‘US sanctions on PDVSA unlikely to hurt oil markets’

By Sergio Garcia

BOGOTA, Colombia

As oil markets neared the close of trading Monday, the U.S. ordered the freezing of assets belonging to Venezuela’s national oil company PDVSA and prohibited, with a few exceptions, American citizens and companies from carrying out business with it.

“We hope that the measures carried out this Monday will block $7 billion in assets apart from the $11 billon that will be lost in oil exports through next year,” National Security Adviser John Bolton said at a White House news conference to announce the sanctions.

The measures taken against the company caused the price of oil to surge the next day.

Benchmark Brent and West Texas Intermediate (WTI) crude oil rose 1.91% and 2.17% respectively and were trading at $60.90 and $53.10 per barrel by 3 p.m. Eastern Time.

Mauricio Jaramillo Jassir, a researcher at Rosario University in Colombia and a former adviser to the Union of South American Nations (UNASUR), told Anadolu Agency that each time that sanctions against the oil industry are announced, the most common occurrence is a worldwide rise in oil prices.

But even though oil prices started on an upward trend Tuesday, Jaramillo said it would be premature to think of a definitive change in the behavior of oil markets.

“I would think beforehand that there won’t be a big impact,” he said.

He said offers of oil in the market from Venezuela will not decrease unless Venezuelan President Nicolas Maduro cuts production, which means prices will not be affected much following the announcement of the sanctions.

“We don’t know if at any moment, [Venezuelan opposition leader and self-proclaimed president] Juan Guaido could have control over the sale of oil, or if oil income could go straight to him. I don’t think that will be easy, since PDVSA remains under Maduro’s control.”

Jaramillo believes the Organization of the Petroleum Exporting Countries (OPEC) will spearhead the idea of noninterference in a country’s internal affairs, promoted mainly by Russia and China. He also said it is very unlikely for Guaido to name a representative to OPEC.

“It’s unlikely since, in order for this to happen, Maduro’s control over PDVSA and the military will first have to be broken.”

Referring to China and Russia’s impact on the sanctions, Jaramillo highlighted that the measures taken against PDVSA by Washington could negatively affect Venezuela’s ability to repay debt to these countries.

“Each U.S. sanction means a bigger lack of dollars, which could collapse Venezuela’s economy, generate shortages and force Venezuela to ask for more money from China and Russia...The possibility of Venezuela paying for Chinese and Russian investments is less likely by the day.”

Giovanni Reyes, another researcher from Rosario University, said in an interview with Anadolu Agency that in case a reduction in offers of Venezuelan oil were to happen, oil price speculation could be triggered.

For Reyes, the sanctions mean that “the markets skew towards instability. Speculators in the markets could try to generate income due to the price instability”.

Reyes agreed with Jaramillo that OPEC will not take any measures against the Maduro government’s representation in the organization while at the same time avoiding a political feud with the U.S. government.

“I think [OPEC] will try to water down the situation,” he said.

Reyes also ruled out that OPEC will accept the designation of a representative named by anyone other than Maduro.

Both China and Russia rejected the sanctions imposed by Washington against PDVSA.

Russia called the sanctions “illegal”.

“The legitimate government of Venezuela called these sanctions illegal. We fully support that view,” said Russian government spokesman Dmitry Peskov during a press conference Tuesday.

Geng Shuang, a spokesman for China’s Ministry of Foreign Affairs, said his country is also against the sanctions imposed on Venezuela.

“History has shown that intervention and sanctions have only complicated the situation and will not resolve the problem.

“The sanctions against Venezuela will further deteriorate the quality of life of the Venezuelan people,” said Geng.

Washington’s sanctions against PDVSA include conditions on the operations of the company’s U.S. branch, Citgo.

Maduro called the sanctions against PDVSA “a robbery” during a televised address.

“Its objective is taking away our riches, taking away Venezuelan properties and, further on, they want to take away our territory,” he said.

The president said PDVSA will take all legal measures to defend its interests in the U.S., the country where Venezuela sends over 40 percent of its oil production.

While PDVSA remains faithful to Maduro, Guaido has started a process to name a new management board for PDVSA and Citgo.

*Ahmed Fawzi Mostefai contributed to this story