Venezuelan fuel structure and skepticism over lifting of US sanctions | Loop Cayman Islands

The content originally appeared on: Cayman Compass

An engineer in Venezuela sat down with Loop News this week to talk about fuel prices in Venezuela, how such prices are structured as well as the engineer’s view on the possible impacts for the Venezuelan people of lifting sanctions there (as hinted by the US Biden Administration recently in connection with oil supply issues surrounding the Russia-Ukraine war).

First, according to the engineer, there are two structures for fuel prices in Venezuela- one that is subsidised at approximately two cents per litre and the other which is ‘dollarized gasoline’ at fifty cents per litre (this US dollar conversion is based on the exchange rate existing between Venezuelan Bolivares and USD provided by the Banco Central de Venezuela as of the morning of May 22, 2022, which was 4.9453 Bolivares per one USD).

Bolivares to USD exchange rate as at the morning of May 22, 2022

In order to get government subsidised gasoline, however, one must be the holder of an identification card, called the ‘Carnet de la Patria’ and their vehicle plate and other information, along with their thumb and index fingerprints, must be registered in the government’s Patria system. Once registered, the Carnet holder may get up to “120 litres per car and 60 litres per motorcycle every month,” according to the engineer. One simply shows up at the gas station on the day designated for their vehicle plate and pays with their fingerprint through the BiopagoPDV system. To explain the fine details of the system, the engineer gave an illustration.

She said:

For the dispatch of fuel, the last number of the vehicle plate is taken into account… Each week they announce a distribution schedule.

For example:

On Monday, May 16, owners of vehicles and motorcycles whose plates end in 7 and 8 will be able to refuel. While on Tuesday, May 17, it will be the turn of the plates that culminate in 9 and 0.

The plates ending in 1 and 2 will have the opportunity to be filled on Wednesday, May 18. On Thursday, May 19, they will sell gasoline to vehicles with plates ending in 3 and 4.

On Friday, May 20, it will be the turn of those who have plates that end in 5 and 6. On Saturday, May 21, they will repeat the plates that culminate in 7 and 8; and finally on Sunday, May 22, those who have vehicles with license plates that end in 9 and 0 will do the same.

While this sounds organised, the engineer says the schedule can change each week and it can sometimes involve people leaving work for a half a day to wait in long lines to get subsidised gasoline.

This being a depiction of a normal day in Venezuela, she said that the scenario is sometimes much worse.

Explaining the challenges, she said:

In some moments of the country where it has not had enough production of fuel or the Iranian ships did not arrive with fuel, we could spend two to three days in line to be able to obtain gasoline.

These “waiting scenarios” generally only apply to cities where the fuel supply is “constant” in Venezuela, which are subject to disruptions from time to time, but the situation is still “manageable.”

In other cities located in Venezuela’s interior, fuel is not supplied with regularity, leading to an interesting series of events surrounding fuel in those states.

To explain the differences, she said:

The states of the interior of the country can still wait days or weeks in line to be able to supply fuel. This is the case of the states of Amazonas, Apure, T?chira and Zulia… states with little regularity of fuel and mostly border Colombia, often buying fuel from the neighboring country at a more expensive price, equivalent to $ 2 and $ 3 per liter. There is also the state of Bolivar with this problem of little regularity to obtain fuel and being a border with Brazil, many sometimes see the need to buy gasoline on the other side of the border and this being a mining state in some cases gasoline is paid with gold.

In the absence of having gold as a medium for payment, the exercise of “choice” as to one place or the other or to buy subsidised gasoline versus dollarised gasoline is not straightforward. This is because the low minimum wage of $28 per month in some cases in Venezuela absolutely prevents some Venezuelans from even exploring the idea of the “dollarized” price. They simply cannot afford it.

As to whether the lifting of sanctions could improve circumstances for everyday Venezuelans, the Venezuelan engineer explained as follows:

Venezuela exchanges oil for fuel. In view of its inability to meet the demand for fuel, Venezuela initially resorted to crude-for-gasoline exchanges with subsidiaries of the Russian multinational Rosneft, but a new round of U.S. sanctions closed that route. Now Venezuela has an agreement with Iran where it agreed to a contract to exchange heavy oil for Iranian light crude or condensate and it is mostly the gasoline we now have in Venezuela, Iranian gasoline.

If sanctions were lifted, that would give a boost to the country’s economy.

Without sanctions on Venezuela, I think there would be more opportunities for growth with respect to the development and sustainability of the country.

As far as sanctions discussions go, Natasha Bertrand and Kevin Liptak of CNN reported on May 17, 2022 that “the first step… will allow Chevron — the last major US oil company still operating in Venezuela — to negotiate its license with state-owned oil company PDVSA to continue operations in the country…”

What will ultimately and reportedly influence the US decision to ease or strengthen sanctions against Venezuela may hinge, however, on the status of the relationship between Venezuelan’s opposition leader, Juan Guaid? and Nicolas Maduro, the Venezuelan president that US officials do not recognise.

Lastly, as a part of any possible sanctions deal, the US may ask for the “CITGO 6” being Tomeu Vadell, Gustavo Cardenas, Jorge Toledo, Alirio Jose Zambrano, and Jose Luis Zambrano and U.S. Legal Permanent Resident Jose Angel Pereira to be released from Venezuela prison.

The circumstances surrounding the CITGO 6, according to the US Department of State, is that, in 2017 the head of Venezuelan state-owned oil company, PDVSA, summoned six executives of US-based subsidiary CITGO to Venezuela for an emergency budget meeting: US citizens Tomeu Vadell, Gustavo Cardenas, Jorge Toledo, Alirio Jose Zambrano, and Jose Luis Zambrano and US Legal Permanent Resident Jose Angel Pereira (collectively known as the CITGO-6). Upon their arrival in Caracas, they were detained by masked security agents; charged with embezzlement, money laundering, and criminal association for an alleged deal they signed to restructure CITGO bonds; and confined in one of the country’s most dangerous prisons. After their initial appearance before a judge was cancelled dozens of times during three years, the trial of the six began in August. On November 21, they were convicted and sentenced as soon as closing arguments concluded to terms of eight to 13 years in prison. The US Department of State said that their cases were marred by a lack of legal due process and based on politically motivated charges.

The tricky part with this type of sanctions deal however, is whether there will be any “trickle down” economic effect for the everyday, hard-working Venezuelan. As the engineer put it, the “sound of the sanctions relief sounds great, but the idea that profits will go beyond those in power in the government and reach the larger Venezuelan population is, well… skeptical.”