US unlikely to change oil sanctions despite new Venezuelan candidate: experts

Venezuela's political opposition has united behind a new presidential candidate -- Edmundo González Urrutia – and polls suggest he could beat President Nicolás Maduro in July's elections, but this development is unlikely to change US oil sanctions policy in the near term, experts say.

Washington is not expected to change course at this point in part because the current policy focusing on company-specific licenses could work just as well a general license, allowing Venezuelan production to continue apace despite the US sanctions snapback in April, experts say. The US has already issued one company-specific license since reinstating sanctions, and some say more licenses could come quickly.

"More broad relief will wait until the election itself successfully takes place," David Goldwyn, chairman of the Atlantic Council Global Energy Center's Energy Advisory Group, told S&P Global Commodity Insights.

Maduro's government has so far accepted González as a candidate and opposition primary winner María Corina Machado has thrown her weight behind González. A recent Datincorp poll shows that González has a 40-point lead over Maduro.

Sanctions snapback

The González candidacy emerged after the US Treasury Department announced April 17 that the US would not be renewing General License 44, which was issued in October to provide temporary oil and gas sanctions relief.

The US decided to reimpose sanctions because Maduro failed to meet his commitment to make progress toward a free and fair election. The US in April also issued GL 44A, which provides 45 days to wind down transactions related to oil and gas sector operations in Venezuela.

The snapback did not impact Chevron's General License 41, and Treasury explicitly kept the door open for other similar company-specific licenses. Experts say that these specific licenses could effectively replace GL 44 and allow Venezuela to maintain or grow its crude production.

GL 44 was helpful to get companies interested in getting back into Venezuela, said Fernando Ferreira, director of the Geopolitical Risk Service at Rapidan Energy Group. But most of the real activity on the ground is under company-specific licenses, so the reversal of GL 44 will prove largely symbolic, he said.

Production continues

Venezuela-owned PDVSA and its partners said that its crude output reached 875,000 b/d in April, up from 760,000 b/d in October, according to estimated data from PDVSA's production report reviewed by Commodity Insights.

Venezuelan crude production could reach 950,000 b/d by the end of the year, mostly relying on existing specific licenses, Ferreira said.

"Production will be little affected by the sanctions change with Chevron not being impacted and individual licenses being maintained," said Nick Blanco, an analyst with Commodity Insights.

Chevron was and is by far the main force behind increasing production since the beginning of 2023, according to Commodity Insights' May Latin American Crude Oil Markets Short-Term Outlook.

Venezuela's crude export flows have shifted since sanctions were lifted, with the United States now taking the place of China as the single largest buyer of barrels.

In April, for instance, Venezuela exported 5.4 million barrels of crude to the US and 1.9 million barrels to China, according to S&P Global Commodities at Sea data.

The sanctions snapback helped the Biden administration avoid looking soft on Venezuela before the US election, Ferreira said. Barring a major upset in the Venezuelan elections, the US is unlikely to restore that type of general license, he said.

Instead, the US will likely rely on individual waivers and letters of comfort, Ferreira said. Letters of comfort from Treasury outline activities that are permissible under sanctions, he said.

Rachel Ziemba, a senior adviser at political risk consultancy Horizon Engage, agreed that the US is likely to continue to rely on licenses rather than make any major changes in policy for now.

"Having a united opposition candidate on the ballot was one of the asks and a major reason for the partial imposition of sanctions, but there are still a lot of issues, including how opposition rallies are treated," she said.

Individual licenses allow Venezuelan production, under the Chevron model, and allow swaps of crude for debt or diluent, Goldwyn said. These types of licenses "enhance living conditions and reduce migration pressures in Venezuela, help moderate US gasoline prices while not enriching Maduro or creating a captive market for Iranian diluent and discounted crude for China," he said.

Individual licenses

OFAC on May 6 gave a company-specific license to France's Maurel & Prom to continue its oil sector operations in Venezuela until May 31, 2026. M&P is the first of PDVSA's international partners to report that it can continue to operate in Venezuela with a specific license since the expiration of GL 44. M&P had applied for the license on Sept. 1, 2023, before the US issued GL 44.

The timeline M&P getting a license is not necessarily indicative of the timeline for other companies, Ferreira said. "I would not be surprised if we see some of these approved quickly before the wind-down expires," he said.

If July's election is free and fair, González would win in a landslide, Ferreira said.

"But this isn't going to be anything free and fair," he said. "I am not sure there are any guarantees that would lead Maduro to accept defeat," he said.

There is a high likelihood of election fraud and intervention by the Maduro regime, Goldwyn said.

"I would look for opposition policies telegraphing that Maduro and his supporters could leave power without facing imprisonment," he said. "Today the election is existential for Maduro, and it is unlikely he will go willingly if at all without a high level of assurance," he said.