Caracas Chronicles

In April, the U.S. repealed its General License 44 –which relieved for six months the sanctions on Venezuela’s oil and gas industry– and published License 44A to allow for the wind-down of operations. But in reality the U.S. isn’t reverting this sentence, but granting specific licenses to Western oil companies such as Chevron (from the U.S.), Eni (from Italy), Repsol (from Spain), or Maurel & Prom (from France) to operate in Venezuela.

One might think that these oxygen puffs for the Venezuelan oil industry gave limited access to what the U.S. government would consider “goodfellas, our guys”, to use Martin Scorsese’s film as a reference. But there is an “unconventional goodfella” –not always seen as “one of our guys”– by the United States that has also hovered over the Venezuelan industries: India. 

In recent years, this country has gradually become an unexpected but important ally for the US, given its rivalry with China. In other words, the alliance seems to be governed under the best sense of the enemy of my enemy is my friend, so its scope goes only so far but includes economic aspects. In fact, different media have even claimed that India is the new U.S. manufacturing center. Thus, India’s rising influence in Venezuela seems to coincide with rising U.S. leverage over Venezuelan public industries.

For example, at the beginning of the year, the Indian company Jindal Steel & Power reached an agreement with the Venezuelan government to operate CVG Ferrominera Orinoco, the largest iron plant in the country which is owned by the State. This plant has 4.2 million metric tons of proven iron reserves; and although its production is currently quite diminished, Jindal would seek to export 600,000 metric tons by the end of 2024, making an initial investment of approximately USD $800 million.

It is still not clear if India’s entry into Venezuela –sharing spaces of influence with the United States, Turkey, Russia, Iran and China– is a specific move or if it is part of a more complete Latin American integration plan, as evidenced by the fact that they are also making incursions into various economic sectors in countries like Argentina, for example. But whatever the case may be, it’s clear India has interests in Venezuela. According to Francisco Monaldi, Venezuelan economist and Director of the Latin American Energy Program of the Baker Institute for Public Policy at Rice University, India is interested in Venezuela mainly due to the access to its iron and oil, and is taking initiatives in this regard because it is increasing its energy consumption. 

Taking advantage of its presence in the country, Jindal reportedly reached an agreement with PDVSA (Venezuela’s state-owned oil company) to operate the joint venture Petrocedeño –once owned alongside France’s Total– and extract crude oil from the Orinoco Belt. At some point, Petrocedeño reached a production capacity of 190,000 barrels per day (bpd), but for Monaldi it is very unlikely that these levels will be reached again because “although the project is not in such a bad shape (currently its production is around 20,000 bpd), its upgrader is not in optimal conditions and they will operate a field that has been running out”. Monaldi did not rule out the possibility that Petrocedeño’s production may increase slightly, but this would require large investment in wells and infrastructure.

In addition to the possible technical obstacles, there is also uncertainty as to whether or not the OFAC will grant licenses to Jindal to extract Venezuelan crude. Monaldi thinks it is possible that Jindal requested conditions similar to those of Chevron, like the freedom to manage cash flow and operations. 

Other Indian companies awaiting OFAC licenses are the state-owned Oil and Natural Gas Corporation (ONGC) and the private refiner Reliance Industries. ONGC already operates in Venezuela and is seeking licenses to continue extracting oil, albeit in small quantities. “ONGC could invest a little more to increase its production, although such an increase would not be massive”, Monaldi pointed out. Unlike Jindal and ONGC, Reliance would not maintain crude oil extraction operations in Venezuela, as it is a refinery, but it could be India’s main player in the country if licenses are granted. 

Venezuelan crude oil attracts great interest in Asia, precisely because companies such as Reliance have the possibility of refining such crude oil and commercializing it in the Asian market. So Reliance could generate win-win situations by becoming the formal link between Venezuela and the Asian market, increasingly important for Venezuela although Chinese companies remain formally excluded by the sanctions regime.

In fact, during the term of General License 44, Reliance bought quite a lot of crude oil and stopped near the expiration of the license, but it resumed their transactions with License 44A for agreements concluded until the end of May, buying more than 100,000 bpd. “If the U.S. gives licenses to Reliance they would probably buy 100,000 bpd, if not more, being a great advantage for PDVSA, because even though Reliance charges a discount (to the oil price), it is much lower compared to the black market discount, and they could also be paid in cash”, said Monaldi.

The conditions of a hypothetical agreement between Reliance, the OFAC and PDVSA are unlikely to be public, being limited only to an announcement, but for Monaldi, “if we see oil going to India, we will know that Reliance has a license, because today there is no oil going to India precisely because there are no licenses”. Indian entry would also bring benefits for the Venezuelan government, as oil revenues are highly dependent on whether or not the OFAC grants licenses, especially to Reliance, and could increase from USD 13,000 million to just over USD 14,000 million by 2024 if the licenses are granted, according to Monaldi.

Outside the energy field, there is also a discrete entry of India into Venezuela. According to the Observatory of Economic Complexity at MIT Media Lab, imports of medicines from India have been growing since 2019 and have taken more and more importance in the trade relationship between both countries, in absolute and relative terms at least until 2022 (the year for which the latest available data are available).

The example of medicines illustrates that India’s economic impact is not only measured in US dollars, but also in alleviating the crisis in more humane terms, as increased imports of medicines coincided with a reduction in their shortage, from 60% in 2019 to approximately 37% today.

These figures should be interpreted with caution because they refer to a greater availability of medicines, but not necessarily to a greater access to them by the population, which is still limited by the low income. Moreover, while the increased availability of medicines is positive and although shortages have almost halved, they are still high at 37%.

Indian presence is not necessarily positive for everyone in Venezuela. Textile companies were operating by the end of last year at 30% of their capacity, and creating only 25,000 jobs out of a possibility of 250,000 due, among other factors, the competition with companies from India and China, which do not face the increasing tax burden for domestic companies, in the least competitive and neutral tax system in all of Latin America.

Venezuela still needs large investments, transparency and stability to make it much easier for domestic and foreign entrepreneurs to plan and produce. But there is no doubt that despite the absence of such rules of the game, with the entry of the “unconventional goodfella” to Venezuela, the country’s economic possibilities could increase slightly in the short and medium term. Venezuela saw the tiger, paraphrasing one Joe Exotic, and the tiger saw Venezuela.