Sunday, 7 December 2014


An Ailing Venezuela Trims Oil Diplomacy

Caracas Slashes Shipments of Discounted Crude to Its Partners in the Caribbean and Central America Who Depend Heavily on the Subsidies


KINGSTON, Jamaica—Some Caribbean and Central American countries are bracing for cutbacks in shipments of cut-rate oil from Venezuela, as Caracas struggles with sliding crude prices and a spiraling economic crisis.

For a decade, the 13 beneficiaries of Venezuela’s largess have depended deeply on the oil to finance social spending and infrastructure, and rewarded Caracas with diplomatic support on the international stage, regional diplomats said in interviews.

Even as Venezuela pledges to continue the program, the country’s oil exports to the countries fell about 20% through October compared with the same period last year, says ClipperData LLC, a New York data tracker. And last year, Venezuela’s cut-rate oil exports declined 15% from 2012, the International Monetary Fund says.

Several participants in the program, called Petrocaribe, are preparing for further declines, which diplomats said stand to upend spending plans and tip some economies into recession.

“If Petrocaribe pulls out of Jamaica I don’t know how we are going to manage,” said Verona Barrett-Brown, the principal of a Kingston-area primary school that displays the name of Venezuela’s national oil company, Petróleos de Venezuela, or PdVSA, on the wall. “It will be a dark day.”

In tiny Grenada, the discounted Venezuelan oil funds 40% of social programs, from textbooks and free lunches for children to paying for roads and buses. Haiti named an airport after Venezuela’s late President Hugo Chávez , who founded Petrocaribe in 2005, and uses the oil money for food distribution programs and for monthly allowances for the poor. The Dominican Republic has used the program to plug a fiscal hole.

And here in Jamaica’s capital, projects funded with Venezuelan oil have provided aid to small farmers and businesses, refurbished a zoo and replaced pit latrines in schools with flushing toilets.
But now, the IMF is warning regional governments “that the likelihood of disruption is more likely than it was because Venezuela is under greater pressure,” said Adrienne Cheasty, deputy director of the IMF’s Western Hemisphere unit.

Venezuelan oil prices have fallen about a third since this summer to $61 a barrel as of Wednesday, which Deutsche Bank says is half of what is needed to cover the central government’s budget. With inflation soaring and Wall Street expressing concerns about a default, President Nicolás Maduro announced in a televised address on Dec. 3 that he would cut spending 20%.

Venezuelan officials have made no public mention of cutbacks to Petrocaribe or other oil-aid programs, such as the arrangement to ship 99,000 barrels a day to Cuba in exchange for doctors who work in Venezuelan slums. Venezuelan Foreign Minister Rafael Ramírez recently reiterated his government’s “strong commitment to continue the Petrocaribe initiative, under any circumstances.”
But a quiet shift is taking place.

Honduras and Guatemala are now inactive in the program after Caracas toughened the terms, diplomats said.

Other countries not within Petrocaribe, but which receive preferential oil deals from Venezuela, are also seeing oil shipments fall. Bolivia and Paraguay didn’t receive any cut-rate oil shipments last year from Venezuela, while Argentina’s share was halved, according to statistics from PdVSA.

“Every barrel of oil PdVSA sends to a Petrocaribe country under preferential terms is one less barrel from which Venezuela can immediately derive a higher, market-based price to support the embattled economy,” said Cory Gill, an associate with the energy researcher Goldwyn Global Strategies who co-wrote a report on Petrocaribe for the Atlantic Council think tank in Washington.

The IMF calculates that Petrocaribe countries receive about 100,000 barrels a day from Venezuela. The lender says they will on average face a 1.6% hit to economic output if Venezuela turns off the oil tap, with highly dependent countries such as Haiti facing the most difficulty.

Brian Wynter, governor of Jamaica’s central bank, said his government is adjusting. “We are being very cautious by using projections of what we will use from Petrocaribe that are much lower than what the facility allows,” he said.

For years, Petrocaribe was mutually beneficial. Participating countries paid a fraction of market price upfront for oil, deferring the full cost through long-term loans with 25-year maturities and interest rates as low as 1%.

Some governments sold the oil at full price or simply earmarked savings from not having to buy fuel at market prices for programs and infrastructure. Venezuela was repaid in rice, chicken, beans, jeans and other products that Jorge Piñon, director of the Latin America and Caribbean Energy Program at the University of Texas at Austin, said were sold at artificially high prices.

The program has cost Venezuela $22.1 billion, with Petrocaribe countries accumulating more than $11 billion in debt through 2013, said Mr. Piñon, basing his calculations on PdVSA data.

In return, Venezuela got loyal allies that voted with Venezuela at the United Nations, the Organization of American States and at other regional bodies, diplomats and officials from four countries said.

In March, for instance, Venezuela’s allies, including Petrocaribe countries, barred a prominent Venezuelan opposition leader’s speech at the OAS from being broadcast publicly, the diplomats said.
“You don’t provide oil to all these countries on such sweet terms and not expect support in the U.N. and OAS,” said a high-ranking official from one Caribbean nation. “That’s just the way it works. That’s just realpolitik.”

But Caribbean and Central American countries, long concerned over their high dependence on single crops, such as sugar, bananas and tobacco, or industries, such as tourism, are now worried about their addiction to inexpensive Venezuelan oil.

“There is agreement among us that we don’t want to be too dependent on one source,” said the ambassador to Caracas of one Petrocaribe country. “We don’t want to put all of our eggs into one basket and then be left with nothing when reality hits.”

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