Photographer: Daniel Acker/Bloomberg

Goldman Was Vilified in Venezuela for Something Big Oil Does Every Day

  • Opposition sees no double-standard in views of banks, refiners
  • Oil companies ‘are the ones bringing cash into the economy’

The reaction was furious when word got out that Goldman Sachs Group Inc. had purchased $2.8 billion worth of bonds issued by Venezuela’s state-owned oil company. Valero Energy Corp., Phillips 66 and Chevron Corp. buy hundreds of thousands of barrels of the country’s heavy crude every day -- no complaints.

That would seem to be paradoxical, even in the complicated world of business relations between the embattled South American government and the U.S., its chief trading partner. But as Angel Alvarado explains it, there are degrees of moral outrage that depend, in part, on the range of the economic impact.

“These are two very different things,” said Alvarado, an opposition lawmaker and opponent of the Goldman deal. The bank bought the bonds on the cheap, throwing the regime of President Nicolas Maduro a discrete lifeline while indebting the people, he said. Ending oil sales to the U.S. would cause long-lasting pain and might imperil the administration of Maduro’s successor.

That attitude underscores how crucial oil exports are to keeping Venezuela even marginally afloat -- they comprise about half of government revenues -- and how delicate the sanctions-decision game can be. The White House has weighed a petroleum embargo, a step a trade group representing refiners including Valero, Phillips and Chevron urged last week that it not take.

“Today’s oil sales for Maduro may be tomorrow’s oil sales for the opposition,” said Kevin Book, head of the Washington-based research firm ClearView Energy Partners. “What does Venezuela need after Maduro? The answer is going to be oil sales to the United States.”

Not only is the U.S. is the biggest buyer of Venezuelan crude, companies including Chevron have joint-venture exploration-and-production projects with the state-oil company known as PDVSA. The industry’s significance to the economy appears to be insulating it from opposition attention.

“It wouldn’t make sense to put the blame on the oil companies,” said Lisa Viscidi, director of the Energy, Climate Change & Extractive Industries program at Inter-American Dialogue, a think tank in Washington. “They are the ones who are bringing cash into the country.”

And yet, it can be argued that’s precisely why the “funding immorality” claim that was directed so vociferously by activists at Goldman can apply to oil buyers too. For Goldman, it proved to be a PR nightmare. The bank’s investment arm was blasted for snapping up what were labeled “hunger bonds,” a reference to the shortages of basic goods and cases of malnutrition racking the country as Maduro clings to power, and continues to repay overseas debts.

Members of the opposition in the National Assembly, who have been urging Wall Street banks not to provide any cash infusions to Maduro, said Goldman helped prop up an authoritarian regime selling national assets at fire-sale prices, and threatened to refuse to honor the debt if they come to power. For its part, Goldman has said that it bought the bonds for asset-management clients via a broker, and didn’t funnel money directly to the government.

The U.S. has accused the Maduro government of human rights violations, and President Donald Trump called the turmoil there -- with at least 80 lives lost in street protests in the past two months -- “a disgrace to humanity.” The White House began considering new sanctions after Maduro’s May announcement that he would try to rewrite the country’s constitution in a way that critics said would tighten his grip on power.

But if the Trump administration does impose new sanctions, those probably won’t include an ban on Venezuelan oil imports, according to people familiar with the matter. The argument made by the U.S. refiners resonates: An embargo would hurt both economies. In the U.S., it would squeeze margins for refineries that rely on Venezuelan crude, and potentially raise gasoline prices. Nearly 10 percent of U.S. oil imports come from the South American nation, much of that going to the Gulf Coast.

Companies that run Gulf Coast refineries, including Valero and Chevron, have spent millions retooling their facilities to process the sour, tar-like crude for which Venezuela is famous. Chevron declined to comment for this story and Valero didn’t respond to requests for comment. Dennis Nuss, a spokesman for Phillips, said the company supports “the Trump administration acting in the best interests of the United States.”

The refiners have been buying less lately. Imports from Venezuela hit a 24-year low in the first quarter of this year. Shipments have been falling as production in that country hit a 14-year low in May.

But Venezuela still has the largest crude reserves in the in the world, more than the U.S. and Canada combined.

“As the opposition runs out of tools to fight the government, I think they eventually could turn against the oil companies,” said Viscidi of Inter-American Dialogue. “That would be a weapon of last resort, in a bid to bring the government down.”

— With assistance by Fabiola Zerpa

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