The bondholders confirmed information that the state-owned oil company of Venezuela, PDVSA, made payments on the principal loan and interest payments of $ 2.2 billion on April 12, avoiding default, despite the so-called “economic war” that is being waged against the Maduro government.
Nevertheless, the PDVSA must pay an additional $ 62 billion in principal and interest on the loan over the next few years.
According to Reuters, Venezuelan President Nicolas Maduro and his government made payments to investors from Wall Street by reducing imports of basic goods such as food and medicine, which led to a chronic shortage.
Maduro said that his country had been the victim of an economic war led by the opposition business.
“Despite the brutal economic war that the imperialists and their local friends are waging in collusion with local media and foreign news agencies, the revolutionary government paid $ 2.557 billion,” said Tarek Al-Aissami, vice-president of Venezuela.
Payments that were transferred on Wednesday included repayment of principal debt and interest payments on PDVSA bonds maturing in 2017, as well as interest payments on bonds maturing in 2027 and 2037.
Venezuela’s bonds have the highest yield among emerging market bonds, which is associated with the risk of default. Maduro said that all the talk about the possibility of default is only a dirty campaign against his administration.
As a number of experts note, as the OPEC countries discuss the extension of the contract to reduce the level of oil production in order to compensate for the flow of oil from the United States, the role of Venezuela in the world oil market is growing.
Convincing the country’s leadership, which is in a very difficult financial situation, to cut production is a difficult task.
But this is exactly what the OPEC countries will try to do to reduce the surplus in the world oil market.
Oil prices will be particularly sensitive to the actions of Venezuela over the next few months, analysts say.
As a result, two scenarios are possible, but experts believe that none of them will meet the expectations of OPEC for Venezuela.
Under the first scenario, Venezuela will continue to consider debt service as its priority. In this regard, the president of the country will look for ways to increase oil production. This would disrupt the OPEC plan for an 8% reduction in production in the country, which they expect.
Under the second scenario, the current crisis in Venezuela will increase, which will not allow the country to import the necessary light oil, which they need to mix with heavy oil.
In this case, production in Venezuela will fall more than predicted by OPEC, which will have a positive effect on the attempts of oil-producing countries to cut production.
However, these scenarios will have additional and diversified consequences, which should be taken into account in analyzing the attempts that the OPEC countries are making in the pursuit of rising oil prices.
Scenario 1: Drill and drill again!
Given that creditors are advancing on the crisis-ridden Venezuela, President Maduro has found himself in a difficult situation, the only way out of which may be the build-up of drilling, since he categorically rejects the possibility of default.
The last payment on the bonds of the state-owned company PDVSA has really eased concerns about a possible default.
However, in addition to the need to service debts, Venezuela is also linked to an agreement with China, in which it receives a loan in exchange for oil. Under this agreement, Venezuela has already owed a lot, the agency Reuters.
Debt service is not the only problem that prevents the reduction of production in Venezuela.
Social assistance programs and other expenditure items in the country are highly dependent on oil revenues, which generate 40-70% of government revenues. The level of income depends on the price of oil.
And the long period of low oil prices carries two risks for public spending. The first is a corresponding reduction in costs, which is related to oil prices.
The second is the high level of profitability in the Orinoco oil belt, which may force Maduro to reduce royalties in order to attract new mining companies.
All this means for Venezuela the following: if the country continues to service its debts, and Maduro vows to do just that, and maintain the current level of spending, then the country has no other options but to maintain the current level and further increase production.
This clearly contradicts OPEC expectations that Venezuela will also take part in reducing production.
And if Venezuela does not agree to an 8% reduction in production, the cartel may try to get it in another country, which will lead to uneasy negotiations and straining relations in OPEC.
Scenario 2: not so simple!
The answer to the financial problems of Venezuela is not as simple as