How US sanctions against Venezuela will affect Russia - ForumDaily
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How US sanctions against Venezuela affect Russia

The US authorities have imposed sanctions against the state oil corporation of Venezuela PDVSA. In fact, we are talking about a ban on the supply of the country's main export commodity - oil - to the United States. Although the sanctions do not directly affect Russia, they will still have an impact, analysts believe.

The sanctions prohibit US companies from conducting transactions with PDVSA. The American subsidiary of the Venezuelan company, Citgo Petroleum, will continue to operate on the condition that the money it earns will not be sent to PDVSA, but will remain in accounts in the United States, writes Air force.

US National Security Advisor to the President, John Bolton, said that the US will block 7 billion PDVSA assets, the loss of export earnings will be even more 11 billion dollars.

Venezuelan opposition leader Juan Guaydo, who declared himself the new president of the country and who is supported by the United States, said in an interview with the Wall Street Journal that his interim administration would be able to gain access to 500 billion dollars in assets through US actions.

In turn, Venezuelan President Nicolas Maduro said that he had already instructed the leadership of PDVSA to take measures to protect property and assets, including in court.

Directly, these sanctions will not affect Russia. But the impact on the Russian economy is still possible, say BBC interviewed analysts.

Sanctions against PDVSA, which actually stop supplies of Venezuelan oil to the United States, “are a direct blow not only to Maduro, but also to the interests of Russia, which will most likely now face non-payments on issued loans,” writes the director of the analytical department of Loko in his blog Invest" Kirill Tremasov.

Currently, Venezuela’s debt to Russia is $3 billion, Russian Deputy Finance Minister Sergei Storchak said on January 29. The official made problems with servicing this debt. “Everything now depends on the army, on the military personnel, how faithful they will be to their duty and oath. It’s difficult to give a different assessment, it’s impossible,” the TASS agency quotes Storchak as saying.

Venezuela, according to the agreement, pays the Russian loan twice a year - in September and March. The next payment of $100 million from the country is due in March this year. Venezuela did not allow any delays, Storchak clarified.

“The sovereign borrower does not pay either when he does not want to or when he cannot. If he can’t, that’s a default; if he doesn’t want to, that’s politics,” Storchak said.

Later, the press service of the Ministry of Finance released a statement, according to which they expect payment on the debt at the end of March.

Under US pressure, the concentration of economic risks in Venezuela will only increase, and the coming to power of the opposition could become a “détente”, since then the US could lift sanctions, agrees Anton Pokatovich, chief analyst at BCS Premier.

In March, rating agency Moody's downgraded Venezuela's rating to C, the pre-default level. One of the main reasons for the decline was the fall in revenues from oil production.

S&P downgraded Venezuela's rating in November 2017 to default level. The latest country agency report from May 2018 says the country is suffering from hyperinflation, economic crisis and the collapse of institutions. The agency believes that Venezuela will not be able to pay part of its debts in the future.

The S&P has a separate report on PDSVA, which also has a default rating. The agency said that the company is unable to pay coupons on a number of debt securities. The agency doubts that the company, which lacks liquidity, will be able to pay off its debts in the future. Moreover, oil production is at a historically low level.

Oil production in the 2018 year in Venezuela was at its lowest level in the last 28 years, Bloomberg reported in early January.

Venezuela was previously dependent on exports to the United States, but now supplies to other countries, for example, China and Russia, are playing a role, says NES Rector Ruben Enikolopov. This is confirmed by data from the US Department of Energy: if in January 2009 the United States imported almost 42 thousand barrels of oil from Venezuela, then in January 2018 it was just over 16 thousand, and in October - 17,6 thousand. This is the latest data available.

But even then, there are risks of non-repayment of debts: the oil industry will take several years to recover, and “while paying off its debt obligations, the republic will have to make ends meet,” the BBC analyst said.

Russia has twice restructured loans to Venezuela against the backdrop of the economic crisis in the country. The first time this happened was in September 2014, and then in November 2017. Then the debt was restructured for 10 years.

Will Rosneft be affected?

Rosneft has a joint venture with PDSVA - Petromonagas. Oil from the enterprise mainly goes to Russia and India, that is, US sanctions do not affect it.

Rosneft has a license to develop the Patao and Mejillones fields on the Venezuelan shelf for a period of 30 years. The company has the right to export gas from the country.

Business in Venezuela accounts for only 2,5% of the company’s revenue, according to Georgy Vashchenko from Freedom Finance.

In 2014, Rosneft gave PDVSA $6,5 billion as an advance payment for oil supplies. As of September 30 last year, according to the Russian company's reporting, the debt amounted to $3,1 billion. Some of Citgo's shares are pledged to Rosneft as collateral for this debt.

Debt must be repaid before 2020.

Rosneft’s participation in joint projects with PDSVA takes place in the “white oases” format, Pokatovich told the BBC.

“It can be assumed that geological exploration and oil production projects in which the Russian oil company participates are under its full control, including being guarded by militarized forces,” he said. In such a situation, in his opinion, even under US sanctions, these projects will continue to operate.

However, the analyst sees other risks for the company - for example, non-repayment of a $3 billion debt. The risks of this increase, in his opinion, if Maduro remains in power. In this case, he sees the risk of “increasing sanctions pressure on Venezuela from the states, up to a repetition of the full-fledged “Iranian” scenario of the 2012 oil embargo.”

“American sanctions against the Venezuelan state-owned oil company may affect Rosneft’s business in the region, but will not directly affect it,” Vashchenko concludes.

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