Courtesy of Geopolitical Futures, a report on how Caracas is taking advantage of a key opportunity to revive its energy sector:

For years, the Venezuelan economy has been largely disconnected from Western markets. The war in Ukraine, however, initiated a sort of restructuring of the global energy market, sparking renewed interest in Venezuela’s potential as an oil supplier. The biggest source of interest has come from Europe, which significantly ramped up efforts to find alternate energy suppliers following Russia’s invasion. European companies thus launched efforts to build bridges with Venezuela’s oil industry. Faced with the possibility of being left out, the U.S. has been forced to modify its sanctions policy and is becoming increasingly flexible in its approach to the Venezuelan government.

The problem for the world’s big energy consumers is that Venezuela’s energy export levels are remarkably low, especially considering its substantial reserves. Bringing them up to where they could be will require solving the issues that have left the country’s oil sector stagnant in the first place. This means time, investment, infrastructure and, perhaps most importantly, the cooperation of the Venezuelan government.

Seeing the recent interest in its potential as an oil supplier, Caracas has already taken steps in this direction. The government has targeted its efforts to revive demand for its energy products at three main markets: its traditional partners, Europe and the United States. Venezuela’s traditional partners are countries with which state-own oil company PDVSA continued to do business despite the imposition of U.S. sanctions. They tend to be non-Western countries that aren’t aligned with Washington, including Russia, China and Vietnam, three countries whose ambassadors met with the head of PDVSA over the past two weeks. The talks focused on oil and continued cooperation, but little else was released about them.

Venezuela has made the most progress in bridging ties with European countries, especially over the past month. In early May, PDVSA signed a deal with Italy’s ENI and Spain’s Repsol to export natural gas to European markets. The agreement allows the firms to export products through a condensate recovery plant they own. Also in May, officials from the Spanish Embassy in Caracas said Madrid was interested in increasing trade and investment ties with Venezuela. It acknowledged that this would take time and that Spanish companies would need to make adjustments to work in Venezuela’s business environment. But the Spanish-Venezuelan Chamber of Industry and Commerce emphasized that it wanted to allay concerns about doing business in Venezuela.

Meanwhile, France’s largest employer federation, the Enterprises Movement of France (MEDEF), met this month with Venezuelan officials, including the head of PDVSA and the country’s vice president, to discuss increased trade, energy and economic diversification. MEDEF and its Venezuelan equivalent, Fedecamaras, signed agreements on trade, industry, agriculture and business cooperation. Their collaboration will include knowledge exchanges and support for French investment in Venezuela. France will also allow, under certain circumstances, the use of the BPI payment system to help finance and insure French exports to Venezuela. MEDEF acknowledged the need for improved infrastructure, worker training, digital projects and agriculture in the future in order to facilitate closer business ties.

In dealing with Venezuela, Europe has certain advantages over other markets. The U.S. government issued Repsol and ENI waivers, for example, so that they could export Venezuelan products without incurring sanctions. The waivers were granted on the grounds that oil and natural gas deliveries would be used to pay off debt owed to these firms. Washington’s willingness to offer leniency to European companies is a result of European governments’ support for Kyiv in the war in Ukraine and its desire to disrupt Russia’s own revenue sources. European entities can also issue nonbinding statements, known as comfort letters, that declare their confidence in conducting business with Venezuela, assuring potential investors that their investments are sound. They can also work with a broker, usually aligned with the government, to arrange off-take agreements that help navigate logistical issues in order to get Venezuelan oil to European markets.

There are other indicators of increasing Western willingness to work with Venezuela’s oil industry. In recent weeks, PDVSA and other business groups hosted a flurry of meetings with foreign companies and diplomats focused on improving ties on energy, trade, agriculture and investment – four key components of Venezuela’s economic recovery.

For the United States, however, Venezuela’s reentry into the global economy has created a strategic dilemma. On the one hand, Washington wants to play a role in Venezuela’s economic recovery, given the country’s strategic position on the Caribbean’s southern rim. On the other hand, U.S. sanctions against Caracas were aimed at forcing the Maduro government to step down, and backtracking now would be a huge political blow at a time when many already question U.S. leadership around the world.

This means the best approach for Washington will be to keep its options open so that it can compete to some degree with its European counterparts. So far, the key to the United States’ opening to Venezuela has been American oil and gas company Chevron, which was granted permission last year to conduct business in Venezuela through its joint ventures with PDVSA for six months. The deal allowed Chevron to produce petroleum and petroleum products and to do related maintenance, repairs or servicing. However, it prohibited any new investments. The oil it produced could enter the U.S. only if it was property of Chevron before it was loaded for delivery at a Venezuelan port. In May, Chevron loaded 3 million barrels of Venezuelan crude for export to the U.S., up from 2 million barrels in April.

The easing of sanctions could incentivize the Venezuelan government to work with the opposition on a negotiated settlement to the country’s political stalemate. The Chevron deal has expired, and there has been no indication of whether it will be extended. However, Spain’s El Pais newspaper reported on Thursday that the Venezuelan government is closer to having $3 billion worth of assets abroad unfrozen due to progress it’s made in reaching a political settlement with the opposition. This suggests companies like Chevron could be given more exemptions in the future to continue operations in Venezuela.

The question that remains is how long the sanctions will last in their entirety. Considering Venezuela’s strategic value to the United States, Washington needs to be open to sanctions relief – at least more so than it’s demonstrated in the past. So far, Washington seems to be taking a slow and cautious approach, diluting sanctions through waivers and exemptions to encourage progress in the political dialogue. With signs that both the government and opposition are inching toward a compromise, this approach seems to be working for now.