US control of Venezuela's oil risks China debt restructuring

The control of Venezuela’s oil exports by the United States has ensnared barrels that had been servicing debt to China, lining up another potential showdown between the two superpowers that could further complicate the South American country’s path out of default.

- LIBBY GEORGE TREVOR HUNNICUTT

Around a tenth of Venezuela's $150 billion foreign debt pile is estimated to be loans from China that the Opec member was paying in oil cargoes, until the US seized Venezuelan President Nicolas Maduro earlier this month.

Debt experts said the ramifications of China’s claim on the cargoes and any clash with the United States could make it tougher for Venezuela to restructure its debt after a 2017 default and put at risk Beijing's cooperation in restructuring deals for other developing nations.

"Even under the best circumstances, this was going to be very messytrying to disentangle where all these creditors stand in the credit hierarchy," said Christopher Hodge, chief economist at Natixis and a former US Treasury official.

"The fact that now America is controlling all the finances into and out of the country...this seems to be unprecedented to me, that we're going to have such entanglements, such opacity about the finances of a government," Mr Hodge said. While Washington currently controls only oil sale proceeds, Mr Hodge noted that these are Venezuela’s main source of revenue.

TRADING OIL FOR DEBT

Documents and sources from state-run oil firm PDVSA show three supertankers have been shuttling between Venezuela and China over the past five years carrying oil for interest payments under the terms of a temporary deal struck in 2019. But these shipments are only a fraction of Venezuela's total crude exports to China.