US Policy Shift Halts General License for Venezuelan Oil, Affecting Exports and Debt Repayment Mechanisms

Context & What Changed

The United States has maintained a comprehensive sanctions program against Venezuela, targeting its state-owned oil and gas company, Petróleos de Venezuela, S.A. (PDVSA), since 2019. The primary objective of these sanctions has been to exert pressure on the government of Nicolás Maduro to hold free and fair elections and restore democratic institutions. For years, this policy severely restricted Venezuela’s oil production and exports, which had plummeted from over 2.3 million barrels per day (bpd) a decade prior to below 700,000 bpd (source: OPEC). The sanctions regime effectively cut off Venezuela from Western financial markets and traditional oil buyers, forcing it to sell its crude at steep discounts through a network of opaque intermediaries, primarily to destinations in Asia.

A significant, albeit temporary, shift occurred in October 2023. Following the signing of the “Barbados Agreement” between the Maduro government and the Unitary Platform opposition coalition, the U.S. Treasury issued General License 44 (GL44). This license authorized, for a six-month period, most transactions related to the production, lifting, and exportation of Venezuelan oil and gas. The explicit goal was to incentivize democratic progress, specifically the establishment of a timeline for the 2024 presidential election and allowing all opposition candidates to participate. During the six-month window of GL44, Venezuela’s oil production saw a modest recovery, climbing from around 780,000 bpd to nearly 900,000 bpd by early 2024 (source: Reuters). The license enabled PDVSA to re-engage with global markets more directly, secure better pricing, and attract limited investment in essential maintenance.

What changed was the U.S. administration’s assessment of Venezuela’s compliance with the Barbados Agreement. The barring of leading opposition candidate María Corina Machado from holding public office was a key point of contention. Concluding that the Maduro government had not upheld its end of the bargain, the U.S. announced on April 17, 2024, that GL44 would not be renewed upon its expiration. Instead, it was replaced by General License 44A, a “wind-down” license authorizing transactions necessary for the cessation of activities until May 31, 2024. The policy has now reverted to a more restrictive model where companies, including those from Europe and elsewhere seeking to recover debts via oil cargoes, must apply for specific individual licenses from OFAC. This marks a return to a case-by-case approval system, creating significant commercial uncertainty and effectively ending the brief period of liberalized oil trade.

Stakeholders

Venezuela (Government & PDVSA): The primary subject of the sanctions. The non-renewal of GL44 directly curtails a critical source of state revenue. It forces PDVSA back toward less favorable commercial terms, including larger price discounts and reliance on non-traditional shippers and intermediaries. Their key objective is the complete removal of sanctions to rebuild the oil industry and stabilize the national economy.

United States (OFAC, Department of State): The architect of the sanctions policy. The U.S. balances its foreign policy goal of promoting democracy in Venezuela against the potential impacts on global energy markets and regional stability. The shift from a general to a specific licensing regime allows for a more calibrated approach, rewarding or punishing specific actors while preventing a total collapse of Venezuelan production that could spike global oil prices.

Colombia (Government & Ecopetrol): As a neighboring country with recently restored diplomatic ties, Colombia has a strategic interest in Venezuela’s stability. However, it is constrained by U.S. policy. While there has been discussion of potential energy integration, Colombia’s refining infrastructure, centered at Barrancabermeja and Cartagena, is configured for its lighter, sweeter domestic crude grades. Processing heavy, high-sulfur Venezuelan crudes like Merey 16 would require billions of dollars in refinery upgrades, a non-viable investment under the current sanctions uncertainty.

International Oil Companies (IOCs): Chevron holds a unique, long-standing specific license (GL41) allowing it to produce oil in its joint ventures with PDVSA and export it to the U.S., with proceeds used to pay down debt. European firms like Repsol (Spain) and Eni (Italy) had been using oil-for-debt swaps under the cover of GL44 and now face uncertainty as they must seek specific OFAC approvals to continue these arrangements.

International Creditors: This group includes bondholders and commercial partners owed billions by Venezuela and PDVSA. The oil-for-debt swaps represented one of the few tangible mechanisms for debt recovery. The new licensing regime complicates and potentially delays these repayments.

