This Is How Russia Keeps Venezuela Exporting Oil Despite US Sanctions

With a little help from Rosneft under-siege Venezuela still manages to sell 500,000 bpd monthly

OilPrice.com ran a fascinating article explaining Venezuela still manages to export about 500,000bpd of oil monthly, about half of it picked up by tankers which opt to switch off their transponders, and often unload their cargo just before their Asian destination ports in ship-to-ship transfers. However the most valuable bit of information was the bit explaining the Indians which are the largest market for Venzuela’s heavy and sour crude notionally do not pay in dollars, but instead in fuel:

Both the Russian company and the operator of the Dragon told Bloomberg that they have not violated any sanctions. One way Rosneft is doing this is by selling the oil on and getting paid in fuel. This is how India has been getting some of its Venezuelan oil shipments despite pressure from Washington to cut these imports off completely.

Combined with what we already knew this means we have a full picture of how with the assistance of Russia and using some acrobatics Venezuela keeps exporting oil despite a huge fear of secondary US sanctions on the account of its customers. This is how it works:

1. Russia’s state-owned corporation Rosneft extends a line of credit to Venezuela (PDVSA).

2. Venezuela transfers ownership of its oil as it is produced to Rosneft.

3. Tanker ships, mostly from third countries, and often with transponders switched off, pick up the oil in Venezuela, and take it to markets in Asia, chiefly India.

4. Indian refineries take posession of the notionally Rosneft oil in ship-to-ship transfers, and settle the bill by transfering ownership of their refined fuel to Rosneft.

5. Rosneft sells the Indian fuel on the open market without ever taking physical delivery thus recouping its credit to Venezuela.

In this waym Indian refiners are neither buying oil from US sanctioned Venezuela nor paying for it in US currency so Washington so far can’t touch them. All thanks to willingness of the Russians to take crude for dollars on one end, and then fuel for crude on the other.

The scheme arose from a practical problem of how to repay Venezuela’s massive $6 billion debt to Rosneft but it wold be advantageous for Caracas and Moscow both to continue it even once the initial loan is repaid — which will be soon as it is already down to under $1.1 billion.

OilPrice.com:

Venezuela Is Using Invisible Oil Tankers to Skirt Sanctions

U.S. sanctions on Venezuela have been squeezing the life out of its economy in an attempt to remove the government of Nicolas Maduro from power, but so far those sanctions haven’t been entirely successful. The reason: Venezuela is still exporting oil.

So far in November, according to OilX data, Venezuela has exported an average of 530,000 bpd, up from 523,000 bpd in October.

Bloomberg reports, citing shipping data, that Venezuela had loaded almost 11 million barrels of crude in just the first 11 days of November, which is more than twice as much as it did in the same period last month. Most of the oil seems to have gone to India and China, with half of the vessels transporting it turning their transponders off to avoid detection.

This is the now-standard tactic used by Iran to export its oil amid U.S. sanctions, too. Turning off the geolocation device is what Iranian tankers do when they leave port—or in the open sea—and they only turn them off when they approach their port of destination. This and ship-to-ship transfers have helped Tehran continue taking in oil revenues despite the sanctions.

These same tactics are being used by Venezuela now as well.

Venezuela’s crude oil production in September averaged just 644,000 bpd, according to OPEC’s latest Monthly Oil Market Report. That’s down from 727,000 bpd in August and an average 975,000 bpd over the first half of the year.

In September 2018, Venezuela was pumping more than twice the October level, at 1.354 million bpd.

This goes to show that sanctions are working to curb oil production, but they have not been able to stifle Venezuela’s exports to zero. The country has oil-for-cash agreements with China and Russia, and although it struggles to repay this debt with its limited amount of oil, it is paying down some of it—apparently without violating any sanctions.

One vessel Bloomberg’s data detected recently was the Dragon—a Liberian-flagged Very Large Crude Carrier, whose last GPS signal came off the French coast. The tanker, however, turned out to be offshore Venezuela where it loaded 2 million barrels of local crude for Russia’s Rosneft, one of Caracas’s biggest creditors.

