US restrictions bite harder on shipping

By Carly Fields,

America’s sanctions on Venezuela are nothing new. For more than a decade now, the US has imposed sanctions in response to activities of the Venezuelan government and Venezuelan individuals.

Oil movements from Venezuela have been severely hit

But the situation has escalated this month with the Trump Administration significantly expanding sanctions in response to what it terms the “authoritarian leadership” of disputed president Nicolás Maduro.

As of June 1, 2020, the US Treasury Department had imposed sanctions on at least 144 Venezuelan or Venezuelan-connected individuals, and the US State Department had revoked the visas of hundreds of individuals and their families.

Events ramped up further as the month progressed with two announcements from the US Treasury listing sanctioned companies and ships that had engaged in “illicit schemes with designated persons”. State-owned Petroleos de Venezuela, SA (PdVSA) is cited by the Treasury as central the corruption in Venezuela.  

“As the illegitimate Maduro regime has done before, the regime turned to Petroleos de Venezuela, S.A. (PdVSA), its primary conduit for corruption, and the institutions that no longer serve its people, to exploit and profit from Venezuela’s natural resources,” said the Treasury. “The exploitation of Venezuela’s natural resources, including oil, for the benefit of the illegitimate regime of President Maduro and his cronies is unacceptable.”

Those that facilitate such activity risk losing access to the US financial system.”

The latest rounds of sanctioned company and vessel designations restate the seriousness of the US’ resolve in this matter and have not been taken lightly. Three Greece-based shipping firms related to these sanctions have publicly halted trade with Venezuela. Athens-based Dynacom Tankers Management was “committed to refraining from any future business involving Venezuela”. NGM Energy SA said it has implemented a strict policy against servicing vessels intending to call at Venezuela or to load cargo of Venezuelan origin in the future. Thenamaris, meanwhile, said it was fully co-operating with US authorities on sanctions imposed on one of the ships.

Escalation of tensions

Lawyer Steptoe & Johnson LLP said in a briefing note that the actions are just the latest in a string of recent designations targeting entities involved in the Venezuelan oil sector and the actions offer a number of insights for companies doing business with Venezuela and operating in the oil and shipping industries more broadly. Outlining takeaways, the firm pointed out that firstly the companies cited in the latest sanctions listing sought to structure their dealings in a sanctions compliant manner. “The fact that Libre Abordo and Schlager took a number of measures to promote compliance with US sanctions, but were ultimately designated, demonstrates the complexity of US sanctions and the importance of consulting with experienced counsel prior to engaging in conduct that may present sanctions risks.”

Secondly, Steptoe & Johnson references the accelerated response from the US Treasury. “The very rapid two week delisting of these entities and vessels demonstrates the high priority that OFAC has placed on the delisting process in this instance, in the wake of rumours and concerns in the market about significant targeting of vessels that have served Venezuela and possible increases in global shipping rates.”

Areas to watch

Insurer Skuld advises that while the US sanction provisions are “inherently vague, and possibly subject to change”, their effects on operations are nevertheless already being felt. It advises that vessel owners or operators who have contracts directly with PdVSA, or PdVSA subsidiaries, which oblige the vessels to carry the cargoes to the US, will be affected. “The sanctions will likely impinge most directly upon vessels already on charter to PdVSA, or any subsidiary, to carry cargoes to the US, and more particularly those vessels already loaded.”

Added to this, any ensuing delays, or other issues regarding the disposition of loaded cargo, may give rise to disputes between owners and charterers. More generally, Skuld adds that vessels scheduled to call in Venezuela, but which might not otherwise be subject to sanctions (no carriage to the US) may still encounter problems if they are deemed “facilitators” or may be subject to delays or other issues due to the general conditions now prevailing in Venezuela.

The sanctions have already had the desired effect: Venezuela’s oil exports fell from 737,000 bpd in April to 573,000 bpd in May, according to Trading Economics, marking an historic low. Added to this, inventories in Venezuela are filling up quickly and with ships refusing to lift the only option is to shutter production.

While the Treasury has made it clear that US sanctions need not be permanent – sanctions are intended to “bring about a positive change of behaviour” – there seems to be little effort from Venezuela’s Maduro regime to address issues. Treasury Secretary Steven T Mnuchin has criticised the Maduro regime for enlisting the help of maritime companies and their vessels to continue the exploitation of Venezuela’s natural resources “for the regime’s profit”, adding that “the United States will continue to target those who support this corrupt regime and contribute to the suffering of the Venezuelan people”.