OFAC Reimposes Venezuela Oil and Gas Sector Sanctions but Leaves Door Open for Possible Specific Licensing

Key Points

• On April 17, 2024, based on a determination by the U.S. government that Nicolás Maduro and his representatives “have not fully met the commitments made” with respect to upcoming Venezuelan elections, the U.S. Department of the Treasury’s OFAC replaced GL 44, which had previously authorized transactions related to oil or gas sector operations in Venezuela, with a limited wind-down authorization, provided in GL 44A. Under GL 44A, U.S. persons have until May 31, 2024 to wind down transactions that were previously authorized by GL 44, unless separately authorized by OFAC.
• Concurrently, OFAC issued new and amended FAQs related to GL 44A which clarify, among other things, that OFAC will consider specific license requests to continue activities previously authorized by GL 44 “on a case-by-case basis.”
• These actions do not affect other sanctions on Venezuela currently in place, such as the blocking of the government of Venezuela. Moreover, the U.S. government has not reimposed any of the previous U.S. sanctions on secondary market Venezuela sovereign debt and PdVSA securities that were previously relaxed in October 2023.
• With Venezuelan elections slated for July 28, 2024, U.S. officials have stated that they will “continue to assess sanctions policy towards Venezuela” in light of actions taken by Maduro and his representatives as the election approaches, and that this latest sanctions action is not a “final decision” by the U.S. government regarding whether Venezuela can hold competitive and inclusive elections. Accordingly, U.S. and non-U.S. companies with commercial interests associated with Venezuela should be mindful that the current sanctions landscape could evolve further in the weeks ahead.

OFAC Allows GL 44 to Expire and Issues Limited Wind-Down Authorization for Transactions Related to Oil or Gas Sector Operations in Venezuela

As discussed in our previous alert dated October 24, 2023, the Office of Foreign Assets Control (OFAC) has issued a series of authorizations providing sanctions relief to Venezuela in light of commitments made by Maduro and his representatives under the Barbados Agreement of October 17, 2023, with respect to election reforms in Venezuela. As part of these sanctions relief actions, in October 2023, OFAC issued General License (GL) 44, authorizing transactions related to oil or gas sector operations in Venezuela, including transactions involving Petróleos de Venezuela, S.A. (PdVSA) as well as entities in which PdVSA owns, directly or indirectly, a 50% or greater interest, which was valid until April 18, 2024. GL 44 was paired with a statement that the agency “retains the authority to rescind authorizations should the representatives of Maduro fail to follow through on their commitments.”

In a statement related to the expiration of GL 44 issued on April 17, 2024, the State Department announced it had determined that Maduro and his representatives “have not fully met the commitments made under the electoral roadmap agreement” signed in October 2023 and that U.S. officials are “concerned that Maduro and his representatives prevented the democratic opposition from registering the candidate of their choice, harassed and intimidated political opponents, and unjustly detained numerous political actors and members of civil society.”

In that context, OFAC allowed GL 44 to expire and issued a limited, 45-day wind-down license (GL 44A) on April 17.

Provisions of General License 44A

GL 44A is effective through 12:01 a.m. ET on May 31, 2024, and authorizes the wind down of activities that were previously authorized under GL 44 within that time frame, including but not limited to:

• The production, lifting, sale and exportation of oil or gas from Venezuela, and provision of related goods and services
• The payment of invoices for goods or services related to oil or gas sector operations in Venezuela
• The delivery of oil or gas from Venezuela to creditors of the government of Venezuela, including creditors of entities in which PdVSA owns, directly or indirectly, a 50% or greater interest, for the purpose of debt repayment.

A number of important restrictions apply to the scope of activities authorized by GL 44A. In FAQ 1 of the “Frequently Asked Questions Related to the Suspension of Certain U.S. Sanctions with Respect to Venezuela on October 18, 2023,” which was also updated on April 17, 2024, OFAC specifies that GL 44A does not authorize “[e]ntering into new business, including new investment,” because new business is not considered wind-down activity. A senior administration official clarified that this wind-down period is to “allow people to wrap up their business [that is in progress pursuant to GL 44] in an orderly manner and not cause unwanted spillover effects.” In addition, OFAC clarifies in FAQ 1 that “non-U.S. persons may wind down transactions or activity without exposure to sanctions, provided that such wind down activity is consistent with GL 44A.”

