Only Citgo has been able to preserve its creditworthiness. Only Citgo has supplied diluent, the substance that thins Venezuela’s thick crude oil enough for it to flow through pipelines. And only Citgo has provided cash that Maduro has used to ensure the loyalty of his supporters.

AD

But Citgo, which has oil refineries in Texas, Louisiana and Illinois, can no longer straddle the gap between its identity as an American operation and its Venezuelan owners.

AD

President Trump has put it squarely in the center of an economic tug of war over the future of Venezuela. The administration’s new sanctions order the company to divert its payments for Venezuelan crude into a U.S. bank account that Maduro would be unable to access.

The State Department said Tuesday that it would allow opposition leader Juan Guaidó, recognized as the interim Venezuelan president by the Trump administration, to draw funds from the account and appoint new directors to Citgo and its parent company, Petróleos de Venezuela.

AD

John Bolton, Trump’s national security adviser, said he had a “very productive meeting” with three Citgo executives Wednesday.

Because of financial sanctions Trump imposed in August 2017, Citgo’s payments to PDVSA have already been restricted, which has prevented the company from squeezing money out of Citgo. As a result, Citgo is healthier. The company has been paying down debt and working on deferred maintenance. In an email it said it has accumulated more than $1 billion in cash reserves.

The Venezuelan government will probably seek out places — most likely India or China — willing to refine its crude oil and pay for it in cash. On Tuesday, PDVSA chief Manuel Quevedo said that “for a tanker to leave a Venezuelan port with the crude that belongs to our people, it has to be paid for before leaving the port.”

AD

AD

But those more remote countries probably cannot buy and refine as much Venezuelan crude as Citgo does, or they might drive tougher bargains. And the oil tankers will have to pass through the Panama Canal and across the Pacific, incurring bigger transportation costs. Venezuela is believed to be reaching out to big trading houses such as Switzerland’s Vitol.

“They don’t have many friends, and at least some of them have been supporting Venezuela in order to get repaid and not to provide the regime an unlimited lifeline,” said Richard Cooper, a partner and debt-restructuring expert at the law firm Cleary Gottlieb.

It is a difficult set of choices. Citgo might have to find new suppliers just as Venezuela has to look for different buyers. And Citgo has to compete against other U.S. importers of Venezuelan crude, such as Valero, the largest U.S. oil refiner, and Chevron.

AD

AD

Citgo last year used crude from 31 suppliers in 18 countries, according to a person close to Citgo. Forty-two percent came from U.S. sources, and 24 percent from Venezuela.

Seven percent of U.S. oil imports — 670,000 barrels per day — came from Venezuela last year, making it the fourth-largest source behind Canada, Saudi Arabia and Mexico. Imports dropped to 574,000 barrels a day in December.

Lillian Riojas, a spokeswoman for Valero, said in a statement that the company would “comply with the sanctions and will reoptimize our crude supply to minimize any resulting impacts.”

Chevron said it “continues to actively manage supply issues.”

Replacement supplies are likely to come from countries such as Iraq and Saudi Arabia that have extra capacity and some of the similar low-quality heavy crudes Citgo refineries use.

AD

AD

Both of those countries are members of the Organization of the Petroleum Exporting Countries and are likely to weigh the effect that a change in world supplies will have on global prices, which have been relatively low.

In 1998, before Hugo Chávez took power in Venezuela, PDVSA produced 3.3 million barrels per day, three times current levels. That decline in Venezuela, one of the founders of OPEC, has helped prop up global prices and prevented the rest of OPEC from having to make deep output cuts. The question is whether Saudi Arabia wants to help Trump and keep gasoline prices low in the United States or use this opportunity to drain global inventories.

Once a perfect fit

Citgo is not your ordinary oil company. On the one hand, it employs about 3,900 workers and contractors in Corpus Christi, Tex.; outside Lake Charles, La.; and in Lemont, Ill. On the other hand, its chief executive, Asdrúbal Chávez — a cousin of the late Venezuelan strongman Hugo Chávez — works from afar. His U.S. visa was revoked in July, effectively barring him from the country.

AD

AD

At the time, Citgo said that “day-to-day operations remain uninterrupted and senior leadership remains unchanged.”

In late 2017, Maduro accused some of Citgo’s top leaders of corruption. Six Citgo executives, five of them with dual citizenship, were lured to Caracas, ostensibly to talk about taking over a refinery in Aruba. Instead, they were thrown in jail, where all but one remain. Separately, Nelson Martinez, a former Citgo chief executive who briefly became Venezuela’s oil minister, died while in state custody at age 68. Authorities said he died of a “severe chronic disease.”

