We’ll go Down The Rabbit Hole in just a bit but first…Caracas Chronicles had an article that reported on something that’s not big news…yet. These things always start somewhere…Ileana Medina, a Chavista deputy (representative) in Maduro’s National Assembly, is proposing the government strip opposition leaders of their citizenship due to their support for sanctions imposed on individuals and state-controlled companies.

 She says Juan Guaido, Leopoldo Lopez (as you know, our favorite opposition political figure), Julio Borges, and others (maybe Maria Corina Machado, currently banned from holding public office for 15 years and the leading candidate in the opposition primaries) have “broken the most important spiritual ties that bind a citizen to their homeland” and should lose their nationality permanently.

 The Venezuela Constitution, rewritten by Hugo Chavez, does provide citizens some protection although it’s vaguely worded. It also requires that suspension of citizenship be done through the courts.

 This is hardly comforting as we already know that in Venezuela the Constitution says what the Chavistas say it says and the law is what they say it is.

 Remember, before some recent “cosmetic” rulings against the government, the tally in TSJ (Venezuela Supreme Court) decisions was : Rulings in Favor of the Government – 50,000… Rulings Against the Government – ZERO!

 There has been some hope that after efforts by Lula (Brazil), Fernandez (Argentina), and Petro (Colombia) to usher Venezuela back into the international community the Maduro regime might change it’s traditional approach. These sentiments were echoed at the recent Celac – EU Summit.

 With the recent illegal disqualification of Maria Corina Machado and now proposals like this, albeit in it’s infancy, and despite VP Delcy Rodriguez’s friendly demeanor, Chavismo’s autocratic ways (It’s a dictatorship!) are alive and well.

 Then we have Oilprice.com reporting that PDVSA (Venezuela government-owned oil company) creditor Crystallex will be first in line to receive part of the proceeds from the auction of Citgo Petroleum shares in October, according to a ruling by US Circuit Judge, Leonard Stark.

 He said Crystallex will be at the front of the pack because it was the first to file it’s claim of $1.4 billion, settled in court years ago.

 Also at the front of the line will be Conoco Phillips, among others, with claims said to be in excess of $20 billion from Venezuela’s (Chavista’s) expropriations.

 We also have the bondholders lining up with their billions of dollars in claims so it doesn’t look good for Citgo’s approximately $10 billion in assets.

 Now, let’s head Down The Rabbit Hole…

 Chapter 3/ continued…

 …So let’s see, we have 100,000 bpd to Petrocaribe countries for almost no cash and another 100,000 bpd to Cuba for no cash. The domestic market during the Chavez years consumed 650,000 – 790,000 bpd and due to the unbelievably low gas prices (basically free in dollar terms) provided no cash to PDVSA. It’s also worth remembering, although the Chavistas won’t tell you this, that part of the agreement as a member of OPEC is domestic needs must be guaranteed. So, who actually pays PDVSA for their oil?

 I first became alerted to this years ago when Chavez went on his borrowing binge and then when Maduro relied on credit to run the country instead of revenue. They would periodically announce a great new trade deal or development program with China or Russia and it was always guaranteed by future Venezuela oil shipments. I kept seeing $5 billion here and $5 billion there and soon commitments of tens of thousands of barrels became hundreds of thousands of barrels. Eventually the total between the Chavez and Maduro years reached 700,000 bpd. combined, for which PDVSA received no cash. Add in, let’s say, another 700,000 bpd for domestic needs, another 100,000 bpd for Petrocaribe, and 100,000 bpd for Cuba and you have 1,600,000 bpd to be supplied for free!

 Since everything Venezuela-related seems to be good news/bad news let’s look at the upside. With all the oil they basically had to give away due to their totally irresponsible use of resources and finances there were still some paying customers out there. Year over year they were still exporting about 300,000 bpd to India and another 800,000 bpd to North America, most of that to the US. Despite all the anti-capitalist and imperialist bluster the US was their number one trading partner. The downside regarding revenues from the US was that it wasn’t all cash. Remember, Venezuela needed condensate to process it’s extra-heavy crude and their number one supplier for this was the US. That said, the US still bought and paid for more Venezuela oil than any other country. So now we have another 1,100,000 bpd to add to the ledger to maintain the status quo for a total of 2,700,000 bpd among the major players. Other than the peak production of 3,500,000 bpd PDVSA produced 2,500,000 bpd most of the time so, as you can see, they had some juggling to do. They were 200,000 bpd short so one month they would short the free shipments and the next month they would short the paying customers and take the financial hit. But that only worked for just so long. From time to time they still needed to raid their gold reserves. You can see where we’re headed.

 Again, I apologize for the tedious nature of this but there are a lot of moving parts to this train wreck. I’ll try not to get too deep in the weeds but please bear with me,it’s worth it.

 As this scenario is unfolding let’s flip back to the personnel side of the story. Remember, even with the purges there were still some qualified people at PDVSA among the bloated payroll. That would begin to change when oil prices dropped and the Chavista’s credit dried up. First it was just people frustrated that the Chavistas were promoted and the real oil professionals were expected to carry the load for the “dead weight”. The desertions accelerated when employees saw the handwriting on the wall. Things weren’t going to get better anytime soon so it they could get out they did.

 More tomorrow….