New Delhi, Jan 4 (PTI) A US-led takeover or restructuring of Venezuela’s oil sector could directly benefit India, potentially freeing nearly USD 1 billion in long-pending dues while accelerating a recovery in oil production from fields it operates in the sanctions-hit Latin American country, analysts and industry sources said.
India was once a major processor of Venezuela’s heavy crude, importing more than 4,00,000 barrels per day at peak levels until 2020 brought sweeping US sanctions and the growing risk of a forced halt to purchases.
Its flagship overseas producer, ONGC Videsh Ltd (OVL), jointly operates the San Cristobal oil field in eastern Venezuela, but production has been severely curtailed as US restrictions block access to critical technology, equipment and services – effectively stranding commercially viable reserves.
Venezuela has failed to pay OVL $536 million in dividends due from its 40 percent stake in the industry through 2014 and a nearly equivalent amount for subsequent periods, for which Caracas has refused to authorize audits, effectively freezing the settlement of claims.
Sanctions could be eased after a dramatic US operation ousted President Nicolas Maduro and placed huge oil reserves under US supervision, analysts and energy experts said.
Once the sanctions are eased, OVL may move rigs and other equipment from places such as its parent ONGC’s oil fields in Gujarat to San Cristobal to revive production, which has fallen to 5,000-10,000 barrels a day, officials familiar with the matter said.
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The onshore field can produce 80,000 to 1,00,000 bpd with more wells and better equipment, they said, adding that San Cristobal needs rigs similar to those operating in Gujarat, and Oil and Natural Gas Corporation (ONGC) owns many such rigs.
U.S. control of Venezuela’s oil sector also means exports to the world will begin soon, and OVL can recoup its past $1 billion paid by San Cristobal from those revenues, they said.
In effect, OVL requested waivers for a “specific license,” similar to the one the Office of Foreign Assets Control (OFAC) granted Chevron to operate and export oil from an oil field.
OVL and other Indian firms may also acquire more fields in Venezuela and revive production from the Carabobo-1 field – another Venezuelan heavy oil field with Indian interest. OVL holds an 11% stake in Carabobo-1, while Indian Oil Corporation (IOC) and Oil India Ltd (OIL) each hold a 3.5% stake.
Venezuela’s national oil company Petroleos de Venezuela SA (PdVSA) is the majority owner of both San Cristobal and Carabobo-1.
After the US action, PdVSA may undergo restructuring, analysts said. At worst, its stake may be taken over by an American company or whatever new entity Washington can build.
OVL and other international companies — Spain’s Repsol has an 11 percent stake in Carabobo-1 — are most likely to pursue projects with their stakes, analysts said.
US President Donald Trump has already said that the takeover would see major US oil companies return to Venezuela, which has the world’s largest oil reserves, and rehabilitate badly degraded oil infrastructure.
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Analysts said the US cannot replace all international companies and will need firms like OVL not only for their expertise but also for the market they bring.
India will be a key buyer of Venezuela’s oil once the Latin American country is able to restore its former glory with the help of the US and other companies.
“If sanctions are eased – as seen in past geopolitical episodes such as Panama in 1990, when aid and trade restrictions were lifted shortly after the ouster of General Manuel Noriega – trade flows can quickly resume. Under such circumstances, Venezuelan barrels could once again return to Indian refineries,” Nikhil Dubey, senior research analyst at Kpler, said in a LinkedIn post.
Major Indian refiners such as Reliance Industries, Rosneft-based Nayara Energy, IOC, HPCL-Mittal Energy and Mangalore Refinery have the complexity required to operate these grades efficiently in blends to produce fuels such as gasoline and diesel.
“India is actively diversifying its crude basket – not only to reduce its dependence on Russian oil, but also amid the ongoing Indo-US trade discussions, where reducing exposure to Russian barrels remains a key issue. In this context, if sanctions against Venezuela are eased, Venezuelan oil could offer additional flexibility to Indian refiners and help reduce supply concentration risks,” Dubey said.
Before 2019, Venezuela exported 707 million barrels of oil a year, with the US absorbing about 32 percent and China and India 35 percent. By 2025, exports have fallen to 352 million barrels per year, with China taking 45 percent and unknown others 31 percent.
Kpler Risk & Compliance expects US and related country authorities to prioritize asset freezes, criminal investigations and dismantling of dodgy business networks rather than immediate easing of restrictions.
China, Venezuela’s main residual buyer, is likely to suspend the hike until PdVSA authorities and payment channels are clarified in the near term.
Explaining the US move, analysts said Trump was trying to isolate the US economy from the rest of the world. With Venezuelan oil under its belt, the US will no longer be dependent on OPEC producers such as Saudi Arabia and the United Arab Emirates.
“In a way, Trump sent a strong message to Saudi Arabia. His logic that he discovered Venezuelan oil and was therefore its true owner also applies to the Middle East. After all, it was American companies that discovered oil in Saudi Arabia and other places, and as a consequence, it may also capture Saudi Crown Prince Mohammed bin Salman Al Saud,” said an analyst following the sector.
With its own oil and gas production and Venezuelan production, the US will no longer be dependent on the energy needs of another part of the world.
But its dependence on China for non-energy items continues, but even that Trump is trying to reduce through his tariffs and support for local manufacturing, he said.
For the oil market, the restart of Venezuelan oil flows should bring price stability, but Trump would not want rates to fall below $60 a barrel because that would make U.S. shale oil and gas production economically unviable, another analyst said.
“The best case for him will be to ask OPEC to cut its production to accommodate the Venezuelan flows to the market.”
Venezuela has the world’s largest proven oil reserves – 303 billion barrels, more than Saudi Arabia’s 267 billion barrels – but production has plummeted due to underinvestment, mismanagement and sanctions.
A US-led overhaul that would bring capital, technology and operational discipline could lift output significantly within a year and add supply to global markets, analysts said.
For India, the world’s third-largest oil importer, renewed Venezuelan exports would offer a strategic alternative to Middle Eastern oil, reduce exposure to geopolitical shocks and strengthen its share in price negotiations.
“Indian refineries are configured for Venezuelan heavy crude,” said a former oil executive.
“If production picks up and payments normalize, business can restart almost immediately.”
Geopolitically, a US-dominated oil sector in Venezuela would also weaken the influence of China, which currently has preferential access to Venezuelan oil through debt repayment agreements. Any renegotiation of these arrangements could open up space for India to regain long-term supply contracts.
While legal disputes and infrastructure decay pose risks, analysts say they can be managed under the US-backed system.
Disclaimer: This story was published from the agency’s news feed without editing the text. Only the title was changed.
