US Government Sends Warning To Venezuelan Government

May 24, 2011

The sanctions announced today by the US Government against Venezuela’s oil company PDVSA and lesser known arms manufacturers CAVIM, represent a clear message of warning to the Venezuelan Government to watch the line they step over with Iran and other terrorist Nations.

The US had already sent a warning over PDVSA’s shipments on two tankers of a catalytic product used in the production of gasoline earlier this year.  However, the President of PDVSA said in February that it had not made such shipment. It is less clear in what way CAVIM violated the US sanctions against Iran, we just note that the President off CAVIM happens to be a Director of PDVSAand in my interpretation, including CAVIM might have an implied message of warning in itself.

That this is a warning can be seen by the weak sanctions, as PDVSA will not be able to:

“compete for U.S. government procurement contracts, secure financing from the Export-Import Bank of the United States, and obtain U.S. export licenses”

Moreover, PDVSA’s affiliates (read CITGO, based in the US) will not be subject to the sanctions. Of the sanctions in itself only the last one may be of consequence as it will likely get tougher to obtain export licenses to Venezuela of sophisticated technology unless the exporter/importer can show that PDVSA will not have access to it.

The sanctions imposed are really mild. Under US law, the Secretary of State had to impose at least three sanctions from the nine possible ones (see Setty’s post). People who took part in the conference call and others I talked to today, indicate the three were chosen such that would not block oil trading between the two countries. The ban on import licenses applies to future ones, not past ones, it may be bad for PDVSA long term, but basically irrelevant at this time. PDVSA does not have any contracts with the US Government and Citgo is exempt from the sanctions. Venezuela has had no access to Ex-Im bank financing for a few years.

What is clear from the sanctions and various conversations with people in DC, is that this mild application of the sanctions is a warning and that were PDVSA to once again collaborate with Iran in violation of the sanctions, the US Government would take a much tougher stance.

So far Venezuela’s response has been mixed. There was the usual rhetoric, “imperialistc”, “Illegal”, “no fear from more”, but no threat to stop shipping oil to the US (so much for the revolution that needs capitalism to function). PDVSA “officials” told Reuters that this was done by the Obama administration to appease Senate critics.

Surprisingly, Chavez did not speak, either by premeditation or because that morphine for the pain in his knee is really taking a toll.

Perhaps the main impact of the sanctions will be on the Government’s finances. Both PDVSA and the Government have been issuing bonds mostly to create the supply for the Central Bank’s SITME system, the only legal mechanism (other than the Central Bank) to move money in and out of the country. In January, for example, PDVSA reopened the 2017, 8.5% coupon bond to pay the Central Bank US$ 1.9 billion (Or was it US$ 2 billion? Or was it US$ 2.4 billion?) which the bank has been selling via SITME. Similarly, in February it sold US$ 3 billion of a PDVSA issue, of which US$ 1 billion was kept by the Government.

The problem is that these bonds were sold at Bs. 4.3 per US$, which means that if they are sold through the SITME, the price of the bond needs to be above 81% for these institutions to break even. With the news today, PDVSA’s and Venezuela’s bond fell and the PDVSA 2022 closed below 80%, increasing possible losses if they began selling it in the SITME system. We suspect these bonds will be under pressure for a while with the news.

The next few days are important, after the initial rhetoric settles down, Chavez is likely to forget the topic. All he wants and needs is to be reelected, Iran may be an ally, but is not worth the sacrifice.

Stay tuned!!!

51 Responses to “US Government Sends Warning To Venezuelan Government”

  1. albionoldboy Says:

    “compete for U.S. government procurement contracts, secure financing from the Export-Import Bank of the United States, and obtain U.S. export licenses”

    True the sanctions won’t hurt PDVSA in the short term, but if you are a multinational oil co, would you put a dime in a country thats headed for complete economic embargo? how do you explain to you stockholders you put money into a country thats about to be declared a terrorist state. Chavez should remember if you sleep with dogs you get fleas.

  2. Francisco Toro Says:

    No, I think this interpretation is wrong. A measure is only useful as a warning if the threat of later action is credible.

