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With U.S. sanctions spooking key oil buyers and depriving its government of cash, Venezuela last year inked a deal with a little-known local company to swap crude for food, Reuters has learned.
By UK Investing
Aug 24, 2021
That agreement saw state oil company PDVSA, beginning in December 2020, deliver more than 6 million barrels of crude worth nearly $260 million to a company named Supraquimic C.A., which was to supply food for a government program. But the arrangement collapsed when PDVSA accused two executives linked to Supraquimic with embezzling the proceeds, according to criminal charges filed by Venezuelan prosecutors in late March.
This account of the deal and its demise is based on dozens of pages of internal PDVSA documents viewed by Reuters, court filings by prosecutors, and interviews with three people familiar with the situation. It offers a rare glimpse inside one of the maneuvers that Venezuela’s socialist government devised to continue exporting crude – the lifeblood of its beleaguered economy – despite U.S. sanctions.
Neither PDVSA nor Venezuela’s oil or information ministries or chief prosecutor’s office responded to requests for comment. President Nicolas Maduro has called U.S. sanctions illegal and blames Washington and his domestic political opponents for the country’s woes.
The Supraquimic deal is also the latest example of how Venezuela, cut off from the global financial system and short of hard currency after years of economic decline, has turned to bartering its crude. It has previously used oil to pay down debts https://www.reuters.com/article/us-venezuela-china-exclusive/exclusive-venezuela-wins-grace-period-on-china-oil-for-loan-deals-sources-say-idUSKCN2581UN, buy gasoline and diesel https://www.reuters.com/article/us-venezuela-diesel-agriculture-feature-idAFKCN2D0188, and purchase water trucks https://www.reuters.com/article/us-venezuela-mexico-trucks/second-cargo-of-water-trucks-from-mexico-arrives-in-venezuela-under-oil-swap-idUSKBN22D63P. Maduro has even proposed using oil to buy coronavirus vaccines https://www.reuters.com/article/us-health-coronavirus-venezuela-oil/venezuelas-maduro-proposes-paying-for-coronavirus-vaccines-with-oil-idUSKBN2BK0SR.
Just as important, the Supraquimic deal provided PDVSA with a new customer. Since the United States blacklisted PDVSA in early 2019, many major clients have stopped buying. In their place, a series of mysterious, recently-formed companies https://www.reuters.com/article/us-venezuela-oil-exports-special-report-idINKBN27Q295 with no previous oil experience have materialized to buy PDVSA’s oil, including previously-unknown Mexican and Russian firms.
Purchases by these new players have allowed Venezuela’s crude exports to climb sharply this year https://graphics.reuters.com/VENEZUELA-OIL/EXPORTS/xegpbqdzjvq, internal PDVSA shipping documents and Refinitiv Eikon vessel tracking data show.
“It is amazing how Venezuela has mutated to overcome difficulties coming from sanctions, which is making Venezuela’s oil trade increasingly opaque,” said Francisco Monaldi, a fellow in Latin American Energy Policy at Rice University’s Baker Institute.
It’s all part of a cat-and-mouse game that Caracas is playing with U.S. authorities to keep selling its most important commodity. Washington has barred American companies from purchasing Venezuelan oil and has threatened to punish firms based anywhere in the world that do business with PDVSA.
“Maduro and his supporters have attempted to exploit U.S. policy in support of humanitarian related transactions by disguising their attempts to squeeze profit from Venezuelan resources as oil-for-food schemes,” a State Department spokesperson said in a statement.
“We do not preview our sanctions, but of course evasion schemes may prove vulnerable to sanctions,” the statement read.
The Supraquimic deal also demonstrates potential perils for companies doing business with Venezuela’s government, which has sparred repeatedly with the private sector even as the Socialist Party has courted their investment https://www.reuters.com/world/americas/maduro-ally-makes-rare-appearance-venezuela-business-group-assembly-2021-07-20 to boost the economy.
In 2015, for example, with Venezuela rocked by shortages of consumer goods, authorities detained executives of a pharmacy chain https://www.reuters.com/article/us-venezuela-pharmacy/venezuela-arrests-pharmacy-chain-owners-in-economic-war-idUSKBN0L91JN20150205 and workers at a leading food company https://www.reuters.com/article/cbusiness-us-venezuela-polar-idCAKBN0U302520151220 on accusations of hoarding supply to destabilize the economy, which they denied. Venezuela’s industrialists have blamed Maduro’s socialist economic policies for the nation’s woes.
“The main risk to doing business with the government is not that you’re going to lose money or that your assets are going to be expropriated. It’s that you’re going to end up in jail,” said Jose Ignacio Hernández, a specialist in Venezuelan administrative law and economic regulation at the Harvard Kennedy School and the former legal representative for Venezuela’s opposition.
Venezuela’s Information Ministry did not reply to a request for a response to Hernandez’s assertions.
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Read More: UK Investing – Exclusive-Venezuela swapped PDVSA oil for food, then punished the dealmakers
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