Disruption to Chinese oil flows from Venezuela "manageable" - Jefferies

Investing.com - Any disruption to China’s crude flows from Venezuela following last weekend’s U.S. attack on the Latin American country is "inconvenient but manageable," according to analysts at Jefferies.

In a note, the analysts including Aniket Shah flagged that while Venezuela exports over half of its crude to China, it only accounts for roughly 3% of Beijing’s total imports.

Citing a conversation with Michal Meidan, Head of China Energy Research at the Oxford Institute for Energy Studies, the Jefferies analysts said that a "more significant" pressure could stem from debt servicing.

Around 30% of Venezula’s crude is directed to Chinese state-owned enterprises as part of an ongoing loan repayment program. Meidan estimated that as much as $60 billion has been lent by China to Venezuela since 2007, with proceeds from oil as collateral.

Underpinning the arrangement, which was introduced in the 2000s, was need for energy in a rapidly-growing Chinese economy and former Venezuelan leader Hugo Chavez’s desire to diversify away from a dependence on the U.S. Current estimates say about that $10 billion of China’s loan to Venezuela remains outstanding, Meidan said.

Meanwhile, Chinese firms are heavily invested in Venezuela’s infrastructure, taking stakes in areas like telecoms, railways and ports.

But over the short term, Meidan told Jefferies that "any financial losses although notable, will not [be] existential." China’s strategy of diversifying energy partnerships and building strategic reserves has also mitigated the impact of losing Venezuelan flows, Meidan told the analysts.

The comments come after the U.S., which had already been imposing strict sanctions on Venezuela for years, announced a daring incursion last weekend which resulted in the capture of the country’s president, Nicolas Maduro.

U.S. President Donald Trump said after the attack that Washington was ready to assume control of much of Venezuela’s lucrative oil infrastructure for years. Against this backdrop, Chinese oil companies are reportedly looking for guidance from Beijing on how best to shield their investments in Venezuela, Bloomberg News reported.

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