On May 24, 2011, the United States Secretary of State imposed sanctions on seven companies under the Iran Sanctions Act (ISA) of 1996, as amended by the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) of 2010, for their activities in support of Iran's energy sector. One such company was Petróleos de Venezuela (PDVSA), Venezuela’s national oil company.


The ISA (originally called the Iran-Libya Sanctions Act -ILSA) was enacted in 1996 as a response to Iran’s support of Hizbollah, Hamas, and Palestine Islamic Jihad. The ISA attempted to reduce Iran’s capacity to update its petroleum industry, which was aging and needed foreign investment, by sanctioning foreign companies that made investments in Iran’s energy sector. The ISA was extended to Libya in retaliation for the refusal to take to trial the two Libyan intelligence agents allegedly involved with the 1988 PanAm 103 attack. U.S. allies did not support ISA and considered it an extraterritorial application of U.S. law.2

The ISA was amended by the CISADA, in July 2010, to expand the activities related to the energy industry that may be subject to sanctions and add new types of sanctions, including the sale of petroleum refined products to Iran, among others.3 CISADA was enacted after the United Nations Security Council voted to impose sanctions on Iran for its ongoing violation of the Nuclear Non-Proliferation Treaty (UN Security Council Resolution 1929). This was the international support that ISA lacked.


As a result of investigations requested by the House Foreign Affairs Western Hemisphere Subcommittee, documents evidencing the sale by PDVSA to the National Iranian Oil Company of two cargoes of gasoline were presented to the U.S. State Department. The U.S. State Department concluded that, “PDVSA, the state-owned oil company of Venezuela, ha[d] delivered at least two cargoes of reformate to Iran between December 2010 and March 2011, worth approximately $50 million.”4 As a result of this finding, U.S. Secretary of State, Hillary Clinton, imposed sanctions against PDVSA. These sanctions prohibit PDVSA from competing for U.S. government procurement contracts, from securing financing from the Export-Import Bank of the United States, and from obtaining U.S. export licenses.5 It is important to point out that these sanctions do not apply to PDVSA subsidiaries and do not prohibit the export of crude oil to the United States.6

The immediate impact of these sanctions is likely going to be minimal. As a starting point, the sale of crude to the U.S., which is Venezuela’s top buyer of crude, is not affected and, thus, the government’s revenue from crude exports is not likely to suffer a decline. Given the Venezuelan government’s anti-American stance and PDVSA’s intention to develop alternative markets for its petroleum productions, it is also unlikely that PDVSA would apply for any financing from the Export-Import Bank of the U.S. Finally, PDVSA is a holding company which carries out its activities through its operating affiliates; thus, limiting the restrictions to PDVSA only and specifically indicating that the sanctions do not apply to PDVSA subsidiaries reduces the economic impact of the sanctions.

Although the measure prohibiting PDVSA from obtaining U.S. export licenses was a cause of concern for companies operating in Venezuela, the restriction applies only to PDVSA and not to its affiliates such as Bariven, which is the PDVSA affiliate in charge of procurement exports from the U.S. into Venezuela; therefore such companies should not be affected.7 Similarly, CITGO’s (a PDVSA affiliate) operations in the U.S. were not affected either, so it seems that the sanctions are more of principle than economic impact.

It is worth noting that PDVSA bonds fell sharply immediately after the announcement in what seemed to be an impulsive reaction to the sanctions while the markets were determining the real impact.8 In subsequent days, as the measures and relative impact were explained, the bonds returned to standard positions in an indication that the U.S. sanctions did not affect PDVSA’s payment capacity.

Despite the absence of any evident impact resulting from the sanctions, Venezuela responded by classifying the measure as an “imperialistic aggression” that violated international law and indicated in an official notice that it would study the impact of the measures further and reserved its rights to respond to such sanctions.9 There has been no further response of the Venezuelan government in this regard. The Venezuelan government has made it clear that it prefers doing business with National Oil Companies (NOCs) with similar political ideologies. Consequently, many U.S. oil companies and contractors have been directly and indirectly shut out from business in Venezuela, opening the way for new players to enter the “largest reserves” in the world. Perhaps the hidden impact is the perception within PDVSA, its employees and contractors that dealing with U.S. companies could be interpreted as an act of treason which could put at risk jobs and contracts and generally create difficulty for U.S. companies to continue operating in the Venezuelan oil industry, enter the Venezuelan market or carry out business with PDVSA.

In summary, although from a strict legal point of view the U.S. sanctions on PDVSA do not have an immediate visible impact on Venezuela or U.S. companies operating or with business related to Venezuela, we need to continue closely monitoring the business environment for U.S. companies in Venezuela.