When Major General of the National Guard Manuel Quevedo headed the Ministry of Petroleum and Energy of Venezuela and the oil company PDVSA in November 2017, he promised to increase oil production by 1 million barrels a day and eradicate corruption. But after half a year it fell by 23%, or 450,000 barrels a day, theft increased, managers leave the PDVSA massively, and its employees call on Quevedo to leave. Allies of Venezuela - Russia and China agree with them. And for the time being Western companies operating in the country, such as Total and Chevron, are getting more and more nervous.
The prospect of a country with the largest oil reserves in the world is likely to continue to deteriorate. According to analysts, by the end of the year production may drop by another 0.5 million barrels a day, which is capable of pushing up oil prices even higher. The likelihood of this will increase if the United States enters the next sanctions against Caracas after the presidential election on May 20 (President Nicholas Maduro has already isolated potential opponents), and foreign partners in joint ventures will continue to experience problems or leave the country. "There are not enough machines, tools and everything else," Total CEO Patrick Puyanne said last week to analysts. According to the world's largest oilfield services company Schlumberger, oil production in Venezuela is in "free fall".
Major General Quevedo, like most PDVSA board members, is loyal to Maduro, but does not have sufficient professional knowledge. Recently, thanks to a special decree, he received broad powers allowing him to change all contracts practically at his own request. As a result, last week two Chevron managers were arrested on charges of state treason after they refused to sign contracts at inflated prices. Chevron produces 50,000 barrels per day in Venezuela, but the total production with PDVSA, a joint venture partner, can reach 150,000 barrels. "Part of this mining can now be threatened," says Louise Palacios of the consulting firm Medley Global Advisors. "Attacking Chevron and chopping the branch on which you are sitting is not a stabilization of oil production."
Medley estimates that by the end of the year, production in Venezuela will decline from the current 1.5 million to 1.1 million barrels per day. JPMorgan forecasts that it may decrease to 1.2 million barrels, but considers "very high" the risk of falling below 1 million barrels.
The fall in oil production to a 30-year low further reduced the incomes of the Maduro government, under which GDP has already declined by more than a quarter, and hyperinflation has been rampant for years. Venezuela defaulted on bonds for $ 70 billion, because of which it is now cut off from new financing. Even such key allies as Beijing have turned away from Caracas. Chinese state banks lent Venezuela more than $ 60 billion in oil-backed loans in 2007-2016, but last year they did not issue new loans. As reported by Reuters, in late April, a two-year grace period for the payment of outstanding debts to China in the amount of $ 19 billion expired.
Venezuela also owes billions of dollars to Russia and Rosneft. The debt to the latter is secured by a 49% stake in Citgo, the PDVSA refinery in the US. China and Russia are trying to force Maduro to find a replacement for Quevedo and take measures to protect their employees from violence and robbery, argues Argus. Meanwhile, the International Chamber of Commerce decided in late April that Caracas should pay $ 2 billion to ConocoPhillips for the forced nationalization of its assets in 2007.
"The economy is not the determining factor for the Maduro government, but it becomes increasingly difficult to apply the necessary resources. The US, meanwhile, is increasingly understanding how to increase pressure on Caracas, "says former IMF staff member Robert Khan, who is closely following the situation in Venezuela.
The key test will be the presidential election on May 20. The United States, the EU and the 15 largest Latin American countries have already stated that they do not recognize their result, since all opposition candidates except one are not admitted to them. It is expected that the victory of Maduro, which almost does not cause doubts, will provoke the introduction of new sanctions. As a prelude, the United States and 15 other states, including Japan, agreed in April to intensify the monitoring of Venezuelan officials suspected of embezzlement of public funds intended for the purchase of food. According to the US, corrupt officials with the help of front-line foreign companies are appropriating up to 70% of their own funds.
But even more problems will arise if the US decides to limit the purchases of Venezuelan oil, which now amounts to almost 500,000 barrels per day. "The oil embargo of the United States will deal a quick and serious blow to Venezuela," a recent report by the consulting firm IPD Latin America says. - [But] it seems that the main risks will be more connected with humanitarian issues and possible decrease in security in the region. "