February 24, 2020 | Policy Brief

Treasury Targets Maduro’s Oil Lifeline

February 24, 2020 | Policy Brief

Treasury Targets Maduro’s Oil Lifeline

The U.S. Treasury Department last week sanctioned a subsidiary of Russian energy giant Rosneft for its leading role in illicit exports of Venezuelan oil. With this much-anticipated step, the Trump administration aims to sever a key financial lifeline for Venezuelan dictator Nicolás Maduro, who has proven surprisingly durable despite nearly 60 countries’ recognition of Juan Guaido as Venezuela’s rightful leader.

Treasury designated Rosneft’s Swiss-incorporated oil brokerage firm Rosneft Trading S.A. (RTSA) along with RTSA’s chairman and president, Didier Casimiro, for violating U.S. sanctions on Venezuela’s oil sector. Treasury blocked their U.S. assets and added them to its Specially Designated Nationals and Blocked Persons list pursuant to Executive Order 13850, which empowers Treasury to sanction those operating in key sectors of the Venezuelan economy, those complicit in the deceptive or corrupt practices of the Maduro regime, or those transacting with a person already blocked for doing so.

While the United States and European Union previously designated both Rosneft and RTSA under separate, Ukraine-related authorities, those sanctions are relatively narrow in scope; their aim is to restrict the Russian firms’ access to Western capital markets and energy-related technologies, not to block them entirely. Tuesday’s action, on the other hand, strictly prohibits RTSA from accessing the U.S. financial system and threatens potential sanctions for foreign persons doing business with RTSA.

Treasury was careful to make clear, however, that the RTSA designation does not apply to Rosneft as a whole. The administration likely showed restraint toward Rosneft both because it is a state-controlled firm and because its production of 5.8 million barrels of oil per day helps to stabilize global prices.

As Secretary of State Mike Pompeo said on Tuesday, Rosneft Trading SA is “the primary broker of global deals for the sale and transport of Venezuela’s crude oil” on behalf of Venezuelan state-owned oil company Petróleos de Venezuela S.A. (PdVSA), which Treasury sanctioned in January 2019. Oil exports account for at least a quarter of Venezuela’s budget and virtually all of its export revenue, making Rosneft crucial for the Maduro regime’s access to hard currency.

Via RTSA, Rosneft initially focused mainly on reselling Venezuelan oil to foreign trading firms. Yet in July 2019, RTSA also began handling the bulk of PdVSA’s marketing and distribution needs as U.S. sanctions led foreign trading houses and importers to eschew Venezuelan crude. By August, Rosneft was moving an estimated 70 percent of Venezuelan oil exports, helping them rebound from a low of 637,000 barrels per day (bpd) in September to roughly 1 million bpd by December, with shipments going mainly to India and China.

Beyond oil, Russia has provided Maduro with significant military, security, diplomatic, informational, humanitarian, and financial support. Along with assistance from Cuba, these efforts have helped Maduro maintain control of Venezuela’s armed forces and security services despite U.S.-led efforts to encourage defections. In addition to propping up an ally, Russia aims to recoup the tens of billions of dollars in investments and loans its companies have poured into Venezuela. Moscow also seeks to expand its control over Venezuela’s massive oil reserves while turning a healthy profit from reselling discounted Venezuelan oil.

Going forward, Treasury should continue to target the shipping companies, financial institutions, and illicit networks that support the Maduro regime, and should prevent Rosneft and PdVSA from circumventing U.S. sanctions by finding a replacement for RTSA, such as TNK Trading International, another Rosneft subsidiary. Finally, Washington should push Venezuela’s oil customers to reduce their purchases, perhaps by offering temporary sanctions waivers in exchange for significant reductions, an approach the White House previously employed to limit Iranian exports.

John Hardie is research manager and Russia research associate at the Foundation for Defense of Democracies (FDD), where he also contributes to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from John and FDD, please subscribe HERE. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.


China Russia Sanctions and Illicit Finance