The transition to a democratic government in Venezuela “may not be so simple,” says Dan K. Eberhart, CEO of Canary, LLC, one of the largest independent oilfield services company.
In an opinion piece published Friday by The Washington Examiner, Eberhart writes that “the recognition of National Assembly President Juan Guaidó as the country’s new president, combined with harsh sanctions on Venezuela’s national oil company, PDVSA, do ratchet up pressure on (Nicolás) Maduro.”
“But it’s wishful thinking to expect Maduro to hop on a plane tomorrow — or even in the next few weeks or months — seeking asylum in Cuba, Russia, China, or whatever country will have him. With the military still on Maduro’s side, the potential for Venezuela to turn into a lasting stalemate is real. Strongmen rarely go down without a fight — look at Libya, Iraq, and Syria.”
Eberhart says that “sanctions are also not a surefire way to bring about change. And they can have economic consequences that extend beyond the targeted nation. The United States has now sanctioned the oil exports of two OPEC-member countries, Iran being the other country under severe sanctions.”
“The difference in the case of Venezuela is that U.S. refiners on the Gulf Coast rely on imports of Venezuela’s heavier grade of oil to produce gasoline, diesel, and other products. Oil markets have so far brushed off the Venezuela sanctions, the geopolitical risk already being baked into the price. But that could change.”
“Benchmark oil prices also don’t tell the whole story. Both the global benchmark, Brent, and the U.S. marker, West Texas Intermediate, are light-sweet crudes — low-sulfur blends that are good for making gasoline. Venezuela’s output is a heavy-sour crude preferred by refiners for production of diesel and marine fuel.”
Eberhart indicates that “the challenge for refiners is that the market for heavy crude is already tight. A supply cut deal between OPEC and non-OPEC producers, combined with sanctions on Iran, had already taken more than 2 million barrels a day of sour crude off the market.”
He adds that “crude oil and gasoline prices appear under control for now, but a lasting standoff in Venezuela would add to existing supply concerns over new international regulations on maritime low-sulfur fuel that many analysts fear will cause a shortage of diesel, affecting both the U.S. trucking industry and the northeast home heating market.”
“Trump could ask the Saudis… to increase production of sour crude, but the kingdom appears committed to rebalancing a global market that went haywire at the end of last year, in part due to mixed signals from the White House on sanctions on Iran’s oil exports.”
“The net effect of all of this is that the White House may have little choice but to let gasoline prices rise if it’s committed to removing Maduro. The other option is military intervention, which would come at a far higher cost than a few extra pennies at the pump,” he concludes.
