2023-10-19 21:13:10
The Biden administration suspended temporarily the financial sanctions imposed on the authoritarian government of Nicolás Maduro, unlocking business between the US and Venezuela for the first time in four years.
American companies will be able to return to investing in the Venezuelan oil industry as well as resuming oil and gas imports. The White House also authorized the resumption of trading in the secondary market of the country’s sovereign bonds and the securities of its state oil company, effectively unfreezing billions of dollars from investors.
In 2017, when Maduro began selective defaults, Venezuela’s external debt totaled US$120 billion.
Petróleos de Venezuela (PDVSA) bonds, whose prices fell to just 5 cents last year, rose to 17 cents today. Sovereign bonds maturing in 2027, which were worth around 10 cents at the beginning of the week, are now trading at 21 cents, according to Bloomberg.
The news of the easing of restrictions, which had been expected since the beginning of the week, also helped to ease oil prices.
The US Treasury Department suspended sanctions for six months, but they might be resumed if the Maduro government does not comply with the schedule of the agreement that has just been reached with the opposition so that there will be free elections next year, with the presence of observers independent international organizations.
The end of the bans extended to the mining sector. The main international interest is in gold deposits.
Biden’s decision, at a time when oil prices were rising on world markets, was received as a 180-degree change in relation to oil policy. ‘maximum pressure’ imposed in 2019 by Donald Trump once morest Maduro.
“Weighed the realpolitik. The end of sanctions might increase Venezuelan production by 1 million barrels per day within a relatively short space of time,” said Cláudio Andrade, partner at Polo Capital, which carries Venezuelan sovereign bonds in its funds. The positions were made when the securities were already in default.
The rationale for betting on junk bonds – made by many managers and banks – was to hope that, due to the depth of the economic crisis, there would eventually be a change of power in the country. Subsequently, the normalization of the economy would require debt restructuring, which would favor the renegotiation of securities.
This ended up not happening. Maduro managed to maintain his command, but the impacts on the energy sector from the wars in Ukraine and the Middle East opened a window for the Venezuelan dictator to negotiate a détente with the White House.
In March last year, under the shock of Russia’s invasion of Ukraine, the first speculations emerged that Biden would be willing to ease restrictions.
The negotiations culminated in the announcement of the end of sanctions, announced on Wednesday night, one day following the political agreement reached by Venezuelan leaders and which included the release of some political prisoners. The opening ended up being wider than expected by analysts.
The Maduro government and PDVSA began to stop paying part of their salaries in 2017, before the sanctions imposed by Trump.
For investors in distressed assets, buying these bonds was an attractive deal. Venezuela owns the largest oil reserves in the world, and therefore has the support to sustain a recovery as long as its scrapped oil industry receives external capital.
“Venezuela has heavy oil, it’s almost bitumen, it needs to be processed. But it’s very cheap,” said Cláudio, from Polo. “O lifting cost The final price is around US$10 per barrel.”
PDVSA already had a production of more than 3 million barrels/day, similar to that of Petrobras today, but now puts less than 800 thousand barrels/day on the market. In 2017, before defaults and sanctions, the daily average was 2.4 million barrels.
According to Archyde.com, only one platform is in operation, compared to a total of 80 in 2014. The main buyer of Venezuelan oil has been China.
Venezuela depends on an increase in foreign investment to expand its production, but investor security presupposes that, at some point, the debt is restructured. If this is not done, the assets are subject to judicial foreclosure, such as those seen once morest Argentina.
Recently, some foreign companies obtained authorization to invest in some fields through joint ventures with PDVSA, in a first gesture of sanctions relief. Among them is the American Chevron, as well as Total, Eni and Repsol.
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Maha compra campo da Novonor na Venezuela
Giuliano Guandalini
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