On February 26, US President Donald Trump announced that he would be terminating the “Chevron Licence,” which authorised the oil giant to continue operating in Venezuela despite sanctions.

General License 41 (GL 41) was introduced in late 2022 by the Treasury’s Office of Foreign Assets Control under former president Joe Biden as a way for Chevron to recoup its debts from the South American country and stabilise the local economy.

Venezuela’s long-running economic collapse and political conflict, aggravated by sanctions, has driven nearly 8mn people to emigrate. Meanwhile, despite years of political and economic pressure started with the “maximum pressure” strategy under the first Trump administration, the goal of regime change remains elusive.

But what is the impact of terminating GL 41? Who was buying Venezuelan oil? How will it affect other energy firms in the country? Who will lose the most? And who will win?

Market implications

Refineries on the US East Coast will now need to procure crude from more distant and expensive markets. In December, the Venezuelan Merey blend was landing in US ports at $63 per barrel, compared to the Brent global benchmark of $74 per barrel. These refineries had previously managed without Venezuelan oil between 2019 and 2022, though they now face additional challenges from potential sanctions on Mexico and Canada, key heavy oil suppliers.

The brunt of the impact will be felt within the Venezuelan economy, particularly in the private sector. US licences mandated that companies pay in local bolivars rather than dollars, often using crude as debt repayment.

Chevron and the other companies thus had to sell hard currency into the local market, via the private banking system. They do so to pay taxes and staff, or buy services and equipment. The banks would then sell the dollars to businesses, principally those that need them for imports.

Local consultancy Ecoanalítica estimates that 40% of hard currency in the local foreign exchange market came from Chevron and other oil companies with OFAC licences. The licence's termination is expected to trigger another, more intense devaluation of the bolivar.

Winners and losers

Some will benefit from this shift. Obscure intermediaries and certain corrupt officials may find opportunities in the disrupted market, as they will be able to ignore contracts, commit fraud, and raise freight and insurance costs. PDVSA, the state-owned oil firm, will no longer share revenues with Chevron and can sell crude directly in US dollars, despite potential production drops.

In March 2023, just as the Chevron licence had come into effect, a leak uncovered that out of $25.3bn in sales from January 2020 to that month, PDVSA could only confirm it had received $4.1bn.

Will other companies see their licences revoked?

It is not quite clear what the fate of the still intact “specific licences,” which were granted to companies like Repsol and Maurel et Prom, will be.

Removing the licence, though, will likely have another effect. Most companies with joint ventures have tried to migrate to the Chevron model, as standard contracts have become effectively unprofitable. Even the China National Petroleum Corporation (CNPC) and Russia’s Rosneft have sought to work under this framework. However, having an OFAC licence has in practice become a precondition to sign it.

As of March 11, no other licences have been terminated beyond Chevron's, despite the US' notification to companies about winding down operations in Venezuela.

The next steps will depend on whether the Trump administration plans to conduct a new round of negotiations with Nicolás Maduro, or just intends to slap sanctions on Caracas and sit back for them to damage the economy.

A source inside the administration, who did not wish to be named, explained that there have been disagreements between the State Department, which offers guidance based on the government’s foreign policy, and the Treasury’s OFAC, which has to issue or terminate licences.

The licences that are still active are private, unlike Chevon’s “general licence.” They include Spain’s Repsol and France’s Maurel et Prom, which have a similar arrangement to the American oil giant; while Global Oil and Reliance Industries are allowed to purchase and ship Venezuelan crude.

In contrast, Italy’s Eni had received a “comfort letter” instead of a “specific licence.” Being a non-US company, it simply requested assurance in writing from Washington that it could continue its operations in Venezuela, but without seeking the explicit protection that a full-fledged licence would grant. Its status could only change if Trump threatens to enforce secondary sanctions – that is, on third countries.

Shell and BP also hold licences, although they have flown under the radar thus far. Each of the two British energy giants partnered with Trinidad’s National Gas Company to develop two offshore gas fields. Since the deposits span across the exclusive economic zones of the island nation and Venezuela, Shell and BP hoped to invest on both sides of the border.

The OFAC authorised BP and Shell to kick-start offshore projects, although they have sought long-term assurances with 15-year licences. It is worth noting that neither project will involve PDVSA, as this is not required in the gas sector.

With the energy landscape in flux, the Chevron licence termination marks another chapter in Venezuela's complex geopolitical saga. As sanctions threaten to reshape the country's already battered economy, the ultimate impact remains uncertain, with far-reaching consequences for both Venezuela and the global energy market.

Elías Ferrer is the founder and director of Orinoco Research, a research firm based in Venezuela for foreign investors.