Evidence & Data

Production Levels: Venezuelan crude oil production averaged 877,000 bpd in March 2024, its highest level in several years, up from an average of 783,000 bpd in Q4 2023 when GL44 was issued (source: OPEC Monthly Oil Market Report). The reimposition of restrictions is widely expected to cap production at or below 900,000 bpd.

Chevron’s Role: Chevron’s operations under its specific license account for a significant portion of recent production growth, with its output reaching approximately 150,000 bpd. Its license is not affected by the expiration of GL44 (source: company statements, industry reports).

Export Destinations: During the GL44 period, exports diversified, with increased cargoes heading to the U.S., Europe, and India. Before GL44, China was the dominant destination, often through indirect channels. The new policy will likely cause a partial reversion to this pattern for non-licensed cargoes (source: S&P Global, Argus Media).

Price Differentials: Under GL44, the discount for Venezuelan Merey 16 crude relative to the Brent benchmark narrowed to as little as $8-$10 per barrel. With renewed sanctions, this discount is expected to widen significantly, potentially to $15-$25 per barrel, as the pool of eligible buyers shrinks and logistical risks increase (source: market analysis from energy trading houses).

Colombian Refining: Colombia’s total refining capacity is approximately 429,000 bpd. Its refineries are designed to process domestic crudes with API gravities typically between 19 and 30 degrees. Venezuelan export grades are much heavier, often with API gravities below 17 degrees and high sulfur content, making them incompatible without major secondary processing unit upgrades (source: Ecopetrol, U.S. Energy Information Administration).

Scenarios (3)

1. Calibrated Containment (65% Probability): The U.S. maintains the current policy of requiring specific licenses for all transactions beyond Chevron’s. It selectively grants licenses to European companies for oil-for-debt swaps and potentially to some buyers in India to prevent a sharp drop in Venezuelan supply and a corresponding oil price spike. Venezuelan production stagnates between 800,000 and 900,000 bpd. The Maduro government continues to sell remaining volumes at a discount to less-regulated markets. This scenario represents a manageable, if tense, status quo.

2. Hardline Enforcement (20% Probability): Triggered by a Venezuelan presidential election deemed fraudulent by the U.S. and its allies, Washington denies most applications for specific licenses and may impose secondary sanctions on entities (shippers, insurers, financial institutions) facilitating non-authorized Venezuelan oil trade. This would significantly curtail exports and could push production back down toward 700,000 bpd, tightening the global heavy sour crude market and increasing geopolitical friction.

3. Broad Re-engagement (15% Probability): An unexpected political breakthrough in Venezuela, such as a negotiated transition or a genuinely competitive election outcome acceptable to the international community, leads the U.S. to reissue a general license similar to or broader than GL44. This would unlock a path for new investment and a more rapid recovery of production, potentially reaching 1.1-1.2 million bpd within 18 months. This remains a low-probability, high-impact scenario.

Timelines

Short-Term (0-6 months): The market adjusts to the new licensing regime. PDVSA diverts cargoes that are no longer authorized to alternative buyers, likely at wider discounts. The outcome of the July 2024 presidential election in Venezuela will be the key determinant for U.S. policy in the subsequent period and will dictate whether the trajectory moves toward Scenario 2 or remains in Scenario 1.

Medium-Term (6-24 months): Under Scenario 1, a steady but uncertain system of specific licenses emerges. IOCs and creditors with approvals will optimize their limited operations. Venezuela’s production capacity will likely degrade without new capital investment. Under Scenario 2, a sharp decline in activity would occur. Under Scenario 3, this period would see the beginning of serious investment planning and infrastructure assessment.

Long-Term (2+ years): A substantial and sustained recovery of Venezuela’s oil sector, pushing production toward 1.5 million bpd and beyond, is only possible under Scenario 3. It would require tens of billions of dollars in capital investment and a stable, internationally recognized legal and fiscal framework, which is currently absent.