    And the threat of further action is decidedly *not* credible in this instance because there isn’t the slightest chance on earth that Barack Obama will endanger his re-election by sending gas prices higher still to teach Chávez a lesson.

    We need to keep our wits about us. Under no imaginable circumstances can hemming in Chávez be a higher priority to Obama than his re-election. The sanctions are hot air, as is the Venezuelan response.

  3. albionoldboy Says:

    We need to keep our wits about us. Under no imaginable circumstances can hemming in Chávez be a higher priority to Obama than his re-election. The sanctions are hot air, as is the Venezuelan response.

    The laws on sanction busting are automatic, no help needed from Obama. US citizens have gone to jail for helping Iran, March Rich had to skip to Switzerland for 20 years, till he bought a $20 Million pardon from Bill Clinton.

  4. Verbuyst Says:

    Why should Iran be a terrorist nation? they never agressed anybody, on the contrary the US is agressing since 1959 , one country after an other, Why is the US using double standards between Israel and Iran? I boycott US products since several years just because of there agressive way of behaviour!

  5. Verbuyst Says:

    Correction : since 1950

  6. Verbuyst Says:

    Sanctions would be cutting in his (oblablablama’s) own flesh, for now the us is is cutting so much tree’s for printing more and more dollar bills that very soon there will be no more tree’s in the US, so he could use support from Venezuela. perhaps Chavez should offer more free oil to the US because the situation there is so deteriorating that its is or it will become very soon an underdeveloped nation, the roman empire from the 20th and 21st century.

  7. moctavio Says:

    As your Europe goes under water, you wish…

  8. copperman Says:

    then you should stop using Windows and the internet also… or aren’t these american products too ???

  9. Albert Sierra Says:

    Well, I believer there is one more thing worth mentioning.

    Although these sanctions do not produce any immediate threat to Venezuela I believe it cause some noise in the financial markets above which PDVSA needs for the extra heavy projects at Orinoco Faja (Junin 2, 4, 6, Carabobo 1 y 3, etc etc… I forgot to mention revamping of Pto La Cruz and El Palito refineries)….just one project alone, say Carabobo 3, may be around USD 20 billions to come to fruition (early production + upgrader plant) . There is no way in heaven that PDVSA can carry out any of these projects without international financing.

    My question is how much noise do these sanctions produce? Is it enough in order to give a shout of caution to the international sources of financeaffect, after all PDVSA´s thirst for LECHUGAS is infinite????….I don´t know but might be worthwhile analysing that.

    Regarding the sale of Bonds at Sitme……….well if things get ugly at SITME the can just stop selling those bonds and give a temporarily boost to the parallel rate!!… I dont see any inconvenient in doing this,,,,after all, no body cares and many people with accounts abroad and guisos in Venezuela get richer with any hike in the parallel rate………Accordingly, more billullos!!!!

  10. albionoldboy Says:

    “Chavez should offer more free oil to the US because the situation there is so deteriorating that its is or it will become very soon an underdeveloped nation, the roman empire from the 20th and 21st century”

    That’s why you have long lines outside the US embassy, people vote with their feet, one million Venezuelans have voted against Chavez, when the country collapses you will have a stamped, PDVSA is the golden goose and Chavez is going to cook it.

  11. GeorgeS Says:

    Chavez cares, he wants that exchange rate artificially low.

    As for Europe, give them credit, they invented the PSF!

  12. moctavio Says:

    I dont believe any of the Faja projects will be developed under Chavez, PDVSA does not have the money and can not riase that much internationally, as simple as that. Sanctions or no sanctions.

    Quico: You better believe this is a warning, it’s the law, another violation and it will happen.

  13. copperman Says:

    Venezuela is doomed… and thats a real shame, they missed a perfect golden opportunity during the last global crisis. Almost a trillion $ that they can’t account for, Nevertheless, it is a great country, 12 years of bad admin and still going… pitty

  14. moctavio Says:

    Countries always keep going, things just deteriorate forever, look at Zimbawe.

  15. Roy Says:

    Re Verbuyst: As Bugs Bunny said, “What a maroon!”

    To boycott all U.S. products, you would have to divorce yourself from all technological society and live in a cave.