In apparent recognition of practical challenges facing companies that had entered into Venezuela-related oil or gas sector transactions in October but now need to wind-down such activities, OFAC is encouraging U.S. and non-U.S. persons to seek guidance from OFAC if they are unable to wind down or otherwise complete transactions previously authorized by GL 44 before 12:01 a.m. ET, May 31, 2024.

Importantly, FAQ 2 indicates that OFAC will consider specific license requests for activities previously authorized by GL 44 on a case-by-case basis, including activities involving PdVSA or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest. The agency appears to be receptive to receiving applications from individual companies for such non-public specific licenses. However, consistent with the agency’s general practice, determinations in response to such applications will be considered in the context of and ultimately be adjudicated in reference to broader U.S. national security and foreign policy interests.

Preservation of Other Venezuela Sanctions General License Authorizations

Notwithstanding the expiration of GL 44, in conjunction with these developments, OFAC stated in FAQ 2 and FAQ 5 that other GL provisions of the U.S. sanctions related to oil or gas sector operations in Venezuela remain in effect. These include:

• GL 8M, which authorizes for certain entities all transactions involving PdVSA for the limited maintenance of essential operations in Venezuela or the wind down of operations in Venezuela
• GL 41, which authorizes certain transactions related to Chevron Corporation’s joint ventures in Venezuela.

Implications

OFAC’s revocation of GL 44 is consistent with the Biden administration’s pledge to continually reassess its sanctions policy toward Venezuela in response to actions taken by Maduro and his representatives with respect to the upcoming Venezuelan elections. With rising global oil prices and an increase in Venezuelan migrants flowing to the U.S.-Mexico border, despite the expiration of GL 44 OFAC appears to still be willing to consider and potentially approve non-public specific licenses to U.S. persons (or other forms of necessary guidance to non-U.S. persons) seeking to engage in certain oil or gas sector activities associated with Venezuela. 

U.S. and non-U.S. persons with actual or potential exposure to Venezuela should carefully evaluate the scope of GL 44 and GL 44A as it relates to their operations and interests, particularly in cases where oil or gas may have been purchased from PdVSA or its blocked subsidiaries in accordance with GL 44. It is worth noting that, depending on the circumstances, it is possible that property interests of PdVSA entities associated with transactions previously undertaken may now be severed such that U.S. blocking sanctions no longer apply. 

Moreover, U.S. and non-U.S. persons may consider applying for a specific license or a comfort letter, respectively, if they have a commercial interest in engaging in oil or gas sector operations in Venezuela moving forward. However, in considering such matters, it is important to recognize that other U.S. sanctions on Venezuela, such as the blocking of the government of Venezuela, remain in place. At the same time and significantly, the U.S. government has not changed its prior determination to permit secondary market trading in Venezuelan sovereign debt and PdVSA securities, which remain authorized at this time.

With respect to non-U.S. persons engaging in transactions wholly outside of U.S. jurisdiction, there may again be sanctions designation risks, particularly after May 31 (and even before May 31 to the extent that non-U.S. persons are engaging in activities that would not be authorized by GL 44A for U.S. persons) for “operating in the oil sector of the Venezuelan economy” or otherwise “materially” assisting or supporting PdVSA or other blocked persons pursuant to Executive Order 13850. Accordingly, a careful compliance review of any energy sector activities associated with Venezuela is generally advisable for any company with such interests at this time.

As Venezuela prepares for its presidential elections on July 28, 2024, it remains to be seen to what extent U.S. policy and sanctions provisions evolve further. Ultimately, the U.S. approach can be expected to depend on the assessment of U.S. officials of how the Maduro regime approaches the upcoming elections and the extent to which it allows meaningful participation of opposition candidates and a free and fair election process.