Quantified Ranges

Production Impact: The direct impact of GL44’s expiration is estimated to be a forgone production increase of 150,000-200,000 bpd over the next 12 months. The baseline production range is now forecast to be 750,000-900,000 bpd under Scenario 1 (source: IEA, various investment bank reports).

Revenue Impact: For every 100,000 bpd of oil sold at an additional $10 discount, the Venezuelan state loses approximately $365 million in potential annual revenue. The combined effect of capped production and wider discounts could reduce potential government revenue by $2-4 billion annually compared to a scenario where GL44 was renewed.

Global Market Impact: While Venezuela’s output is a small fraction of the 100+ million bpd global market, its heavy sour crude is important for complex refiners, particularly on the U.S. Gulf Coast. A reduction of 100,000-200,000 bpd of this grade tightens the heavy crude differential, potentially increasing the cost of competing grades like Canadian WCS or Mexican Maya by $1-$3 per barrel.

Risks & Mitigations

Risk: Increased Sanctions Evasion: A more restrictive policy incentivizes the use of illicit shipping (e.g., ‘dark fleet’ tankers with disabled transponders) and non-transparent financial intermediaries, increasing compliance risks for the entire maritime industry. Mitigation: OFAC can enhance its monitoring and enforcement actions, but this is resource-intensive and may not be fully effective.

Risk: Infrastructure Decay and Environmental Hazard: Lack of access to Western technology, capital, and maintenance services accelerates the deterioration of PDVSA’s infrastructure, raising the risk of oil spills and other environmental incidents. Mitigation: The U.S. can use specific licenses (as it does for Chevron) to permit activities essential for asset integrity and safety, framing it as a measure to prevent environmental disaster.

Risk: Geopolitical Destabilization: Increased economic pressure on Venezuela could lead to greater internal instability or heightened reliance on U.S. adversaries like Russia, China, and Iran. Mitigation: Maintaining open diplomatic channels, including through regional partners like Colombia and Brazil, is crucial for de-escalation and crisis management.

Sector/Region Impacts

US Gulf Coast Refiners: These complex facilities are designed to process heavy sour crude. Reduced supply from Venezuela forces them to source more expensive alternatives from Canada, Mexico, or the Middle East, potentially compressing their profit margins.

European Energy Sector: Companies like Repsol and Eni face renewed delays and uncertainty in recovering billions in sovereign debt and past investments. Their operations in Venezuela are now contingent on the slow and unpredictable OFAC licensing process.

Colombia: The policy shift reinforces the barrier to any formal, large-scale energy cooperation with Venezuela. The border region will continue to be characterized by informal economic activity rather than structured, state-level trade in key commodities like oil.

Recommendations & Outlook

For Public Finance & Infrastructure Agencies (e.g., in Colombia):

(Assumption: Scenario 1, ‘Calibrated Containment’, persists): Defer any public investment in infrastructure related to the import or processing of Venezuelan crude. The regulatory and political risks are unacceptably high. Focus instead on strengthening border monitoring to manage illicit flows and on domestic energy security. Maintain technical-level dialogue with Venezuelan counterparts on cross-border issues but avoid financial commitments.

For International Energy Firms & Creditors:

(Assumption: Scenario 1 persists): Legal and compliance teams must become the focal point of strategy. Applications for specific licenses to OFAC should be meticulously prepared, emphasizing benefits to U.S. interests (e.g., debt repayment to U.S. creditors, ensuring safety standards, or contributing to global market stability). Divestment or write-downs of Venezuelan assets should be considered against the long-term option value of a potential political transition (Scenario 3).

Outlook: The near-term outlook for Venezuela’s oil sector is one of constrained potential. The reversion to a specific licensing regime introduces a cap on production growth and a significant ‘compliance tax’ on its exports. The July 2024 election serves as the primary catalyst for any future policy shift. The base case (Scenario 1) suggests a period of stagnation, where the U.S. uses its licensing power as a diplomatic lever, allowing just enough oil to flow to prevent a market shock or a complete state collapse in Venezuela. A major recovery in the sector, which would require tens of billions in new investment, remains a distant prospect, wholly dependent on a fundamental and durable political resolution that is not presently on the horizon.