S&P Global — 2 July 2024
Daily Update: July 2, 2024
Venezuela's Political Opposition & US Sanctions
By Wyatt Scott
Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy
Venezuela's presidential election in July is shaping up to be a dramatic showdown. With US sanctions policy playing a pivotal role, the political landscape in Venezuela is as volatile as ever. As Venezuela prepares for the election, the US has adopted a unique approach to its sanctions policy, focusing on company-specific licenses rather than broad sanctions relief to balance market stability with political progress.
In April, the US reimposed oil and natural gas sanctions on Venezuela while keeping the door open for company-specific licenses. This calculated move could minimize market disruption in a US election year while facilitating gradual political progress in Venezuela. By shifting the focus to company-specific licenses, the US aims to provide stability for companies operating in the country and for the political opposition hoping to gain ground beyond the July election.
Negotiating these specific licenses can be a long process, but it might be more predictable for companies, especially if they are US or allied companies. This strategy provides a bureaucratically cumbersome but clear process for companies to request the ability to exchange Venezuelan crude for debt owed to them or for diluent and other products to alleviate humanitarian distress in Venezuela.
The US issued General License 44 in October 2023, which authorized transactions related to oil and gas following an agreement between President Nicolás Maduro and the political opposition to hold fair presidential elections in 2024. But after the leading opposition candidate María Corina Machado was disqualified, the US warned that it would snap back sanctions unless Maduro changed course and allowed all presidential candidates to compete in the election.
The political opposition in Venezuela has now united behind Edmundo González Urrutia, who polls suggest could beat Maduro. However, this is unlikely to change US oil sanctions policy in the near term. The current policy focusing on company-specific licenses could work as well as a general license, allowing Venezuelan production to continue despite the US sanctions snapback in April.
Maduro's government has so far accepted González as a candidate, with opposition primary winner Machado offering her support. A recent poll from Datincorp shows González with a 40-point lead over Maduro. The González candidacy arose after the US Treasury Department announced that it would not renew the temporary oil and gas sanctions relief because Maduro failed to meet his commitment to make progress toward a free and fair election.
The US decision to reimpose sanctions on Venezuela's oil and gas sector could impact global oil flows by shifting more Venezuelan crude to China. Expectations that the US would reimpose sanctions have helped tighten crude and fuel oil price spreads. However, the move did not impact Chevron's General License 41, allowing the opportunity for other companies to apply for similar individual licenses.
As Venezuela's political drama unfolds, the US remains a key player. The focus on company-specific licenses offers a glimmer of hope for stability, but the path to a free and fair election is fraught with obstacles. With the world watching, the stakes couldn't be higher for Venezuela's future and its place in the global oil market.
Today is Tuesday, July 2, 2024, and here is today’s essential intelligence.
Japan Launches Climate Policy Review Ahead Of 2035 Deadline For GHG Emissions Cut
Japan held a series of discussions June 28 to formulate a fresh plan on countering global warming — laying the foundation for the government to consider new greenhouse gas emissions reduction target for 2035 that will be summitted to the UN by February next year. The meeting — jointly held by the Ministry of Environment and the Ministry of Economy, Trade and Industry — signals growing efforts by the government to review the country's key energy and climate policies by end-2024, as Japan aims to map out a new national strategy for its green initiative "GX 2040 Vision" by end-March 2025.
—Read the article from S&P Global Commodity Insights
Local And Regional Governments Outlook Midyear 2024: Persistent Spending Needs Are Leading To Growth In Debt Burdens
Credit quality for local and regional governments (LRGs) outside the US remains largely stable. A negative rating outlook bias persists and suggests ratings volatility over the next few years. Public-sector spending could accelerate, with different implications for budgets: In countries where national restrictions on regional deficits and debt levels are either loose or don’t exist, budgetary performance remains weak, leading to relatively fast debt accumulation — for example Australia, Belgium and Canada. In some European countries where regional governments must comply with national restrictions, spending pressure is transferred to lower tiers of government and public-sector enterprises.
—Read the article from S&P Global Ratings
European Banks Grappling With Elevated Credit, Cyberrisks
Credit and cybersecurity risks faced by European banks have increased over the past year as asset quality deterioration and digital security challenges ticked up. The volume of risk-weighted assets (RWA) of banks in the EU and the European Economic Area increased by more than 3% to €9.72 trillion at the end of March from €9.42 trillion a year before, according to the European Banking Authority's latest risk dashboard. Credit risk contributed €233.72 billion to the total RWA increase, while operational risks contributed €72.03 billion.
—Read the article from S&P Global Market Intelligence
US Sanctions More Companies, Ships Involved In Iran Oil Trade
The United States is sanctioning new entities and ships it accused of transporting Iranian oil and petrochemical products, the US State Department announced June 27. The three companies and 11 ships were sanctioned in response to Iran's "actions to increase its enrichment capacity" in its bid to further expand its nuclear program, according to a statement from Secretary of State Antony Blinken.
—Read the article from S&P Global Commodity Insights
Listen: Is Asian Jet Fuel Demand Stalling As Aviation Recovery Struggles For A Lift?
The aviation sector post-pandemic recovery was seen as a bright spot for regional oil demand this year. However, with uneven recovery within the industry and underwhelming performance in key markets such as China, the growth in demand is expected to ease in the coming months. This demand slowdown could potentially send the jet fuel market into turbulent skies ahead. S&P Global Commodity Insights’ Asia oil news editor, Neo Rong Wei, discusses Asia's aviation recovery and its impact on jet fuel demand and cracks with associate editor, Lee Shu Ling, who covers Asia jet fuel/kerosene markets and Platts Forward Curve associate editor Ernest Puey.
—Listen and subscribe to the podcast from S&P Global Commodity Insights
CreditWeek: How Will AI Transform The Healthcare Industry?
AI's recalibration of the healthcare industry is having an increasingly direct impact on health outcomes, with improvements to the efficacy and efficiency of treatments underpinned by new business models, the emergence of non-traditional actors and the creation of novel medicines and approaches to expanding healthcare capacity. The resulting shifts in market dynamics will affect issuers' competitive positions and could affect credit quality.
—Read the article from S&P Global Ratings
40th Annual APPEC Conference (September 9 – 12)
Building on the success of previous years, APPEC 2024 promises to deliver another exceptional experience filled with thought-provoking discussions, expert insights and unparalleled networking opportunities. Join us, as we gather to explore the latest trends, challenges, and innovations shaping the global energy landscape.
—Register for the conference from S&P Global Commodity Insights