Background of the Rosneft Sanctions in Venezuela - Gökberk Bilgin

On February 18, 2020, The United States imposed sanctions on Rosneft Trading SA to cease the support of the Venezuelan president Nicolas Maduro. The sanctioned company was a subsidiary of Russia’s state-controlled oil company Rosneft, and it had a key role in trading Venezuelan oil. In this short article, I will briefly mention the background of Rosneft’s role in the country and the dynamics that lead to sanctions.

The developments in Asia also changed the flow of oil and natural gas. At the beginning of the century, the premier trade destination for the oil and natural gas suppliers was Europe and North America. However, as the economic development realized in India and China, the demand for these goods increased accordingly. In 2014, Europe was buying 80% of its natural gas and 65% of its oil from the Russian Federation. Nevertheless, the European countries questioned the reliability of the supply security of Russians after the Ukrainian crisis. They began to discuss implementing sanctions to the Russian Federation. This move caused Russians to look for other markets, especially in Asia. China and India made agreements with the Russian Federation on energy cooperation.

The agreement between the Russian Federation and India have different segments. The cooperation between the two countries occurs in nuclear energy, oil, natural gas, and the refining sector. As an energy buying country, India imports 81% of its petroleum and 44.5% of its natural gas. In this area, the Indian government has two crucial goals. First of them is to decrease the spending in the energy sector, and the second is to ensure the supply security of the energy flow, which is the essential pillar of the Indian economic growth. In the Literature Review section, I am discussing this cooperation in a more detailed way.

China, on the other hand, is another country that requires modern refinery systems to feed its economy. They also invested in building complex refineries and made agreements with Venezuela and Iran to supply the necessary oil for the operation. More than $50 billion loaned to Venezuela. All this investment was necessary because of the classification of the oil that Venezuela had. Chinese refineries needed to process the highest quality of petroleum products that had the lowest levels of sulfur and carbon emission. Similarly, Rosneft, the Russian oil company that invested in Indian refineries, made investments in these regions.

In the 20th century, the United States was the largest buyer of Venezuelan oil, and it did not enjoy the sudden interest of the Chinese and Russians to the commodity. When the oil prices declined from $145 to $45 in 2008, the Chinese government managed to export 3-times more oil than expected due to its agreement with Venezuela and, as a rival country, gained a significant advantage against the United States. The Venezuelans could not export oil to the United States since all their supply was going to China to pay its debts. The economic conditions get worsened in the country, and Venezuela faced one of the most devastating economic crises in history. By showing the anti-democratic actions of the Venezuelan leader Maduro, the United States imposed sanctions on the country and limited the necessary commodities to extract oil in the region.

In January, Rosneft was accounted for about 440,000 barrels a day of exports, according to Bloomberg data. Last year Rosneft’s 57% of trade was between India, and 41% was between China. So, it was helping the Venezuelan oil to flow these countries. Furthermore, the Venezuelan government was still owed around $800 million to Rosneft of the $6.5 billion loans. According to the Rosneft, the sanctions were arbitrary and selective since it was not imposed on the U.S. oil companies.

Last year, the U.S. government granted permission to Chevron, which is the major American oil company operating in Venezuela, to continue doing business. During the year, they also extended the grant two times that became the main reason for tension between other oil companies and the U.S government accused of being unfair in its actions in the region.

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