Carrots and sticks
Donald Trump’s Venezuela oil deal is already up and running
It seems more collaborative than coercive. That will worry the democratic opposition
Nicolás Maduro, Venezuela’s dictator, has gone.
Venezuelans are glad of it.
More than half of those in the country support the American raid to seize him, according to polling for The Economist by Premise, a research firm with expertise in hard-to-reach places (see chart).
Four in five think the political situation and their personal economic situation will be better within 12 months.
Yet the future is highly uncertain.
Nine in ten Venezuelans want the results of the election stolen by the regime in 2024 to be respected, or for new elections to be held within a year.
Yet for now Mr Trump promises to “run” the country with the interim president, Delcy Rodríguez, who was Mr Maduro’s vice-president, supposedly doing America’s bidding.
His priority is not democracy but oil; on January 6th he said Venezuela would be “turning over” 30m-50m barrels of oil to the United States.
If Mr Trump’s relationship with Ms Rodríguez prospers, democracy may not.
So a crucial question is whether Mr Trump clashes with Ms Rodríguez and makes demands at gunpoint, or whether the relationship will be more collaborative.
If the latter, Mr Trump may help Ms Rodríguez settle in for a longer period, delaying democracy.
So far there is strong evidence, especially in light of an emerging deal on oil, of collaboration.
Mr Trump initially framed the arrangement as pure coercion.
Officials in Caracas, the capital, spun it as a “simple sale, a commercial transaction”.
The Economist has spoken to oil executives, financiers and traders about the possible scheme.
Much is uncertain, but it could be mutually advantageous, albeit partly under coercion.
The initial 30m barrels the deal covers are roughly the capacity of Venezuela’s crude storage which, owing to the blockade, is full (see chart).
Without hefty sales, PDVSA, the state oil company, would soon have had to stop pumping.
Instead, the mooted scheme involves PDVSA or one of its joint ventures selling most of its inventory and probably its future output.
The buyers will include Chevron, the only American major which already has a licence from the United States to operate in Venezuela.
Vitol and Trafigura, two Swiss-based commodity traders, have also obtained licences from the United States to transport and market Venezuelan crude.
The Economist understands they have offered to deliver some to Chinese and Indian refiners at a discount of $8 a barrel to Brent, the global benchmark (in mid-December some sales settled at a $21 discount).
Some Chinese buyers have placed bids at a $13 discount.
Reportedly, a sale worth $500m has already been completed, though the buyer is unknown.
Reliance, India’s largest refiner, is in talks to secure barrels stored on the high seas.
Data from Vortexa, a ship tracker, show that 13 empty “clean” tankers with a combined capacity of 15m barrels, including four operated by Chevron and one by Trafigura, are due to reach Venezuelan terminals this month.
The oil America does buy will probably be refined on its Gulf Coast or put into storage.
The rest of what Venezuela exports will often be shipped directly to other buyers.
Payment, net of the trader’s fee, will go not to PDVSA but to escrow accounts at international banks.
As required under Venezuelan law, 20-30% of that would then be wired in dollars to the state as royalties.
Under its existing licence Chevron makes royalty payments in crude oil, but that makes little sense for Venezuela while the United States enforces an embargo on sales except those it controls, says Juan Szabo, a consultant who worked for PDVSA for decades.
Another chunk of the escrowed cash would cover PDVSA’s expenses.
Mr Trump claims all future capital spending will have to be on American-made rigs, pipes and equipment.
What is left would apparently belong to the joint-venture partners, PDVSA among them.
It is possible that PDVSA’s share will stay in escrow as a sovereign-wealth fund for the future of Venezuela.
An executive order published by the White House declares the funds in those accounts “sovereign property of the government of Venezuela held in custody by the United States”.
Marco Rubio, the secretary of state, will determine how to spend it “on behalf of the government of Venezuela”.
For the United States the deal is not a game-changer. Its refiners gain another source of heavy crude and in time, some of the proceeds could be reinvested to boost Venezuela’s production.
Yet despite Mr Trump’s bullishness, most oil majors remain very cautious.
For Venezuela, such a deal looks attractive.
As well as clearing the glut, the arrangement should let Venezuela sell oil at a higher price than when it sold it to shadow traders and on to China.
The dollars should help the teetering currency.
“Venezuela needs money, and we’re going to make sure that they get money,” said Mr Trump on January 9th.
The plan still leaves him plenty of scope to tighten the screws.
Pricing could be adjusted to squeeze PDVSA.
Sanctions, loosened to enable all this, can be reimposed.
Oil is not the only issue at play in the new relationship between Venezuela and the United States.
On January 8th, seemingly in response to American demands, the regime announced it would release many political prisoners.
Among those freed is Enrique Márquez, a prominent opposition politician.
The regime has also freed some Americans.
Still, as The Economist went to press, six days after the initial announcement, the release of only 84 out of more than 800 documented political prisoners had been confirmed.
It seems Mr Trump wants to collaborate with the new face of the old regime.
On January 14th, after a phone call with Ms Rodríguez, Mr Trump said she was a “terrific person” who “we’ve worked with very well”.
His demands are not so extreme that they seriously risk fomenting a coup against Ms Rodríguez—yet.
And the oil scheme could be a crucial economic boost.
Questions about Venezuela’s democratic future present a bigger test of the new relationship.
Will, for example, the administration order Venezuela to allow the speedy return of exiled politicians?
This would include Edmundo González, who actually won the 2024 election, and María Corina Machado, the recent Nobel peace-prize winner who backed Mr González after Mr Maduro barred her from running.
An image of Mr González still appears on wanted posters at Venezuelan airports.
An indication of where this is heading is due on January 15th, shortly after this article is published, when Mr Trump will meet Ms Machado.
He had hitherto dismissed her as lacking the “support” to run the country.
Perhaps concerned, Ms Rodríguez has dispatched her envoy to Washington for the same day.
It is a chance for Ms Machado to convince Mr Trump to hasten steps towards democracy.
But as many others have found out, a visit to Mr Trump at the White House can easily backfire.
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