How long will India be Venezuela’s buyer of last resort?

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The US has increased pressure on the long-troubled government of Nicolás Maduro in Venezuela. While it continues to work with regional and global allies to recognize Juan Guaidó as interim president, the government of US President Donald Trump has unilaterally imposed sanctions on senior members of the Maduro regime, as well as the country’s most valuable asset, PDVSA.

The response from Latin America’s trading partners has been mixed. China has hewed to its support for Maduro, with the Foreign Ministry saying today that:

中方希望委内瑞拉保持和平稳定,呼吁遵守国际法和国际关系基本原则,反对外部势力干涉委内政。

The Chinese side hopes that Venezuela will maintain peace and stability, calls for the observance of international law and basic norms governing international relations, and opposes intervention by external forces in the internal affairs of Venezuela. 

Japan has taken a more cautious approach. In the wake of Juan Guiadó assuming the interim presidency, the government took a “vague,” noncommittal stance. However last week they shifted — after Maduro rejected calls for new elections — saying their support for Guaidó was “clear:”

"We express our clear support for interim President Guaido," Foreign Minister Taro Kono told a press conference. "Japan hopes a free and fair election will be held swiftly,"

China's perfunctory response has allowed India step in as a key player. With many partners stopping trade with PDVSA, in effect to be able to continue their US operations, India’s Reliance Industries and Nayara Energy (formerly known as Essar Oil) have significantly increased their purchases of Venezuela crude. With India still recognizing the Maduro government, that means the proceeds go to Maduro, and not to a US Treasury escrow account. Venezuelan Oil Minister and PDVSA head Manuel Quevedo flew to India two weeks ago to shore up that lifeline.

Our good friends at IPD Latin America tell us that between them the two companies loaded 5 cargos of Venezuelan crude (or the equivalent of 387,000 barrels per day) in the first 20 days of February. By comparison, the two firms were averaging a monthly load of 60,000 b/d prior to the PDVSA sanctions. With another 156 b/d loaded in February with no destination that IPD was able to confirm, that means that most of the 4-500,000 b/d that used to go from Venezuela to the US Gulf Coast is now headed to the Indian Ocean. Now as a big purchaser, you can bet they’re getting a good deal. 

So how long can they keep this going? Already the Indian government is advising one buyer of Venezuela crude “to move away from the U.S. banking and institutional mechanism.” And certainly Naraya — 49% owned by Rosneft — has to be well aware that Russia’s Gazprombank froze PDVSA’s accounts to avoid US sanction. IPD expects India and Venezuela to settle deals in rupees, RMB, or even rubles (what no Petro?).

India was one of the countries able gain an exemption last year from the US’ reimposed sanctions on Iran, by saying those sanctions would impact the port of Chabahar, a vital chokepoint for supporting the US in Afghanistan. As the only one of those countries with a refinery that can process Venezuelan heavy crude, will this be the lifeline Maduro needs?

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