16 Jun 2020
Last year, China replaced the United States as the No. 1 importer of oil from Venezuela, yet another front in the heated rivalry between Washington and Beijing.
The United States had imposed sanctions on Venezuela’s state-owned oil company as part of a bid to topple that country’s socialist president, Nicolas Maduro. U.S. refineries stopped buying Venezuelan crude. Caracas’ ally China, long a major customer, suddenly found itself the top purchaser. Through the first six months of 2019, it imported an average of 350,000 barrels per day of crude from Venezuela.
But in August, Washington tightened its sanctions on Venezuela, warning that any foreign entity that continued to do business with the South American country’s government could find itself subject to sanctions. State-owned China National Petroleum Corp, known as CNPC, stopped loading oil at Venezuelan ports that month. China’s import data showed purchases started to slow, and by late 2019, abruptly stopped.
China’s largest oil company, like customers in some other countries, seemed to be knuckling under to U.S. President Donald Trump’s threats, despite Chinese President Xi Jinping’s professed support for Maduro.
But China never stopped buying. Crude from Petroleos de Venezuela SA, or PDVSA, kept arriving at Chinese ports with the help of a Switzerland-based unit of Rosneft, Russia’s state-owned oil company, and a roundabout delivery method that made it appear as if the oil’s origin was Malaysia, Reuters has found.
Between July 1 and Dec. 31, tanker ships delivered at least 18 shipments totaling 19.7 million barrels of rebranded Venezuelan crude to Chinese ports, Reuters determined. That finding is based on a review of ship-tracking data, internal PDVSA documents and interviews with four petroleum analysts who have tracked flows of Venezuelan oil around the globe.
A unit of CNPC chartered at least one of those tankers, meaning it was responsible for the oil aboard, the ship-tracking data show. That vessel, called the Adventure, took on Venezuelan crude on July 18 and discharged it in China on Sept. 4, the data show. No charter information was available for the other ships that offloaded crude in China.
CNPC did not respond to requests for comment.
Those 18 shipments represented more than 5% of Venezuela’s total exports in 2019, worth around $1 billion at market prices for the country’s flagship crude grade, known as Merey, based on OPEC figures. The sales provided much-needed support to Maduro’s government, though Reuters could not determine how much was added to state coffers; PDVSA often sells its crude at steep discounts, and some of its sales go to pay down debt rather than generate cash.
The mislabeled shipments have continued into this year, Reuters found. The review used data available on financial information provider Refinitiv Eikon, photos culled from satellite imagery and Automatic Identification System (AIS) data transmitted by oil tankers. New York-based Refinitiv is part-owned by Reuters’ parent company, Thomson Reuters.
The shipping method – involving the transfer of oil between tanker ships at sea – has for months been under scrutiny by the Trump administration. Washington in February slapped sanctions on Rosneft Trading SA, the Geneva-based subsidiary of Rosneft (ROSN.MM), which it alleges was helping Venezuela to export its oil using so-called ship-to-ship (STS) transfers to mask the true origin of the crude. Rosneft denied wrongdoing.
“The Company has always been conducting and is conducting its business in full compliance with applicable international legislation,” Rosneft said in a June 5 statement in response to questions for this article.
Russia’s energy ministry did not reply to a request for comment.
China’s indirect imports of Venezuelan crude fall into something of a gray zone, according to Peter Harrell, a sanctions expert at the Center for a New American Security think tank in Washington.
Harrell believes U.S. sanctions give Washington authority to punish foreign companies that purchase PDVSA oil through a middleman – particularly if the company “knows or should have known it was Venezuelan crude.” But that does not obligate the U.S. government to act.
“At the end of the day, these sanctions are fundamentally policy calls,” Harrell said.
Reuters could not independently verify if China knew the oil that reached its shores via Rosneft Trading came from Venezuela.
The U.S. Treasury Department, which enforces trade sanctions, declined to comment.
Asked about the Reuters findings, Elliott Abrams, the U.S. State Department’s special representative for Venezuela, said in an interview that potential U.S. sanctions against Chinese companies purchasing transshipped crude were “on the table.”
“We will be taking individual actions with respect to STS transfers,” Abrams said.
China’s General Administration of Customs did not respond to requests for comment. The Foreign Ministry told Reuters there was nothing improper about China’s dealings with Venezuela. The ministry said U.S. sanctions had “severely affected” relations between Venezuela and the rest of the world, but said Beijing intends to continue trading with the country.
Neither PDVSA, Venezuela’s Oil Ministry, nor the Information Ministry – which responds to media inquiries on the government’s behalf – responded to requests for comment. Venezuelan officials have repeatedly described U.S. sanctions on their country as illegal and unilateral.
Oil analysts since last year have said Venezuelan oil was making its way to China by way of STS transfers. This account is the first to reveal the extent of those shipments and demonstrate how systematic the tactic has been. Reuters also reviewed internal PDVSA documents that showed the Rosneft unit was involved in moving the oil.
So much PDVSA oil was shipped to China this way that the country’s total 2019 imports of Venezuelan oil averaged 283,000 barrels a day. That’s 24% higher than the 228,700 barrels a day reported by Chinese customs, according to Reuters calculations based on comparisons of the Refinitiv Eikon data to official Chinese customs data.
That was not enough to offset entirely the impact that U.S. sanctions had on PDVSA; U.S. refiners were importing an average of 500,000 barrels per day when the sanctions were imposed in January 2019. But it helped Venezuela keep its oil industry alive at a time when the drop in demand from foreign buyers was creating a glut onshore, nearly forcing PDVSA to halt production in key oil fields.
The STS maneuvers mirror tactics that Iran, whose oil industry is also under U.S. sanctions, has used to ship its oil to China for years. As Reuters documented in reports in 2019 and 2015, Iranian oil often is labeled as coming from neighboring Iraq.
A representative of the operator of a Chinese terminal where one such shipment unloaded in 2019 denied that the origin of the oil was Iranian.
Alireza Miryousefi, spokesman for Iran’s mission to the United Nations in New York, said in a statement “how we sell or export our oil is no one’s business.” He said U.S. sanctions on Iran’s oil exports are “illegal.”
The Chinese shipments of Venezuelan crude were unusual for a variety of reasons, oil analysts said.
STS transfers typically are used for legitimate purposes – such as offloading oil from deep-water drilling ships or pumping oil from large tankers onto smaller vessels that can navigate narrow or shallow waterways. The use of this technique to transport oil from Venezuela to China was not seen until the middle of last year, the oil analysts said.
By Luc Cohen and Marianna Parraga, Reuters, 12 June 2020
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