For years the socialist rulers in Caracas have lived well from their oil industry. With the US sanctions it could be over for Nicolás Maduro with the dollar rain now finally over.

For many years the equation was very simple for the government in Caracas: the heavy crude oil from Venezuela came to the USA by ship. There, Citgo took over the goods. The subsidiary of the state-owned Venezuelan oil company PDVSA then refined the oil in its own refineries and sold the gasoline at Citgo petrol stations. The dollar proceeds then went to Caracas.

Even though the USA and Venezuela were at least rhetorically on the threshold of war since the takeover of Hugo Chavez in 1999, Citgo continued to do business and in Caracas it rained in dollars.

Venezuela – from the wealthy oil state to hunger and poverty

That’s what the Trump government wants to end now . All Venezuelan oil business in the US is allowed to continue, but it only rains in the form of so-called blocked accounts. This wants to make the US government accessible to the self-proclaimed transitional president Juan Guaidó  .
For the Venezuelan political scientist Ivo Hernández, who researches at the University of Münster, the step has something historical: “The US was the only regular foreign exchange source for Venezuela – in the short to medium term, this is a heavy blow against Maduro,” said Hernández.
Günther Maihold of the German Science and Politics Foundation (SWP) is a bit more reluctant: “It now depends on which alternative sources of revenue Venezuela can now draw on.”
President Maduro was visibly upset after the US sanction decision. “They want to steal Citgo,” he rumbled in a television address. Venezuela wants to fight against US courts against the decision.

Decline of the Venezuelan oil industry

Citgo is already over 100 years old. In the 1980s, it was one of the largest US oil companies. In 1986, PDVSA bought in half, then in 1990 all.
If you want to understand the significance of Citgo for today’s Venezuela, you have to look at PDVSA. Venezuela’s state-owned oil company operated autonomously for decades, was very profitable and also expanded abroad.
Hugo Chávez tried to use the PDVSA revenues to finance his social programs. PDVSA officials and employees raised questions of power with months of general strike action. Chavez won.
“PDVSA workers are for this revolution, and those who are not, should go elsewhere, go to Miami,” Chavez said. In 2003 he declared and dismissed almost 18,000 PDVSA strikers as “enemies of the state”.

Critics also see the complete capture by the state as the beginning of the decline of the Venezuelan oil sector. Gradually, the socialists repudiated the international holdings of PDVSA: In 2010, the shares in the Ruhr Oel Gmbh – a joint venture with BP, which had four refineries in Germany – to the Russian oil company Rosneft.
From the once 3.5 million barrels per day in 1998, Venezuela’s production rate fell to just under two million barrels by 2017. Last year, due to the ongoing economic crisis , the country   exported only 1.2 million barrels, the Organization of Petroleum Exporting Countries (OPEC) estimates.

Citgo is the last money-maker

Citgo claims to process 750,000 barrels per day at its refineries in the US. The rest of Venezuela’s oil goes to Russia or China, according to political scientist and energy expert Hernández. “But there is probably no fresh money, but the supplies serve in return for loans.”
In fact, Maduro would probably be without his supporters in China, Turkey, Iran and Russia at the end. According to reports, China alone could have spent between $ 50 and $ 60 billion on loans repaid in oil. In the first eleven months of last year, according to the financial agency Bloomberg, the People’s Republic imported 340,000 barrels of oil a day.
In Venezuela, well over 90 percent of all foreign exchange revenue comes from oil exports. As the last jewel of the overseas business Citgo is thus Maduro’s foreign currency. But even at Citgo of the once proud network of about 14,000 gas stations only about 5000 left, of the once eight refineries remain three.

Venezuela President Maduro with Rosneft President Igor Sechin (picture-alliance / dpa / Prensa Miraflores)

Close Relationships – Nicolás Maduro with Rosneft President Igor Sechin


Because the Maduro regime suffers from chronic financial difficulties, Venezuela has deposited 49.9 percent of Citgo as collateral with the Russian Rosneft Group. Overall, Russia is estimated to have already given $ 17 billion to Venezuela.

That’s why Russia is behind Venezuela and criticized US sanctions . It will protect its interests “within the international legal framework,” it said from the Kremlin.
Reliable figures would hardly exist from Venezuela, says Latin American expert Günther Maihold from the SWP. “As cooperation with international organizations has ceased, Venezuela is no longer providing data.”

Venezuela has few alternatives

Günther Maihold sees legal problems in the US action. “You can not just ignore the ownership – that would contradict a principle of the world economy and the US economy.”
John Bolton, Trump’s national security adviser, now wants to directly freeze $ 7 billion worth of assets. The oil business could bring together another 11 billion during the year.
If the US actually does that, Venezuela could stop supplying Citgo with crude oil. But even in the short to medium term, no new sources of revenue can be tapped, says Ivo Hernández. There are more petroleum types than perfumes. “The refineries are set to certain varieties,” said the Venezuelan researchers.
How quickly the Venezuelan government can open up new foreign exchange sources depends on whether its allies abroad remain loyal to Maduro. At least, the financial markets are skeptical and believe that Maduro will not last much longer.
According to the Financial Times, the prices of Venezuelan government bonds and PDVSA securities rose significantly. Investors are already speculating on a change of power and invest in the papers. Above all, they hope for good returns on the reconstruction of the oil sector.


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