On October 18, 2023, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) eased certain sanctions on the oil and gas sector, as well as the gold sector, in Venezuela, following the announcement of a political agreement (“Electoral Roadmap”) between representatives of Venezuelan President Nicolas Maduro and the Unitary Platform, a leading opposition coalition. The easing of sanctions remains subject to satisfactory implementation of the Electoral Roadmap.
Commentary from the Congressional Research Service reflects that as a matter of U.S. foreign policy, these sanctions relief steps are intended to “incentivize Maduro to negotiate a path toward freer, fairer elections.” As a matter of sanctions law and regulation, however, these licenses remain temporary, and could be revoked if the Electoral Roadmap is not implemented to the satisfaction of U.S. officials. See Congressional Research Service Report, “Venezuela: Overview of U.S. Sanctions” (Nov. 1, 2023) (“U.S. officials warned. . . that if the Maduro government does not define an expedited process that allows all candidates to run for president and begin to release political prisoners and wrongfully detained U.S. citizens by late November 2023, the licenses can be revoked.”). As such, further easing or tightening of the Venezuelan sanctions program depends in large part on the steps taken by the Maduro government with respect to the Electoral Roadmap over the next several months.
As for the licenses issued late last month, OFAC issued three General Licenses (“GL”) temporarily authorizing transactions related to oil and gas operations in Venezuela, allowing certain transactions involving state-owned mining company CVG Compania General de Mineria de Venezuela CA (“Minerven”), and removing secondary market trading bans on certain Venezuelan sovereign bonds and securities issued by the state-owned oil company Petróleos de Venezuela S.A. (“PdVSA”).
Oil and Gas Sector
GL 44 temporarily lifts OFAC’s ban on transactions in the oil and gas sector in Venezuela. This includes the production, sale, and export of Venezuelan oil; the payment of invoices related to oil and gas operations; and new investment in the Venezuelan oil and gas sector (except for new debt transactions).
But GL 44 contains important limitations on oil and gas transactions:
- The 6-month authorization is temporary, and will expire on April 18, 2024, although it may be renewed if the United States is satisfied that the Maduro regime is upholding its commitments under the Electoral Roadmap.
- Transactions with sanctioned financial institutions remain barred, except for transactions with Banco Central de Venezuela and Banco de Venezuela SA Banco Universal, which are permitted under GL 44.
- GL 44 does not authorize Russian entities and persons located in the Russian Federation to participate in the oil and gas sector. Any entity owned or controlled by an entity located in the Russian Federation or any person located in the Russian Federation remains prohibited from engaging in oil and gas transactions.
- Transactions involving cryptocurrencies backed by the Government of Venezuela (“GOV”) remain barred.
- New debt transactions, such as the provision of a loan to PdVSA, remain prohibited.
GL 43 lifts sanctions on Venezuela’s gold sector. This action is not time-limited and allows for a broad range of transactions. GL 43 authorizes all transactions involving Minerven or its subsidiaries in which it owes a 50 percent or greater interest. Specifically, it states that the United States will not seek to sanction non-U.S. persons solely on the basis of transactions in the Venezuelan gold sector. It does, however, maintain restrictions on certain blocked persons and entities, but allows transactions involving Banco Central de Venezuela and Banco de Venezuela SA Banco Universal.
OFAC has stated that it believes this action will reduce black-market trading in gold.
Trading in GOV and PdVSA Bonds and Securities
GL 3I and 9H remove certain limitations on secondary trading in bonds and securities issued by GOV and PdVSA. GL 9H removes secondary market trading bans on purchases of pre-August 2017 bonds or equity issued by PdVSA or the Venezuelan government. Previously, U.S. persons were barred from such purchases, all though they were allowed to divest their holdings to non-U.S. persons. Note that this action does not affect the sanctions on trading in the primary market for Venezuelan bonds and securities, which remain in place.
As noted above, OFAC stated that it could reinstate any of the sanctions eased on October 18 if the Maduro government fails to follow through with the commitments set out in the Electoral Roadmap.
We will continue to closely monitor developments in this space.