| March 31
March 31 The sight of Venezuela's National
Assembly president tearing up a Supreme Court ruling and warning
foreign firms against making deals with the leftist government
will no doubt resonate in international boardrooms.
The ruling ripped up by Congress head Julio Borges on
Thursday was designed to allow President Nicolas Maduro to
create oil ventures without congressional approval, easing
investment in the cash-strapped country's floundering oil
And it may well facilitate deals with companies including
Russia oil major Rosneft, which Reuters reported
earlier this month had been offered a stake in an oil joint
venture with Venezuelan state oil company PDVSA as
part of a broader deal with Caracas' key ally.
But the ensuing muddy legal framework and international
outcry is likely to further raise anxiety levels at foreign oil
companies already nervous about buying oil field stakes in
Venezuela because of the country's shaky finances, as well as
stricter regulatory scrutiny at home, according to oil
executives, lawyers, and other industry sources.
Under the Venezuelan constitution, Congress must approve
contracts of "national public interest" with foreign companies.
But the Supreme Court just ruled Congress does not have a say
over joint ventures anymore, while lawmakers retort the top
court is illegitimate, creating a legal maze.
That bodes poorly for Venezuela's ravaged economy, which
depends on oil shipments for over 90 percent of its export
revenue as millions skip meals due to food shortages and roaring
"This complicates any investment decision," said a
Caracas-based source at a foreign oil company that partners with
PDVSA, asking to remain anonymous because the person was not
allowed to speak to media.
Still, Russia is becoming an increasingly crucial financier
for isolated Maduro at a time when many other foreign companies
were already reluctant to pour money into Venezuela given the
poor business climate and debts.
And should Venezuela manage to pull off further sales or
loans with Rosneft, that could help Venezuela make some $2.5
billion in bond payments due in April and shoulder other
But while Venezuela may receive a short term boost from the
decision, in the long-term foreign oil companies will likely be
stymied from potential further investments in the country with
the world's biggest crude reserves.
PDVSA and the oil ministry did not immediately respond to a
request for comment. Rosneft declined to comment, as did U.S.
major Chevron Corp, which has four joint venture
operations with PDVSA.
Spain's Repsol, which last year extended a $1.2 billion
credit line to bolster a joint venture it has with PDVSA, also
declined to comment.
Other foreign oil companies operating in Venezuela,
including state-run China National Petroleum Corp,
did not immediately respond to a request for comment.
But for the low-profile foreign oil companies which remain
in Venezuela despite a wave of nationalizations and company
exits, the Supreme Court ruling is another worry amid complex
currency controls, a brain drain, and out-of-control crime.
Many companies were already concerned about Venezuela's
legal framework after the opposition took control of the
National Assembly in January 2016 and warned oil majors that
investment deals affecting national interest required their
When Rosneft bought a stake in the Petromonagas joint
venture early last year, the National Assembly slammed the
purchase as "illegal" because it bypassed the legislature.
Rosneft responded that the deal was legal.
And, bucking international condemnation of what Maduro
opponents have called a slide into dictatorship, Moscow on
Friday urged the world to leave Venezuela alone.
"External forces should not add fuel to the fire to the
conflict inside Venezuela," the Russian government said.
Some companies may also be betting that they would have
enough muscle to negotiate with a hypothetical opposition-led
government in the future to "legalize" any purchases made
without the congressional green light, sources say.
But the recent Supreme Court move is unlikely to assuage the
fears of foreign partners who have strict internal compliance
and legal guidelines.
"This doesn't solve the problem," said Francisco Monaldi,
fellow in Latin American energy policy at the Baker Institute in
"It might for the Russians, but I doubt an international
company would dare do anything here. This can definitely put a
brake on the creation of new joint ventures."
(Additional reporting by Corina Pons in Caracas and Vladimir
Soldatkin in Moscow.; Editing by Girish Gupta and Marguerita