[dropcap]C[/dropcap]ommodity trader Mercuria has asked the US Treasury for permission to buy out a $1.5bn loan between Russia’s Rosneft and Venezuela’s state oil company, which had raised the prospect of Moscow taking control of refineries on US soil.
The cash-strapped Venezuela state oil company PDVSA, which has borrowed more than $6bn from Kremlin-controlled Rosneft, caused consternation in Washington last year after putting up a stake in its US-based refining subsidiary, Citgo, as collateral against a portion of the loan.
The move by Switzerland-based Mercuria would see the trader put up the money to buy out the $1.5bn loan tied to Citgo, before syndicating it to other investors, according to people familiar with the proposal.
If approved by the US Office of Foreign Assets Control (Ofac), the deal could avoid a potential diplomatic tangle in the event that PDVSA defaults on its loans, with the US seen as unlikely to approve Rosneft taking over the 49.9 per cent stake in Citgo’s plants.
Both Russia and Venezuela are subject to US sanctions, with Rosneft and PDVSA executives singled out for attention from the Treasury.
Mercuria, which has a deal to supply Citgo’s three US-based refineries with non-Venezuelan crude oil, is attempting to structure the deal so as not to breach US restrictions on providing new finance to Rosneft.
Spokespeople for Rosneft and Mercuria did not comment.
Richard Mallinson, a geopolitical analyst at Energy Aspects in London, said if the deal went ahead it could avoid creating additional tension between Washington and Moscow, but also raised questions for PDVSA on future financing.
Venezuela is in the throes of one of the worst economic crises in Latin American history, with its economy contracting by a third in the past half-decade. A further 15 per cent contraction is expected this year, according to the International Monetary Fund, while inflation is forecast to hit 13,000 per cent.
“Rosneft would have faced an uphill struggle to get approval to exercise a stake in Citgo so this avoids a potential diplomatic strain between the US and Russia if this deal goes ahead,” said Mr Mallinson.
“If this signals that Russia is looking to reduce its loans to Venezuela rather than offering more support that leaves Caracas with nowhere obvious to turn.”
Rosneft has said it is unwilling to extend further loans to PDVSA, many of which have been secured against crude supplies, as the country’s economic crisis starts to hit oil output from the country.
The Russian company is seen as keen to reduce its exposure to Venezuela as oil output falls, with the country seen as precariously close to defaulting on its debts.
A spokesperson for the US Treasury department said they do not discuss Ofac licensing requests, including confirming whether one had been received.
Russia has been a financial lifeline for Caracas, and last year Moscow agreed to restructure $3.15bn of loans provided to the country.
Not included in that package was the $6bn that PDVSA owes Rosneft in loans and debt interest, which has become a big worry for investors in the Russian oil company. The Russian energy group holds large stakes in Venezuela’s oilfields and in December struck a deal to take control of two offshore gasfields.
Igor Sechin, Rosneft chief executive and a close ally of Vladimir Putin, the Russian president, said in October that the company had no intention of using the Citgo stake for anything other than collateral, and that the company was negotiating with PDVSA over swapping the stake for other assets.
“If they offer something more interesting, we will consider it,” Mr Sechin told reporters.
