By Elias Ferrer on Oct 19, 2023
The US Treasury’s Office of Foreign Assets Control (OFAC) presented the suspension of key sanctions on Venezuela late on Wednesday. The announcement followed an agreement between the Venezuelan government and opposition on Tuesday in Barbados, and negotiations between Washington DC and Caracas last month in Qatar.
What we see is that the main reason for these sanctions waivers is not about giving concessions to Maduro. Instead, the Biden administration was trying to implement these suspensions regardless, out of its own concerns—migration, energy prices, geopolitics, and others. However, it needed the Barbados agreement on Tuesday to justify what would be seen as concessions. This last point has been repeated to me by various sources in and close to Capitol Hill.
As I already told subscribers and wrote on Forbes, I previously expected this announcement to come straight after the primaries this Sunday. This would be so that skittish policymakers in Washington DC stand by and watch the primaries play out first—with the expectation that they could be a bust. Nonetheless, the decision was likely already made in Doha, Qatar late last month.
In Barbados, the government and opposition agreed on an electoral roadmap for 2024, when presidential elections are due to take place. The agreement included conditions for a fair vote, such as inviting international observers, though it did not include lifting the public office ban on candidates who “had broken the law”—namely Maria Corina Machado.
The Venezuelan government also freed five opposition members: Roland Carreño, Juan Requessens, Marco Antonio Garcés, Eurinel Rincón, and Mariana Barreto. The US State Department has also reiterated that it wants “a specific timeline and process for the expedited reinstatement of all candidates”.
Which sanctions are being suspended?
The measures can be summarised as the following: lifting restrictions on the oil and gas sector, on gold mining, and on the secondary market for bonds. The suspensions also relate to the repatriations deal, and to Citgo.
General license (GL) 44 allows for transactions related to the oil and gas sector for six months, with the possibility of renewal after the period has run out. This measure alone is likely to have an enormous economic effect on Venezuela. It will allow for new investments from foreign capital, especially from firms already operating in the country.
Bringing PDVSA into the global market will also let it close the discount. The state oil company sells barrels at roughly $60 when formal-market prices hover around $90—meaning it will be able to start benefitting from a cycle of high commodity prices. Transport has also become more costly under sanctions, having to ship oil to distant markets such as China, with high-risk tactics such as transferring cargoes at sea or in Malaysia, and dangerously switching off radars.
GL 43 will allow for agreements with gold miner Minerven, which according to the OFAC would serve to reduce transactions on the black market. Some experts were pointing to sanctions for having forced Venezuelan trade in the black market for gold and oil, making corruption much easier in opaque deals and payments.
GL 3I and 9H have been modified, lifting the “trading ban” on certain sovereign and PDVSA bonds. The ban on the primary market remains in place. The sanction effectively meant that US citizens could not buy such bonds.
The rationale for this suspension has been explained to me by various experts and bondholders, and voiced here before: republic and PDVSA debt was flowing out of the US into the hands of European and also opaque, non-Western funds. According to a European bondholder, it was being dumped out of the US to the tune of $500m per month. This means that in the eventual restructuring, it could be that US bondholders become only a minor player—90% of these bonds were traded in the US before sanctions.
The OFAC press release said that lifting the trading ban “would have the positive effect of displacing nefarious players in this market, and with negligible financial benefit to the Venezuelan regime.” This specific suspension is clearly not a concession to President Maduro.
GL 45 allows for transactions related to the repatriation of Venezuelan citizens, involving state-owned airlines—we saw a deal on deportations on October 5th. On Wednesday we saw news about the first repatriation flight. Currently, there are no direct commercial flights between the US and Venezuela, though this could change in the near future.
Finally, GL 5M was extended, which authorises transactions related to the financing and other operations for the “2020 PDVSA bond”, that would be forbidden from 18 January 2024. This means that for another three months, the claimants holding these bonds are not yet allowed to take over a majority stake in Citgo Petroleum, giving time for the firm’s fate to be negotiated.
Source: Over the Hedge, [email protected]