U.S. Officials Meet With Regime in Venezuela, to Discuss Oil Exports to Replace Russia’s

The Biden administration is seeking to ease oil sanctions on Venezuela as part of a broader U.S. strategy to temper oil prices that have skyrocketed because of Russia’s war in Ukraine, according to people familiar with the matter.

U.S. officials began rare face-to-face meetings with Venezuelan officials in Caracas over the weekend, with a view to allowing Venezuelan crude oil back on to the open international market, these people said.

The administration also wants to isolate Russia from its most important ally in South America, Venezuela, an essential supplier of crude to the U.S. until economic mismanagement and then sanctions caused the nation’s oil sector to crater.

The proposals being discussed in the Venezuelan capital would ease sanctions for a limited period on U.S. national security grounds. Since the Trump administration began turning the economic screws on Venezuela in 2017 and then leveled sanctions on the oil sector in 2019, Caracas has come to rely on China, Russia and Iran to keep its oil sector afloat. As of 2020, Petróleos de Venezuela SA, the country’s state oil company, was producing about 300,000 barrels a day.

By easing the sanctions now, the U.S. would redirect Venezuelan oil exports out of an opaque China-bound export network and back to Gulf Coast refiners that process the heavy crude Venezuela produces, people familiar with the administration’s thinking on the matter said.

It also would peel Caracas out of the political orbit of Russia, which has helped Venezuela sidestep U.S. sanctions by putting its financial system to work processing payments for PDVSA, as the Venezuelan state oil company is known. And sanctions relief would replace Iran’s supply of condensate—a very light oil that PDVSA uses to dilute its extra-heavy oil—with Western-supplied diluents like naphtha, according to people familiar with the Biden administration’s strategy.

With the help of its allies, Venezuela’s authoritarian regime—which the U.S. accuses of widespread rights abuses—was able to increase production to about 760,000 barrels a day in 2021. That is only a quarter of what it pumped in the 1990s. But Reinaldo Quintero, president of the association representing Venezuelan oil companies, estimated that the country could get production up to 1.2 million barrels a day in under eight months, particularly if Chevron, the only major American oil producer in Venezuela, can jack up pumping.

Mr. Quintero, who with other Venezuelan oil company representatives has met with U.S. officials in Washington in the past to discuss sanctions relief, said they have worked to convince “the American government that the vacuum they leave behind in Venezuela is occupied by another economic actor.”

The U.S. in 2020 imported about 7.86 million barrels of oil from many countries, according to the U.S. Energy Information Administration. Russia exported about 540,000 barrels a day to the U.S. in 2021, a little under what Venezuela exported to American refineries in 2018 before sanctions shut off the spigot.

Mr. Quintero said with the U.S. weighing cutting off Russian exports, Venezuela could in time replace Moscow. “How are they going to resolve the issue of the crude they need if they don’t consider Venezuela, which can replace a good slice,” Mr. Quintero said.

But even without sanctions, Venezuela faces serious challenges to increasing oil production, said Francisco Monaldi, a Venezuelan who is director of the Latin America Energy Program at Rice University’s Baker Institute.

There have been no new wells drilled in Venezuela for months, he said, and to reach significant production levels Venezuela would need investments of $12 billion a year for five years. The country that was essential in providing crude to the Allied effort in World War II now pays down debt with oil to China. And Mr. Monaldi said its production is a “drop in the bucket in the world oil market.”

“This won’t help ease the pain at the pump for American consumers,” Mr. Monaldi said of the possible lifting of oil sanctions.

The visit to Venezuela by senior American officials, first reported by the New York Times, isn’t just about oil, people familiar with their strategy said. The delegation included Jim Story, the Bogotá, Colombia-based ambassador to Venezuela; Juan Gonzalez, the White House special assistant for Western Hemisphere affairs; and Roger Carstens, the U.S. special presidential envoy for hostage affairs.

They also came to discuss the fate of six employees of PDVSA’s Houston-based refining subsidiary, Citgo, who were arrested in 2017 and convicted of crimes the U.S. says are trumped up. Five are naturalized American citizens and a sixth is a permanent U.S. resident.

There also are three former U.S. servicemen jailed in Venezuela. Luke Denman and Airan Berry were arrested after a botched incursion by dissident Venezuelan soldiers attempting to seize power in May 2020. And in September, 2020, Matthew Heath was detained on a country road near Venezuela’s coast and accused of terrorism and spying.

Even before the war in Ukraine, intermediaries for the regime and the Biden administration had been discussing the detained Americans, sanctions and the proposed resumption of talks between the Venezuelan government and opposition to pave the way for free and fair presidential elections in 2024, people who know about the discussions said. For the Biden administration, the war in Ukraine—and the resulting surge in oil prices—drove home the importance of advancing the talks, those people say.

Venezuelan President Nicolás Maduro “fulfilled his often expressed desire to talk directly with the United States,” said Guillermo Bolinaga, a Venezuelan who is a partner at U.S.-based consulting firm Opportunitas Advisors. “And not just talking to the U.S., but the U.S. went to Caracas to talk to him.”

The weekend’s development in Venezuela is welcomed by Wall Street firms and other investors who have been talking to emissaries from Venezuela about a possible restructuring of $60 billion in debt. The regime is offering infrastructure concessions, oil-and-gas reserves and asset privatizations, while pressing the investors to coax the U.S. to consider lifting sanctions.

The talks between the administration and the regime, though, carry political liabilities for Democrats, particularly in Florida, where a growing Venezuelan exile community in Miami is strongly opposed to softening the hard line on Mr. Maduro.

In a message Sunday via his Twitter account, Sen. Marco Rubio (R., Fla.) said President Biden was using Russia “as an excuse to do the deal they always wanted to do anyway with the #MaduroRegime.”

“Rather than produce more American oil he wants to replace the oil we buy from one murderous dictator with oil from another murderous dictator,” Mr. Rubio wrote.

If there is sanctions relief, Chevron, PDVSA’s main Western joint venture partner, would be a big winner. The company would be able to restore up to 150,000 barrels a day in six weeks, people familiar with the firm’s operations say. Repsol of Spain and ONGC of India could add more, those people said.

U.S. oil services companies Schlumberger, Halliburton, Baker Hughes and Weatherford International would play a role in reactivating Venezuelan oil wells. These companies, like Chevron, were allowed by a sanctions waiver to stay in Venezuela but under tight restrictions.

Lifting sanctions would also put an estimated 23 million barrels of Venezuelan oil that is in storage tanks and oil tankers onto the market. This would add 750,000 barrels a day to global supply in the first month of sanctions relief, on top of any incremental production