  16. Verbuyst Says:

    @ Moct. a very beautifull example is the US, how it deteriorates and not only abroad with illegal killings, but also the inside situation, hippocracy on top! What person with reasonable brain believes the US? The money they spend to blackening other nations could better be used to help the huge quantity of poor and jobless people inside the US!

  17. Kepler Says:

    Nothing is going to happen. The government will announce that anything that is going wrong has to do with the sanctions, that they are like the US sanctions against Cuba, blabla.
    Already the government is saying the electricity failure is due to the GDP growth.
    This is just so boring.

    Miguel, laws can be interpreted in many ways, specially when it comes to election time, even in the US or the EU. I don’t think anything will happen.

    Verbuys,

    En wat gebeurt met Vlaanderen? België is nog altijd zonder regering. And there is more of a mess coming in, economically speaking. Will Germany have to act to save Belgians’ asses?

    Chávez is giving now actually much more free oil to China than any Venezuelan government did in the last 60 years to the US. Just one example: he badly needed now some extra cash. The Chinese offered to give him 10 billion dollars within 5 years plus Chinese products for the equivalent of 10 billion dollars (with some weird calculation basd on some new level of yuan). In exchange, Chávez gives our oil for at least 10 years for less than a third of the market price.
    Chávez got from that several million gadgets from the Chinese he will initially sell at a fraction of the cost and then just give away, so as to win the 2012 elections. Never mind Venezuela’s future and how many thousands of barrels will be tied to China for so many years.

    Meanwhile Venezuela has acquired liabilities with the Russian Federation for the purchase of 7 billion dollars in weapons, weapons that, other than the Kalashnikovs, would mean nothing in the case the US were to invade Venezuela, which won’t happen.

    Rudy: you have no idea.
    Chávez has got in 13 years several times the amount of money the previous governments got in 13 years and that just thanks to oil prices.

    While Chávez is wasting so much money, while his peers, the military friends like Diosdado Cabello and Rodríguez Chacín and the Chávez clan are getting richer every day,
    the primary school I visited as a child is running down, is over-crowded, very overcrowded, the public – free – hospital I was born in as a child several decades ago is still the only one general hospital to exist for a city of 1.2 million people plus several neighbouring municipalities for a total of over 1.5 million people.

    Imagine a hospital the size of a hospital in Oostende catering for more than 1.5 million people. ONE. We don’t have more public hospitals, just very small “health stations” other than that.
    Unlike in Oostende, people now have to go to the street vendors who started to appear in the last years around the hospital to buy the medicines and the syringes and the gloves because there is not material in the hospital.

    Rudy: a headless chicken in Venezuela or Norway knows more about your Flanders, than you about Venezuela.

  18. Ira Says:

    Verbuyst:

    “Blacken” other countries?

  19. Roberto N Says:

    I kinda liked “hippocracy”.

    I thought the Republican symbol was the Elephant, not the Hippopotamus.

  20. Kepler Says:

    This is what he means:

    http://en.wiktionary.org/wiki/zwartmaken

    I have talked to a couple of Flemish commies and even they, after I have explained a bit more Venezuela’s situation, haven’t been as blind as this Verbuyst guy. Forget about him, he would be a very weird character anywhere. More than Verbuyst, he is verbitterd (bitter)

  21. Kepler Says:

    Roberto,
    “Hippocracy” is a system where horses rule. It comes from ἵππος
    (horse) and κρατία, which we all know.
    There is also the gaidarocracia, from γάιδαρος. That is the system in place in the Bolivarian Republic of Venezuela.

  22. Francisco Toro Says:

    Miguel,

    You have to think through the scenarios. Any sanctions with real teeth would disrupt the U.S.’s oil supply, probably sending a supply shock throughout the U.S. distribution chain, at least in the short term. There’d also be a price spike, again at least in the short (to medium) term.

    Now, put yourself in Barack Obama’s shoes. There’s an election next year. U.S. voters are notoriously sensitive to gas prices. Under what imaginable set of circumstances would Obama hobble his own chances, sending gas to $6 or $7 a gallon, if he’s in any position to prevent it? Imagine the republican attack ads. Imagine the Town Hall questions from small town people having to choose between buying prescription medicines and filling up their tanks.

