Since its creation amid the nationalization of the oil industry in 1976, PDVSA has been the golden goose of Venezuela’s oil-dependent economy. At its peak, the company provided the Venezuelan government with billions of dollars for its social development projects. But decades of mismanagement and undercapitalization have taken their toll, and now PDVSA’s name is synonymous with crumbling infrastructure, unsustainable debt, and falling output levels.

Any path to genuine economic recovery in Venezuela leads through the oil sector. The country is home to the largest proven reserves in the world, reflected in the fact that oil revenue accounts for up to 95% of export revenues. But can there be any hope of a turnaround in 2020?

Citgo in the balance

PDVSA acquired half of US-based refiner Citgo in 1986, and then the other half in 1990. Since then it has represented an essential source of foreign reserves for the Venezuelan government. Yet much like PDVSA itself, Citgo is saddled with debt (due primarily to having to service the obligations of its parent company), and is currently in a state of default.

The US Treasury Department is now protecting Citgo from seizure by creditors who backed a 2016 PDVSA bond which offered up a controlling stake of Citgo as collateral. By keeping Citgo up-and-running and in Venezuelan hands, the US administration ensures that this ‘crown jewel’ of the Venezuelan state is still available if and when the opposition takes over from the Maduro regime. The effort is backed by the opposition-held Venezuelan congress, which has the authority to appoint the company’s board of directors and has been working to reduce links between PDVSA and Citgo amid the Trump administration’s sanction push. The opposition argues that the abovementioned 2016 PDVSA bond was issued without the consent of congress, thus rendering its collateral obligations null and void. Whether or not the argument stands up in court remains to be seen, and the opposition-appointed PDVSA board has sued in US court to annul the bond in question. But until then (and potentially beyond), the Treasury Department can delay the seizure of Citgo. The current stay will expire in April, and has already been extended once before.