Venezuela and China Strengthen Ties Amid Global Tensions
On Friday, Venezuelan President Nicolas Maduro set foot in China, marking his first visit in half a decade. This visit underscores a reinvigorated engagement between the two nations, especially as China’s relationships with Western countries become strained. Additionally, Venezuela, amid its economic struggles, is seeking new avenues for financial support.
China holds a significant position in global oil trade, being the premier importer. Its relationship with Venezuela, an OPEC member with the largest proven crude reserves, is of particular interest. China has been a significant creditor and a pivotal player in Venezuela’s energy sector. Between September 8 and 14, discussions are expected to be centered around energy trade, Venezuela’s significant debt to China, which exceeds $10 billion as per independent sources, and prospects of new financing.
The dynamics of the relationship have been affected by the oil sanctions the U.S. levied on Venezuela in 2019. These sanctions have led to a slowdown in Caracas’ debt repayments to China. Notably, PDVSA, Venezuela’s state oil entity, ceased its direct crude shipments to its Chinese associates, primarily the China National Petroleum Corp and PetroChina.
Maduro’s trip to China wasn’t without precedence. Earlier in the week, a delegation from Venezuela, which included its vice president and oil minister, met with top Chinese officials, including Vice President Han Zheng and Foreign Minister Wang Yi in Beijing and Shanghai. China’s foreign ministry confirmed these interactions.
The synergy between China and Venezuela was highlighted by Han, who conveyed that both nations “closely coordinate and cooperate in international and regional affairs, firmly support each other, and jointly oppose hegemonism and unilateralism.” This statement, reported by the Chinese state media outlet CCTV, underscores the countries’ mutual objectives and challenges.
Venezuelan Oil Minister Pedro Tellechea revealed that the delegation had meetings with top executives from the Shanghai International Energy Exchange and the Shanghai Petroleum and Natural Gas Exchange. He emphasized China’s intent to leverage the Shanghai exchanges for yuan energy transactions with global oil producers, labeling them as instrumental for “energy trade and contract formulation for futures in Asia.”
The timing of Maduro’s visit is noteworthy, coinciding with the G20 summit hosted in New Delhi. Chinese President Xi Jinping will be absent from the summit. Maduro’s previous trip to China was in 2018, where he held meetings with Xi.
Delving into the Oil and Debt Conundrum
Venezuela’s economic quagmire, particularly its debt, is closely linked to China. The roots can be traced back to 2007 when China offered Venezuela credit lines and oil-for-loan deals totaling $50 billion during the era of President Hugo Chavez. But the plummeting oil prices, combined with a decline in Venezuelan oil production, compelled Venezuela to seek debt relief from China in 2016.
By 2020, the Maduro-led administration and Chinese banking entities reached an understanding for a grace period pertaining to approximately $19 billion of Chinese debt, as reported by Reuters.
Now, Maduro’s team is back at the negotiation table, discussing both debt repayment schemes and the possibility of a new credit line. This credit line aims to fund infrastructure projects undertaken by Chinese enterprises in Venezuela. Insiders privy to the ongoing negotiations have shed light on these discussions.
Past endeavors to secure financing from China haven’t always been fruitful, mainly due to doubts about Venezuela’s ability to repay. However, there’s renewed optimism. The Biden-led U.S. administration has shown flexibility, easing certain sanctions against Venezuela. This move could pave the way for PDVSA to enhance its oil export revenue, provided Maduro considers participating in a presidential election.
In spite of the prevailing sanctions, data from commodities consultancy Vortexa indicates that China imported an average of 390,000 barrels daily of crude from Venezuela from January to August of the current year. This amounts to approximately 12.9 million metric tons.
It’s interesting to note that most of Venezuela’s oil consignments to China are routed through third countries, Malaysia being a primary hub. Consequently, China’s official customs data doesn’t reflect direct crude imports from Venezuela over the last two years. However, Venezuelan authorities have expressed a desire to simplify this process, eliminating intermediaries in their trade with China.
A noteworthy venture in the oil sector is the Petrolera Sinovensa project, located in the expansive Orinoco Belt. CNPC owns a significant 40% stake in this project, in partnership with PDVSA. Following sanctions from the U.S. administration under Donald Trump in 2019, CNPC halted its Venezuelan oil acquisitions. Nonetheless, other Chinese firms have persisted in their shipments, showcasing the multifaceted nature of China-Venezuela trade ties.
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