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US Treasury puts sanctions on Venezuela, including PDVSA debt trading

Washington (Platts)--25 Aug 2017 254 pm EDT/1854 GMT


The Trump administration Friday imposed new sanctions prohibiting trading new debt and equity issued by the Venezuelan government and state oil company PDVSA.


  • Sanctions designed to not impact oil flow between US-Venezuela
  • Exceptions made to allow Citgo to continue US operations
  • Trump administration still weighing energy sector penalties

The estimated value of over-the-counter trade in EU emissions allowances and their derivatives was Eur2.49 billion in the second half of 2016, and not Eur460 billion as previously suggested, EU financial authority ESMA said Thursday.

This impacts non-financial companies checking to see if they will have to comply with EU financial rules known as MiFID 2.

But the new sanctions are not expected to affect petroleum flows between the US and Venezuela, although the administration is still weighing oil sector sanctions in the future.

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"We will not stand by as Venezuela crumbles," President Donald Trump said in a statement.

The new sanctions, announced Friday, bar dealings in some existing bonds owned by the Venezuelan public sector as well as dividend payments to the Venezuelan government, according to the White House.

"Americans are prohibited from participating in [Venezuelan President Nicolas] Maduro's liquidation of the Venezuelan economy," a senior administration official told reporters Friday. "This is a prohibition on the Maduro regime accessing US capital markets for the purpose of underwriting its repression of the Venezuelan people."

The official said the new sanctions were aimed at shutting the Venezuela government out of US bond, debt, equity and security markets.

The Treasury Department Friday issued four general licenses exempting certain activities and transactions from the sanctions, including authorizing certain transactions involving Citgo, a Venezuelan-owned US refiner.

"There are multiple provisions that exist to allow Citgo to continue its business operations and ensure that the dictatorship does not loot them in an effort to sustain its campaign of repression," the senior administration official said.

The sanctions do not prohibit secondary market trading on the "vast majority" of existing bonds, according to Treasury.

In a note this week, Victor Fu, director of emerging-market sovereign strategy at Stifel Nicolaus, said a ban on trading of all Venezuela and PDVSA bonds would be "impractical."

Banning trading in Venezuela's debt, without exemptions, would be "detrimental" to US financial institutions, including funds holding the bonds and brokers that deal them, Fu wrote. But a ban would not be detrimental to the Maduro administration, since trading does not generate new funding to the Venezuela government nor PDVSA, he added.

Related Capitol Crude podcast episode: 'Sanctions can work': Obama's top energy diplomat on the nuances of US oil, gas policy


OIL IMPACTS


The sanctions will not affect crude oil trade between the US and Venezuela, according to the senior administration official.

"This is not an oil embargo," the official said. "This does not constrain trade credit necessary for oil shipments."

To prevent any impact on oil trade financing, Treasury allows for financing with maturities of less than 90 days, the official said.

"This was done very deliberately to avoid having any effect on the trade finance market for Venezuela in this matter," the official said. "If PDVSA has trouble getting trade credit, that is purely because of the loss of confidence that the private sector may have in them."

The official indicated that future sanctions on Venezuelan crude imports into the US and exports of US crude to Venezuelan refineries still were being considered.

Another senior administration official said administration officials are weighing a "series of escalating measures" aimed at pressuring Maduro, but indicated the US had not imposed oil sector sanctions yet due to the potential impact on the Venezuelan people.

Trump has a "full range of economic and diplomatic tools at his disposal," the official said.

The Trump administration is likely seriously considering sanctions on Venezuela's oil sector, but the severity and timing of those sanctions still remains unclear, said Elizabeth Rosenberg, a senior fellow and director of the energy, economics and security program at the Center for a New American Security.

"What exactly they do hinges somewhat on how much the political situation changes and how forceful a response they want to offer," said Rosenberg, a former senior adviser at the US Treasury Department. "I don't think there is a formula that administration officials have in mind for exactly what response they will deploy for a particular future scenario."

Joe McMonigle, an oil analyst for Hedgeye and a former US Department of Energy chief of staff under former President George W. Bush, said oil-related sanctions remain "one of several options on the table."

"There's no sugar coating the impact on the refining companies and the White House is sensitive to that, but they continue to believe energy sanctions are the most powerful tool to bring down the Maduro regime," McMonigle said. "While we don't put much stock in the military option that the president suggested was under consideration, we think it should be viewed as a sign that the White House is considering much tougher action, like energy sanctions."

Venezuela oil production averaged 1.96 million b/d in July, down from 2.12 million b/d in July 2016 and 2.4 million b/d in December 2015, according to the US Energy Information Administration.

The US imported an average of 708,000 b/d of Venezuelan crude in May, down from 812,000 b/d in April and the peak of nearly 1.51 million b/d in June 1997, according to EIA.

Related: Find more content about Trump's administration in our news and analysis feature.


MORE TO COME?


Friday's actions marked the fourth round of sanctions the Trump administration has launched against Venezuela, including sanctions on Maduro in response to a widely criticized July 30 vote that allowed him to replace the country's National Assembly with a hand-picked Constituent Assembly expected to rewrite the constitution.

During an appearance in Miami this week, US Vice President Mike Pence spoke about the administration's sanctions against Venezuela, saying there would be "more to come."

"And we'll continue to act until the Maduro regime holds free and fair elections, releases all political prisoners, and ends the repression of the Venezuelan people," Pence said.

--Brian Scheid, brian.scheid@spglobal.com

--Edited by Valarie Jackson, valarie.jackson@spglobal.com




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