China – Venezuela Relationship Deteriorates
A US subsidiary of Chinese oil and gas conglomerate Sinopec sued Venezuelan state-owned PDVSA over breach of contract and conspiracy to defraud, an indication that the relationship between the two countries is deteriorating, according to Reuters. The lawsuit was triggered by an unpaid debt of $23.7M, however newswires report that a breakdown in relations between the two sides could potentially have greater implications.
Venezuelan total outstanding debt to China is about $62 billion, and until now China has been recouping this through oil shipments. Should Venezuela lose its ability to deliver these contracts, this trade relationship might cease to exist. According to newswires, this scenario is not unlikely, due to Venezuela’s deep economic and political struggles which do not allow PDVSA sufficient funds to expand operations and maintain existing infrastructure, with the state-owned company already declared in default by several rating agencies in November. Moreover, a Reuters report suggests that China has already trimmed its credit to Venezuela throughout the last 2 years.
Venezuela’s oil output hit a 28-year low in October at 1.86M b/d, down 10% m-o-m, while according to OPEC, the country’s production is set to fall by 250K b/d in 2017 and 300K b/d in 2018.