    This is a political disaster for a sitting U.S. president. It’s why securing a stable supply of oil has been a key U.S. foreign policy priority for the last 60 years. It’s just not credible to imagine any sane politician with any lever in his power to avert such a scenario wouldn’t avert it.

    As a warning, it lacks any credibility.

    In fact, think of it this way: if there really WAS a chance that Venezuela could lose its key export market on the back of this, do you really think Ramírez and Maduro would’ve felt free to posture wildly as they did yesterday?

    Of course not!

    It’s because the implicit threat lacks plausibility that the recipients are liberated to do their theater. If their necks were really on the line, they’d be going all out to protect the revenue stream that their political viability depends on. They’re not…because their necks are not really on the line!

  23. moctavio Says:

    I disagree, if Venezuela continues helping the Iranians, they will go further, but I think Chavez also has an election and will not. Oil is fungible, gas will not go up that much because Venezuela can’t export to the US. In a month the whole supply will be normalized and nothing like a conflict to raise the popularity of a US President.

    Citgo will have to buy more expensive oil for its refineries, Venezuela will have to sell its oil cheaper in the world markets, Hugo will not be able to sell debt to Americans, Americans will have to dispose of their bonds.

  24. Francisco Toro Says:

    Email me your snail mail address. If the U.S. ever stops accepting Venezuelan oil, or Venezuela ever stops offering it, I will send you a case of Dom Perignon. Hold me to it!


  25. […] blogger Miguel sees the sanctions as a warning, The sanctions imposed are really mild. Under US law, the Secretary of State had to impose at least […]

  26. BruceCarson2008 Says:

    Hey this is OT but can anyone tell me how that Hilton hotel that Chavez took over on Margarita island is doing? Back when it was taken over people were predicting it would go downhill curious if there is any indication of that.

  27. BruceCarson2008 Says:

    Hey this is OT but can anyone tell me how that Hilton hotel that Chavez took over on Margarita island is doing? Back when it was taken over people were predicting it would go downhill curious if there is any indication of that. M_Astra lived near it if I recall.

  28. firepigette Says:

    There might be a middle way of what could happen here.

    The US government might add new sanctions that would further pressure Venezuela but without significantly affecting the oil sales.That way they avoid a big oil spike but still affect Venezuela’s long term prospects.

  29. moctavio Says:

    There are nine possible sanctions, the financial ones will hurt as much as banning oil imports

  30. A_Antonio Says:

    The pathetic ridicules incompetent sanction from Venezuela to USA is to “reduce” the oil exportation of 1.2 millions barrels to 900 or 800 thousands barrels a day.

    What they will not says is that the sanction is the real exportation to USA from several months ago.

  31. Roberto N Says:

    ““Hippocracy” is a system where horses rule. It comes from ἵππος
    (horse) and κρατία, which we all know.” Thanks Kep, need to read my classics again to sharpen up. (Although the Hippopotamus image works better, IMHO.)

    Hmm, gaidarocracia? I guess in both senses of the word, yes. Look at how we as a country value Osmel Sousa. Add on our fearless intergalactic leader and his 40 idiots and I can see you point!

    MO, I agree with Quico in that this is another hot air issue that will blow away soon.

    However, it also means Venezuela is one step closer to more punitive sanctions, and there are only so many stripes that you can paint on a tiger before the tiger turns into something else.

  32. moctavio Says:

    If PDVSA sends another shipment of catalytic chemicals to Iran, it will not go away, it will come back with strength.

  33. Dr. Faustus Says:

    I have been reading this blog for the better part of 7 months now, and thoroughly enjoy it. It is surely one of the best blogs on the internet, especially dealing with Venezuelen affairs. Good stuff!
    A few comments:
    1) As an American I am deeply offended by the silly comments being made by your resident communist poster from Belgium, ‘Verbuyst.’ My God, shouldn’t he look in his own backyard for problems concerning Europe ‘before’ making inane comments about us? By the way, how’s that Euro thing working out for you guys?
    2) This quote from Moctavio caught my attention, “Oil is fungible,…” Yes, that’s true in most cases. Venezuelan gunk, however, is not fungible. That’s a very important point. The only reason why Hugo Chavez has not stopped shipping his Venezuelan gunk to the refineries in the US is twofold, (1) He’d lose the US dollars and (2) Much of Venezuelan oil is so unique that only a limited number of refineries can process it. If he doesn’t bring it here, there are few options available, ie. it is not fungible. If the US were to sanction these shipments, Venezuela would be glutted in oil with few options available. Amuay can only refine 960,000 barrels at its max.

