On May 21, 2018 the United States president signed an executive order prohibiting certain transactions with the government of Venezuela. The order restricts transactions involving debt owed to the Venezuelan government.

The U.S. Sanctions Venezuela

Source: WhiteHouse.gov

According to law firm Akin Gump, the new prohibitions target three categories of transactions:

  • The purchase of any debt owed to the government of Venezuela, including accounts receivable
  • Any debt owed to the government of Venezuela that is pledged as collateral after the effective date of the order, including accounts receivable
  • The sale, transfer, assignment or pledging as collateral by the government of Venezuela of any equity interest in any entity in which the government of Venezuela has a 50% or greater ownership interest

“I have taken action to prevent the Maduro regime from conducting “fire sales,” liquidating Venezuela’s critical assets—assets the country will need to rebuild its economy,” U.S. President Donald Trump said.

The executive order follows Venezuela President Nicolas Maduro’s re-election and the country’s never-ending stream of problems.

Write downs

Schlumberger Limited (ticker: SLB) and Halliburton Company (ticker: HAL) both wrote down Venezuelan assets before these new sanctions were announced. Schlumberger recorded a charge of ~$938 million during the fourth quarter of 2017 and Haliburton’s write-down resulted in a charge of ~$385 million.

Last month, ConocoPhillips (NYSE: COP) said that an international arbitration tribunal ruled it was due $2.04 billion from Petróleos de Venezuela, S.A. (PDVSA) and two of its subsidiaries, under arbitration rules of the International Chamber of Commerce (ICC).


Bloomberg recently reported that Venezuela’s hyperinflation has people paying bolivar by the pound (or kilogram). The inflation has gotten so bad that six-digit deli scales can’t weigh bolivar accurately enough. With so much money/inflation, it’s faster to weigh the paper bills rather than count them out – especially when a kilogram of ham costs about 1,480,000 bolivars, or $44.40 U.S.

OPEC cuts fueled by Venezuela and Iran

By the end of 2018, Venezuela’s output could fall by several hundred thousand barrels per day. Venezuela produced 1,548 MBOPD in February – down 52.4 MBOPD from the previous month. The country has seen the lowest production rate in 30 years.

The U.S. Sanctions Venezuela

Source: EnerCom Analytics

As for Iran, the country’s oil exports are currently at ~2.4 MMBPD, however, the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) will affect current production values. When sanctions were imposed in 2012, Iranian exports fell by ~1.2 MMBPD.

With more sanctions placed imposed on Iran and Venezuela, further production downturns are likely as more international oil companies and investors pull out.

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