China and Russia in Venezuelan oil: OFAC's licenses exclude the joint venture

A U.S. company that wants to work with PDVSA needs two permissions, and only one is signed in Caracas. The Venezuelan one says the joint venture may operate. The American one says whom a U.S. person or company may deal with. Both can be in force at the same time and not cover the same ground.

That distinction decides who gets into the Orinoco Belt and who watches, and it reads in full across four documents signed between August 27 and September 2. None of them designates a Chinese or Russian company. What they do is finer and reaches further: they pull out of the permission any transaction involving the Venezuelan company that has such a partner inside it.

The phrase doing the work

The key turn repeats across all four licenses with slight variations, and it is "joint venture." The license covering the six oil companies in the annex excludes any transaction involving a person located in Russia, Iran, North Korea, Cuba or China, or any entity owned or controlled by or in a joint venture with such persons.

Read slowly, the second half of that phrase is what matters. The foreign partner does not have to be part of the specific transaction. It is enough that the Venezuelan counterparty has it as a partner in the company.

And then the asymmetry shows up

Within the same six-day window, the office wrote China two ways. In two licenses it put China in the broad list, alongside Russia. In the other two it took China out of that list and gave it a clause of its own, narrower: it reaches only entities located in or organized under the laws of Venezuela or the United States that are in a joint venture with a Chinese person.

The practical difference sits in the third country. Under the six-company license, a firm organized in Spain or Singapore with a Chinese partner falls outside the permission. Under the PDVSA license and the minerals one, that same firm is not caught by the China clause, because it sits neither in Venezuela nor in the United States. With a Russian partner, it falls outside all four.

The point that decides the Venezuelan business lands the same way in all four. A joint venture organized in Venezuela with a Chinese or Russian partner is caught by all four, because it meets both conditions at once: it is a Venezuelan entity and it is in a joint venture with such a person.

What this changes for whoever is building the operation

The diligence this drafting demands is not the usual one. The ordinary question — is my counterparty designated? — will not do, because a Venezuelan company perfectly clean on the designated-persons list still falls outside the permission if it has a partner from those five jurisdictions. What has to be reconstructed is the counterparty's ownership chart and those of its subsidiaries, until the link is found or ruled out.

And it is worth dating. The ownership structure of a Venezuelan joint venture is not current public information, and the license offers no register in which to check it. Whoever signs carries that risk with whatever they managed to read on the day they signed.

What to watch

An official answer would be the cheapest signal. The office publishes frequently asked questions when a drafting choice draws repeated queries, and two different clauses for the same country in the same wave is just the kind of thing that draws them. If one comes out explaining why China sits apart in two licenses and inside the list in the other two, the criterion stops having to be inferred.

A specific license would say more. A case-by-case authorization to deal with one named joint venture would mark which structures are considered tolerable. None of the general ones does.

And there are the fields. If a block with a partner from those jurisdictions turns up awarded to a U.S. operator or to one in the annex, somewhere along the way there was a change of ownership or an individual permission. Until one of the two is written down, a joint venture with that partner is an asset U.S. capital cannot touch.