but since the sanctions also cover foreign companies that have operations in the United States, it would have to do so through intermediaries that demand a discount on the price to resell them in Asia.

Barclays estimates that the loss due to the discount would be in the order of 1.5 billion dollars in one yeara figure that is equivalent to a third of the entire currency supply in the Venezuelan exchange market. The impact would surely be greater because without Chevron’s expertise production would begin to decline.

In addition, another portion of the money is destined to pay the debt that PDVSA has with Chevron, which in 2022 was estimated to be around $3.7 billion.

One aspect that could be in the balance is the little transparency in operations.

The hidden contract with Chevron

According to the Hydrocarbon Law Venezuelan foreign companies, such as Chevron, are obliged to associate in a minority proportion with PDVSA and cannot produce and market oil on their own.

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Roo Reynolds – Flickr

However, sources indicate that PDVSA signed a contract in which it cedes part of its exclusive rights to Chevron. Jose Ignacio Hernandeza lawyer who is an expert in the oil issue and who was attorney for Juan Guaidó’s interim government, explains that “I understand that what the license did in practice was authorize Chevron to execute a contract that it had negotiated with PDVSA.”

How did the Maduro government make a contract that violates the Hydrocarbons Law? Everything indicates that he did it based on the Anti-Blockade Law, approved in 2020 by the Constituent Assembly, which in practice nullified the opposition’s victory in the 2015 parliamentary elections.

The opposition’s interpretation is that this Constituent Assembly was illegal because its election was not previously approved by a referendum. Furthermore, José Ignacio Hernández adds that “The Anti-Blockade Law is unconstitutional because it concentrates absolute powers in the presidency, so the basis of these oil contracts is a law that violates the constitution.”

The fundamental aspects of the Anti-Blockade Law are the possibility of disapplying other laws and carrying out transactions confidentially. “The contracts signed under its protection are confidential, all files are reserved. There is no transparency in operations, including those of Chevron,” says José Ignacio Hernández.

Paradoxically, Joe Biden’s administration considered the Constituent Assembly, which approved the Anti-Blockade Law, as “the illegitimate product of an irregular process, which was conceived by the Maduro dictatorship to advance its subjugation of democracy.”

Tax and royalty payments

The license states that Chevron is prohibited from paying royalties and taxes to the government of Venezuela, however the government of Nicolás Maduro has received significant benefits.

The point to consider, explains José Ignacio Hernández, is that Tax and royalty payments are not made by Chevron but by the four joint companies in which it is associated with PDVSA.

“The joint venture transfers the operation to Chevron and Chevron exports the oil. “It obtains the oil income and transfers it to the mixed company that pays royalties and extraction tax.”summarizes José Ignacio Hernández.

Sources claim that Chevron consulted on this issue with OFAC and received authorization to advance the business scheme. Until now, this OFAC clarification has not been made public.

On January 16, Bloomberg reported that Chevron paid taxes to the Venezuelan tax collection agency in bolivars for an amount equivalent to 300 million dollars through the company Chevron Global Technology Services.

Bloomberg adds that company spokesperson Bill Turenne explained via email that “Chevron conducts its business in Venezuela in compliance with all applicable laws and regulations.”

Sources explain that Chevron receives income from services it provides to PDVSA in operations and it is on these activities that it would be paying taxes directly. In this sense, they add, license 35 authorizes US companies to pay taxes as long as “such transactions are necessary and ordinary for operations.”

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During his Senate hearing, Marco Rubio said Chevron’s license would be reviewed.

The Secretary of State, Marco Rubio, He stated during his confirmation hearing in the Senate, when questioned about Venezuela, that “they now have general licenses, where companies like Chevron are contributing billions of dollars to the regime’s coffers, and the regime has not kept any of the promises it made. So all of this needs to be re-explored.”

One point to take into account is that “the Chevron model,” as officials of the Maduro regime say, has served to new licenses such as those granted to Repsol and Maurel & Prom.

The social fund was forgotten

The license to Chevron was issued the same day that the opposition and representatives of Nicolás Maduro signed an agreement in Mexico that provided for the creation of a fundmanaged by the United Nations, to address the country’s complex social crisis.

“The announcements from the Unitary Platform and the Maduro regime are important steps in the right direction to restore democracy in the country,” the State Department said in a statement.

According to what was signed by the fund would receive 3,000 million dollars of frozen resources of the Venezuelan State in the international financial system, which would be progressively released to support health, food and education programs.

“The good impression created by the commitment of the fund and the idea that the negotiations would advance towards conditions for fair elections in 2024 were the reasons that Washington gave to approve the license to Chevron, the truth is that nothing was fulfilled”says a member of the opposition aware of the negotiations.

The Maduro government accused the opposition of not complying with the disbursement of the money while opposition representatives indicated that joint work was needed to find legal and technical mechanisms that would allow the money to be unlocked.

The fund to help the poorest Venezuelans remained on paper.