Photo: FEDERICO PARRA/AFP via Getty Images
On March 28, the Russian state oil company Rosneft announced that it would sell its assets in Venezuela to a company wholly owned by the Russian government, Roszarubezhneft. Rosneft shareholders—British Petroleum (BP), which holds 19.75 percent share, and Qatar, which owns 18.93 percent share—pressured the company to cease operations in Venezuela, which influenced the value of its stock price and subjected the company to U.S. sanctions. Recent sanctions against the two trading subsidiaries undermined Rosneft's global exports by preventing the company from conducting commercial transactions in U.S. dollars. As part of the deal, Russia gave up 9.6 percent of its shares in Rosneft, ceding its majority.
Rosneft’s exit marks an important shift in Russia’s policy toward Venezuela. Ultimately, it came down to sacrificing business profit over political gain. This withdrawal is a clear signal that U.S. sanctions have succeeded in further isolating the Maduro regime. Given the current global oil prices, state-owned Roszarubezhneft is unlikely to have enough financial and technical capacity to fully replace Rosneft as a lifeline of the Maduro regime. The withdrawal will ultimately make it much more difficult for the regime to stay afloat by restricting oil exports and limiting gas imports.
In addition to being recognized as the largest state-owned oil and gas company in the world, Rosneft plays a critical role in the Russian political economy. Indeed, the Kremlin's policy toward Venezuela was, until very recently, directed by the head of Rosneft, Igor Sechin. He has been one of President Vladimir Putin's closest allies. The two have worked together since the early 1990s and fostered a relationship that made Sechin President Putin’s de-facto deputy as well as the second most powerful person in Russia during Putin's third presidential term, 2012-2018.
With this influence, Sechin turned Rosneft into a political arm of the Kremlin in Venezuela. He bet on the transformation of the Russian state oil company into a global company through various joint ventures with Petróleos de Venezuela S.A. (PDVSA), including Petroperija, Petromonagas, and others, which significantly expanded Rosneft’s proven reserve portfolio.
Meanwhile, Rosneft became the financial arm that supported the Maduro regime; it prepaid PDVSA for crude and refined products as the regime’s other major ally, China, began to lag its payments. In 2014, as the Maduro government experienced shortages in foreign currency, Rosneft supplied PDVSA with 6.5 billion dollars in loans and advanced payments. In December 2016, Rosneft also provided a $1.5 billion loan collateralized with 49.9 percent of Citgo Holdings, PDVSA’s refinery in the United States.
Consequently, through Rosneft and a consortium of private Russian oil companies, Putin tried to kill two birds with one stone in Venezuela: advance Russian geopolitical interests in the Caribbean and make economically sustainable investment deals. But this calculation was complicated by political instability and corruption in Venezuela, as well as PDVSA’s inefficiency and mismanagement. Some of the Russian companies involved complained about increasing difficulties in doing business in Venezuela, and in 2014 Rosneft bought out those companies’ stakes in a primary project in the Orinoco basin.
For the past three years, Rosneft collected its pending debt with PDVSA by handling between 70 and 80 percent of Venezuela’s oil exports. Before U.S. sanctions came into effect in February and March, Rosneft helped Venezuela circumvent sanctions by lifting Venezuelan crude to other markets. But, faced with sanctions on Rosneft and its trading subsidiaries, Putin had to decide on the role of Rosneft: to continue using it geopolitically in Venezuela or to strengthen its global oil business. Putin opted for the second one and pulled his right hand, Igor Sechin, out of the country. On March 28, three tankers, chartered by Rosneft to load Venezuelan oil, withdrew from Caribbean waters.
It is still unclear what role Roszarubezhneft will play in Venezuela in the future, but Rosneft’s withdrawal shows that the Maduro regime is much more financially and politically isolated than ever before. Now, Putin’s support for the Maduro regime will depend financially and politically on Russian state institutions.
Antonio de la Cruz is a senior associate (non-resident) with the Americas Program at the Center for Strategic and International Studies in Washington, D.C. He is currently the executive director of the Inter American Trends think tank.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2020 by the Center for Strategic and International Studies. All rights reserved.
