Conoco Phillips seizes Caribbean assets of Petroleos de Venezuela (PDVSA) to force the state-run company to pay US$2 billion for the concept of damages caused to the American oil giant by the Venezuelan government’s unilateral step to nationalize hydrocarbons assets back in 2007, under the government of late president Hugo Chavez.

The resolution emitted by the International Chamber of Commerce, which filed the company’s complaint against the Venezuelan state, resolved in the former’s favor and opened the door to the confiscations of PDVSA’s assets in the islands of Bonaire, Curacao and St. Eustatius, where nearly a quarter of the NOC’s storage, processing and blending activities take place. These three sites also represent a significant portion of the crude Venezuela exports to China and India, two crucial markets for the Latin American country. Venezuelan authorities now fear a similar move over their assets in Aruba and a possible maneuver to capture Venezuelan crude in open sea, harming their export possibilities and

The government emitted an order for its crude cargoes to return to Venezuelan shores to avoid confiscations while further measures are analyzed. Conoco’s move comes at a desperate time for the Venezuelan government, who has seen oil production drop to its lowest levels in over 70 years and an increasing international isolation enforced upon president’s Nicolas Maduro’s government.

But, how did Venezuela come to this?

Once the world’s second most productive oil company, PDVSA was the government’s gold pot that allowed easy access to cash flow and enriched the country’s financial chests. The company’s relationship with foreign investors started in the 90s under the tutelage of the so-called strategic associations scheme PDVSA signed with a series of multinational oil titans in the likes of BP, Chevron, Conoco Phillips, Exxon Mobil, Statoil and Total. These associations allowed exploration and production projects in the Orinoco Strip’s reservoirs, deemed the largest in the world, whereby PDVSA acted as minoritarian stakeholder in exchange of technology, financial means and high productivity standards.

Things changed dramatically once Hugo Chavez reached power in 1999 and made repeated calls to revert the strategic associations scheme that his administration perceived as “giving” on the country’s natural resources. His petitions were denied by the Venezuelan congress time after time and when legal channel failed to meet his intentions, he move to act unilaterally.

“Goodbye, good luck, and thank you very much”

Those were the words pronounced by Chavez when he proclaimed the termination of the strategic associations in a quest to renationalize the country’s oil in 2007. The government then opened the door for contract migrations in the form of joint ventures, where PDVSA would act as majoritarian stakeholder as it was stipulated by the Hydrocarbons Law previously approved under his wing.

All companies but Exxon and Conoco Phillips agreed on the terms and so the dispute started. Exxon has also filed two similar complaints at international arbitration entities, adding up to the bleak scenario for Venezuela and its NOC. PDVSA has confirmed they will pay their duties but in the present context this seems to be an impossibility for the company. Moreover, Ryan Lance, Conoco’s CEO, stated that the company is far from getting the US$2 billion back and has already file complaints in courts of Hong Kong, the UK, the US and the entire Caribbean.

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