  34. moctavio Says:

    That is correct, but at the right price it becomes fungible. That is, Chavez will have to sell the oil much cheaper than he does to the US refineries that process the sulfurous oil. He will find a way of selling it to Nigeria and having Nigeria junk soild to the US, at a price!

    Thanks for your kind words on the blog, it is an interesting unpaid night job.

    It is also a labor of love…

  35. Kepler Says:

    Bruce,

    Someone in Margarita just wrote me to confirm what I had heard from another one from there: Hilton (not called so anymore) is a disaster.

  36. loroferoz Says:

    Miguel is right: It is a warning.

    However, in this world, where money and investements are easy to scare away, and at this scale, a warning shot can cause damage.

    And the severity of the warnings can be stepped up.

    Subtly, in ways that do not directly affect oil production or exports as such.

    Of course, whether this gives Hugo Chavez and company fuel for posturing depends a lot on Venezuelan perceptions of the U.S.-Venezuelan relations. Most Venezuelans think it falls quite short of chavismo’s ludicrous fake-heroic description of them as apocalyptic conflict.

  37. Bruni Says:

    OK, Quico, Miguel, here’s the deal:

    A bottle of Dom Perignon to Quico, from Miguel if 1) Vzla keeps helping Iran, 2) The US does nothing about and 3) everything happens before the US election.

    A bottle of Miguel’s favorite Spanish red wine, from Quico if 1) Vzla keeps helping Iran, 2) The US imposes stronger sanctions and 3) everything happens before the US election.

    A nice box of Venezuelan chocolates to Bruni from Quico and Miguel if
    1) Venezuela stops helping Iran or 2) everything happens AFTER the US election.

    (Note: I am betting not out of conviction but out of gluttony!)

  38. Paul Says:

    Not meaning to take other website news into this exceptionally well written blog but just have to comment on the following taken from El Universal today:

    Venezuelan Minister of Energy and Petroleum Rafael Ramírez headed a rally of oil workers at Jose terminal in the state of Anzoátegui. There, a demonstration was staged to support state-run oil company Petróleos de Venezuela (Pdvsa), as a result of the sanctions imposed by the United States on the Venezuelan oil company over business dealings with Iran.

    Ramírez rejected the “imperialist interventionism.” “Imperialist, go and f… yourselves,” he cried out.

    “Imperialism (the US government) is not to decide who will be Venezuela’s friends. Their imperial decisions will neither hit nor stop us. Pdvsa is ready to fight for sovereignty,” he added.

    Ramirez is almost as articulate as his daddy Hugo. Both of them should be running a barrio bar in Caracas….except that their financial accumen would probably keep it open about a week.

  39. Ira Says:

    First, the push to punish Hugo for his terrorist/leftist support has been coming from the Republican side, so how could further actions against PDVSA–including a disruption in VZ oil and higher U.S. prices–be used as fodder for a Republican candidate?

    Second, the American people can more than accept higher prices if it means hurting Iran. We love a good fight here and don’t get intimidated all that easy, and if all that means is a temporary increase in prices, until the Saudis make up the difference, the American people will gladly make that sacrifice. (And remember that it’s the Saudis who are going to be most influential in setting prices, and their eyes are on 80 bucks for a real global recovery.)

    Finally, and most importantly, some are overestimating Obama’s concerns over high prices. Yes, he knows lower prices are important for U.S. recovery, but more important to him is weaning the U.S. off oil in the first place. To him, his campaign talk about electric cars, and other alternate energy, wasn’t just talk–he believes it to the bottom of his soul.

