A possible reimposition of U.S. oil sanctions on Venezuela next month would stagnate the OPEC-member country's crude output, wiping out the small gains it has achieved in recent years, analysts said on Tuesday.
Washington said in January it will allow the expiry of a temporary license it granted last year to Venezuela as part of negotiations for a fair presidential election if the government does not allow an internationally observed election with participation of a candidate chosen by the opposition.
The U.S., which first imposed oil sanctions on Venezuela in 2019, in October granted the license that has allowed state oil company PDVSA to resume crude exports to some of its established customers, ease price discounts and slowly boost oil output to 783,000 barrels per day (bpd) last year, compared with 569,000 bpd in 2020.
Production is expected to barely grow through 2026, declining from then on if oil sanctions are fully restored, said Francisco Monaldi, an expert on Latin American energy policy with Rice University's Baker Institute.
If the temporary license is extended or granted again at least partially, that would fuel a larger increase, driving output to slightly above 1 million bpd from 2025 on, according to a forecast by consultancy Rystad Energy shown by Monaldi at a conference organized by Harvard University.
"There is still room for a scenario where U.S. license 44, granted in October, is renewed at least partially if (Venezuelan President Nicolas) Maduro does the bare minimum to meet the electoral conditions set as part of the Barbados agreement," Monaldi said.
It remains unclear what will happen with other authorizations granted by Washington since 2022, including to producers Chevron (CVX.N), Eni (ENI.MI), Repsol (REP.MC) and Maurel & Prom (MAUP.PA).
If those individual licenses remain, production might still decline but not collapse, Monaldi said.
Maduro and the opposition last year signed a pact in Barbados setting conditions for a presidential election later this year. They included international observation, the withdrawal of legal bans to opposition candidates and guarantees for a transparent process. Maduro has failed to progress on most.
Chevron's Vice President of Midstream Colin Parfitt told Reuters on Tuesday risks related to the license in Venezuela remain. However, the company plans to continue producing Venezuelan oil and exporting to the U.S. "as long as we have the license."
Chevron does not have long-term incentives to invest in Venezuela under the current license, Parfitt added, so any production increase will remain limited by that.