Both the Russian company and the operator of the Dragon told Bloomberg that they have not violated any sanctions. One way Rosneft is doing this is by selling the oil on and getting paid in fuel. This is how India has been getting some of its Venezuelan oil shipments despite pressure from Washington to cut these imports off completely.

So, there are many ways to avoid detection from sanction-prone parties at sea and Venezuela has been using them, like Iran.

The practice of transponder switch-offs has become even more popular recently, after Washington slapped sanctions on several Chinese shippers for violating its sanctions against Iran. Meanwhile, China’s oil imports from ship-to-ship transfers soared threefold in September, with a lot of the oil coming from either Iran or Venezuela, according to analysts.

Venezuela is certainly having no fun in trying to keep its oil industry going amid sanctions and the decay that follows years of underinvestment in field and equipment maintenance. Yet the most fundamental truth of basic economics is helping it trudge along: for as long as there is demand, there will be supply.

There is still demand for Venezuelan oil, and until it’s there, Venezuela will find ways to ship the oil abroad.

The Moscow Times:

Rosneft Becomes Main Trader of Venezuelan Crude Oil, Helping to Offset Pressure From U.S. Sanctions

Russian state oil major Rosneft has become the main trader of Venezuelan crude, shipping oil to buyers in China and India and helping Caracas offset the loss of traditional dealers who are avoiding it for fear of breaching U.S. sanctions.

Trading sources and Refinitiv Eikon data showed Rosneft became the biggest buyer of Venezuelan crude in July and the first half of August.

It took 40% of state oil company PDVSA’s exports in July and 66% so far in August, according to the firm’s export programs and the Refinitiv Eikon data, double the purchases before sanctions.

Three industry sources said Rosneft, which produces around 5% of the world’s oil, is now taking care of shipping and marketing operations for the bulk of Venezuelan oil exports, ensuring that PDVSA can continue to supply buyers.

Rosneft used to resell volumes it bought from PDVSA to trading firms and was less involved in marketing.

Now it has started supplying some PDVSA clients  Chinese and Indian refineries  while trading houses such as Swiss-based Trafigura and Vitol have walked away because they fear they could breach secondary U.S. sanctions, according to six trade sources.

Trafigura and Vitol declined to comment.

Rosneft and PDVSA did no respond to requests for comment.

Oil accounts for more than 95% of Venezuela’s export revenue and Washington has warned trading houses and other buyers about possible sanctions if they prop up Caracas.

The United States and some Western governments have recognized Venezuelan opposition leader Juan Guaido as the country’s rightful head of state and are seeking to oust the current socialist President Nicolas Maduro.

A State Department spokesman said the United States “has put foreign institutions on notice that they will face sanctions for being involved in facilitating illegitimate transactions that benefit … Maduro and his corrupt network.

“We will continue to use the full weight of U.S. economic and diplomatic power to complete the peaceful transition to a once-again free, prosperous and stable Venezuela.”

Moscow is one of Maduro’s closest allies and has provided military support to his government as well as billions of dollars in loans and equipment.

“Rosneft has been dealing with Venezuela’s crude directly, fixing vessels and offering it to end users”, a source with an oil trading firm said.

Rosneft is not in breach of U.S. sanctions because it takes oil as part of debt servicing agreements after lending Caracas money in previous years.

PDVSA lowered its outstanding debt to Rosneft to $1.1 billion by the end of the second quarter this year from $1.8 billion at the end of the first, the Russian company said Wednesday.

The sources said most deals between the two do not involve cash. Those that do are processed in euros rather than in U.S. dollars to cover Venezuela’s debt to Rosneft.

Russia and China have called U.S. sanctions against Venezuela unilateral and illegal.

Last week, Washington imposed new sanctions on Venezuela, threatening to take measures against any firm “materially assisting” Maduro’s government.

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