    The wheels move slowly to effect (or is it “affect” in this usage?) real change regarding energy usage, but they still move. The electric cars are coming out…solar panels are going up…and companies are embracing the new technologies that will save them money, and enjoying the ta* breaks. (That letter after “w” is still broken on my keyboard!)

    But what’s really making this all happen?

    High oil prices.

    So, we have a situation where VZ needs the U.S. market more than the U.S. needs VZ’s poor crude, because this is just what Chavez needs (sarcasm):

    Wasting a month shipping to China, with much of that crude being used to buy Chinese technologies that VZ hardly needs.

    This scenario hurts VZ big time, and you can’t spin it otherwise.

  40. Juancho Says:

    . . . revamping of Pto La Cruz and El Palito refineries)….just one project alone, say Carabobo 3, may be around USD 20 billions to come to fruition (early production + upgrader plant) . There is no way in heaven that PDVSA can carry out any of these projects without international financing.
    ———

    Even if they had all the coin to revamp the whole petro-matrix they no longer have the mechanical nor administrative wherewithal to do any such thing. The real bankruptcy is the total demise of the fabricating and construction industry. I’m told that the people in charge now cannot even maintain the energy sector, and revamping it is just a preposterous dream.

    Juancho

  41. sapitosetty Says:

    I’m with Bruni. 1. Chocolates are the best. 2. Chavez will stop helping Iran. In fact, PDVSA has been pretty quiet about the supposed shipments — they aren’t exactly coming out to brag that they made the sales in the first place, and have even denied it. So I don’t see any more sales to Iran. And no more sanctions.

    Secondly, “Go f- yourself” is a very weak translation of what Ramirez says, which was apparently “vayanse al carajo.” Literally: “get thee to the crow’s nest” (of a ship). It simply means, “Go somewhere very uncomfortable,” and is typically translated as “go to hell.”

  42. someone Says:

    @Kepler: This arm deal with the Russians ist interesting, with this in mind the selling price of the refineries in Germany makes sense, do you have a source for this deal. Greetings

  43. Kepler Says:

    Someone,

    I write a bit on Russian and Belorussian stuff related to Venezuela, sometimes in English, sometimes in Spanish in Desarrollo sostenible para Venezuela. Look for tags “Russia” “Belarus” in the English or “Rusia” “Bielorrusia” in the Spanish blog.

    On 7 billion:

    http://venezuela-europa.blogspot.com/2011/03/from-russia-with-love-7billion-in.html

    Yesterday I read a new Russian article about more weapons from Russia, I will post on it later, probably in Spanish.

  44. Kepler Says:

    Someone,

    I wrote in Spanish now about the latest, you can go indirectly from the English blog (click on Venezuelan flag)


  45. Sappio: I agree, Chavez will behave now, so Bruni will never eat her chocolates…

  46. sapitosetty Says:

    Well ok, but I think Bruni says she wants chocolate if PDVSA stops shipping to Iran. And I want some too, please. In fact, chocolates for all. Even for Iranian nuclear scientists. Can we all just eat chocolate and forget all this stuff?

  47. nomi Says:

    Kepler, it’s in bad taste to promote your own blog in somebody else’s comments section. If you don’t get much traffic, deal with it, but do not try to shove your blog down our throats.

    BTW, what has the brother of a friend of your aunt reported to you lately. I am very curious to hear.

  48. Kepler Says:

    Nomi, piss off. He asked me.

  49. Bill near Slidell Says:

    And tankers loaded with oil from Venezuela will keep unloading at refineries on the US Gulf coast in exchange for money flowing to Venezuela. Or the oil will go somewhere else first to be transferred to another oil tanker that will then travel to the oil refineries on the US Gulf coast. And gasoline in the USA will cost a couple of cents more.
    It reminds me of a WW II special I saw. The day before Hitler attacked the Soviet Union, trainloads of oil were still rolling from the Soviet oil fields into Germany. Money talks, as they say.

  50. Ira Says:

    Kepler, it’s pretty bad taste to tell someone to “piss off.” In fact, that kind of language gets people banned from most sites.

    So try to grow up, okay?

    More important, British expletives basically suck compared to American ones (piss off?), so if you really want to make an impact, take a little time to choose your words more carefully.


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