Why Biden’s Approach To Venezuela Is So Important For Oil Markets

In a hard-fought campaign Democrat Joe Biden won the November 2020 U.S. presidential race beating incumbent Donald Trump. There were considerable fears in the run-up to the election that a Biden victory would put a damper on oil prices but, along with the boost given by news of a COVID-19 vaccine, the opposite has occurred. This has been a boon for many South American countries where petroleum production is an important economic driver. Biden’s ascension to the top job marks an end to the hardline policy taken by the Trump White House toward Venezuela and its attempts to oust autocratic socialist leader Nicolás Maduro.

Trump’s aggressive sanctions, which cut Venezuela off from global energy and capital markets as well as the veiled threat of military intervention appear to have failed. Essentially, that policy forced Maduro to turn initially to China, then Russia and finally Iran for assistance to prop-up his position and receive strategic financial, economic, political and military lifelines. It permitted Moscow to bolster its influence in Latin America and gain control over Venezuela’s vast oil reserves, which at 300 billion barrels are the world’s largest. In exchange for debt relief, loans and military advisers Moscow gained access to Venezuela’s all-important economic engine and some of the country’s most valuable oil assets. These include ownership of interests in some of Venezuela’s most productive oil projects and a 49.9% lien, from an oil backed loan, over PDVSA’s Citgo refining business, which many analysts regard to be the crown jewel of the state-owned oil company’s assets. To mitigate the impact of U.S. sanctions on Russian government controlled but publicly listed energy company Rosneft, which initially was responsible for the oil backed loans to Caracas, a Kremlin owned company purchased all Venezuelan assets earlier this year.

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Source: Oil Price