Yes, it is (partly) about the Oil

For once the lefties are correct, but accidentally so

Various idiots¹ and congresscritters (but I repeat myself) have been jumping up and down claiming that the Maduro op is all about the oil that Venezuela has. Surprisingly they are right. In a way. Just not the way they think they are. And hence this post by Tim Worstall, who is generally correct, is not in fact entirely accurate

Trump In Venezuela Isn't About The Oil

Tim is correct and the lefties are wrong when they say that Trump wants to seize Venezuela’s oil fields and give them to his buddies. That is not what this is about. It is about where the oil from those fields goes, who buys it, and what oil is mixed with it as Tim explains:

Venezuela’s Orinoco Belt oil is very “heavy”. Technically it is about viscosity but think about it as “thick”. It’s more like treacle than it is like a free flowing liquid. There are also issues wth sulphur but leave that alone here. It is, in the technical parlance, “cheap shit”. So bad that it has to be mixed with much lighter (and usually “sweeter”, which means less sulphur) crude oil from different oil fields so you can pump it through a pipeline or get it into a tanker.

Tim also points out that the oil that in the past has been used for this is American oil which was exported to Venezuela, blended with Venezuelan sludge and then sent back to US gulf coast refineries to be turned into gasoline, diesel etc.

However, recently, a fair chunk of the oil that Venezuela used to blend was oil from Russia and/or Iran that was shipped in on the “shadow fleet” and then sold on having been laundered with Venezuelan oil to mask its sanctioned origins.

That’s not going to happen any more. Which will hurt Putin and the Mullahs² a good deal because they really need that oil money to prop up their regimes and finance their military forces.

Tie that in to the oil embargo for all Venezuelan oil announced last month and you hurt two other deserving targets too. First, and most obviously, it stops Cuba from getting cheap oil or bartering for it. As I said in my previous Insta-analysis³ this puts the Cuban regime in significant pain and may cause it to collapse. Cuba doesn’t have any hard currency money to pay for oil so it cannot buy it on the open market even though that would be legally fine.

Neither Russia nor Iran can afford to subsidize Cuba by giving them oil so Cuba is kind of stuck. One possibility is that Cuba will ship off a bunch of solders to Russia to die in Ukraine in exchange for oil, but that’s tricky because it exposes Russia’s oil tankers to the US and, worse, Ukraine. A lot of “accidents” could happen as tankers cross the Atlantic. Now Russia might decide to escort its deliveries to Cuba with a naval vessel but, while that would probably complicated matters for the Ukrainians, Ukraine has shown considerable ability to use drone ships and submarines against naval vessels and having Ukraine damage or sink a Russian navy ship in the middle of the Atlantic would be a major black eye for Putin.

Anyway Cuba is now in a world of hurt which explains why its leader has been so strident in his denunciations of President Trump’s seizure of Maduro.

And then there are our buddies in West Taiwan. As Charlie Martin explained at PJM, the Chicoms lost a serious amount of face when Maduro was snatched. Indeed more than loss of face they also lost potential weapons sales because it seems that the Chicom AA defense systems failed just as badly as the Russian ones:

For years, the Venezuelan military poured vast sums into acquiring Chinese-made military equipment, building what it claimed was the “most modern” defense system in South America. At its core was an air-defense network centered on the JY-27 counter-stealth radar, once believed capable of effectively countering U.S. stealth aircraft such as the F-22. Meanwhile, its Marine Corps—equipped with VN-16 and VN-18 amphibious armored vehicles—was widely regarded as a formidable armored force in the region.

However, during the latest U.S. military operation, these Chinese-built systems suffered what has been described as “catastrophic paralysis.” Radar systems were blinded in the first wave of electronic warfare, while heavy ground equipment—lacking air superiority and protective cover—failed to deliver expected combat performance and was destroyed or abandoned.

And you can add the loss of oil in the short term - West Taiwan bought most of Venezuela’s oil - and the unclear fate of the investments they have made in Venezuelan oil extraction and ports. They may get to keep what they have paid for, but I suspect that the BRI loans that have been made will not be repaid, or not in a timely fashion, which won’t help the PRC banks that made them. Mind you those banks have plenty of other non-performing loans to keep their executives nervous.

And yes, for those who may be unclear. The oil embargo is working well.

Venezuelan state-run oil company PDVSA has begun cutting crude production because it is running out of storage capacity due to an ongoing US oil blockade that has reduced exports to zero, piling more pressure on an interim government trying to hang onto power in the face of US threats of more military action.

[…] The OPEC country’s oil exports, its main source of revenue, are now at a standstill following a US blockade on tankers under sanctions and the seizure of two oil cargoes last month.

Chevron’s cargoes bound for the US had been an exception, continuing to move, because the company has a license from Washington for its operations. But even those have stopped since Thursday, shipping data showed on Sunday.

[…]

The company requested output cuts to joint ventures including China National Petroleum Corp.’s Petrolera Sinovensa, Chevron’s Petropiar and Petroboscan and Petromonagas, the sources said. Petromangas, previously operated by PDVSA and Russian state-run Roszarubezhneft, is being run solely by PDVSA.

PDVSA and CNPC did not immediately reply to requests for comment. Chevron said on Sunday it continues to operate “in full compliance with all relevant laws and regulations,” without providing details.

Workers at Sinovensa on Sunday were preparing to disconnect up to 10 well clusters at PDVSA’s request, one of the sources said, after an over-accumulation of extra heavy crude and a diluents shortage. However, the wells could be quickly reconnected in the future, the person added.

A portion of Sinovensa’s oil output is typically delivered to China as debt service payment. But two China-flagged supertankers that were approaching Venezuela to load oil stopped at the end of December, LSEG shipping data showed.

So yes. The Chicoms aren’t getting their oil for now. And of course that means that neither they nor anyone else is going to providing stuff to Venezuela because they can’t get paid. That is surely going to hurt the Chavistas.

Finally, the other thing the Maduro seizing did, was put Venezuela’s plans to seize the oil fields in neighboring Guyana on hold - probably permanently. If Guyana were to be invaded then at this point no one doubts that the US would respond to assist Guyana and (see quote above about Chinese military equipment) it would quite simply destroy Venezuela’s invading army in a few hours, possibly in a few minutes. This is also part of the MDonroe Doctrine.

Venezuela may well keep its oil and oil companies, but it seems like the Trump administration has decided that it makes the decision on how much oil Venezuela can sell and who to. For now that number is zero. I am sure that the Chavistas are being asked how long they think they can survive without oil income, and whether they might prefer to leave Venezuela for other climes and let people that the US approves of run the country and, more importantly, fix the oil industry so it can export oil to places the US approves of in volumes that mean that the global oil price drops.

So yes it is about oil. Just not directly

1. e.g. This Timwalzed substacker

2. great band, I saw them once opening for the Stones :)

3.