The men arrested, analysts told The Washington Post at the time, appeared to be allied with Rafael Ramírez, a former president of PDVSA and longtime Hugo Chávez ally who was then Venezuela’s representative at the United Nations. The families have vigorously disputed that.

AD

AD

The State Department declined to comment, citing “privacy considerations.” In a statement, it said that “we are unable to comment on the status of private U.S. citizens, but we continue to work closely with international partners to ensure the safety and security of U.S. citizens in Venezuela.”

All this is far from Citgo’s roots. Founded as the Cities Service Co. in 1910, it adopted the name Citgo in 1965. A Citgo sign is still an anchor on the Boston skyline, visible from Fenway Park.

By the early 1980s, Citgo was one of the largest U.S. oil and gas companies, and it became a target in a wave of multibillion-dollar buyout battles. Occidental Petroleum bought it and spun off the refining and marketing operations.

AD

PDVSA bought half of Citgo in 1986, and in 1990, it bought the rest. It seemed like a perfect fit. The deal gave the Venezuelan state oil company direct access to the enormous U.S. market while Citgo’s refineries could tap the largest proven oil reserves in the world, said Francisco J. Monaldi, a fellow in Latin American energy policy at Rice University. The refineries also gave PDVSA an outlet for investment — and a way to circumvent OPEC quotas.

AD

However, a period of economic liberalization in Venezuela ended in 1999, when Chávez, a former paratrooper, won a presidential election with a left-wing, anti-imperialist message. Citgo was suddenly cast into a political role. Oil revenue from PDVSA made up as much as half of the country’s budget. Chávez used this oil revenue to fund ambitious social welfare programs, setting Venezuelan gasoline prices so low that domestic consumption soared.

In 2006, Chávez sought to sell Citgo, setting a floor price of $10 billion. No one stepped up. Analysts say Citgo today is worth about $7 billion.

As Venezuela’s economy crumbled, Chávez and his successor, Maduro, mortgaged the only remaining item of value: Citgo. They offered 50.1 percent of Citgo as collateral to lure buyers of a bond issue. It put up the rest of the company to obtain loans from Russian oil company Rosneft.

And they made deals with China and Russia that require Venezuela to make payments in crude oil, decreasing the cash flow from oil exports.

Impact on Americans

Throughout the period, Citgo was able to make the case that action against the company would hurt U.S. consumers and Citgo workers. As late as last month, American Fuel and Petrochemical Manufacturers President Chet Thompson sent a letter to the White House outlining how sanctions could raise gasoline prices.

AD

“We urge you to consider carefully the impact sectoral sanctions would have on U.S. businesses, workers and consumers,” he wrote. “Many U.S. refineries have made significant investments to optimize for processing heavy and sour crude oil, particularly Venezuelan crude.” He added that such measures would fail “to address the very real issues in Venezuela.”

But Trump policy toward Venezuela has differed from his “America First” posture.

“It was one of the few topics I interacted with the president where he had a vision for it and firmly believed in it and tried to personally get engaged,” said Fernando Cutz, a former senior director at the National Security Council now working at the Cohen Group.

“His second or third day, he called me in to brief him on Venezuela. I didn’t have to push it up the chain. He approached us,” Cutz said. “This is something that from the beginning he was very interested in at a personal level.”

Recently, right-wing commentators have revived their criticism of Trump over Venezuela. In a Jan. 15 broadcast on Fox Business Network, host Trish Regan said: “The Venezuelan government, you know what? They got a financial lifeline. And that lifeline is right here in the United States. The state-owned oil company. It controls Citgo. . . . How on Earth are we allowing that company to operate here when they’re holding five Americans in prison?”

More sanctions were announced 13 days later.

Even before Trump’s election, Venezuela faced financial pressures. In 2007, Chávez wanted to rewrite contract terms for companies operating in the country’s vast, oil-rich Orinoco Belt. An angry ExxonMobil said no, abandoning 2 percent of its worldwide reserves and later winning a $1.4 billion arbitration award. In 2008, Chávez published full-page newspaper ads that read, “Exxon turns oil into blood.”

Separately, ConocoPhillips last year won a $2 billion award that it was not able to collect. Conoco could seek to get hold of money that flows into any blocked accounts.

Some other companies have remained in Venezuela, including Chevron and many leading oil service companies. Under the new sanctions, they have until July 27 to stop operations, Cooper said.

Anticipating a new leader, members of Venezuela’s National Assembly have drafted a new oil law that would allow much greater investment by foreign companies, said Pedro Burelli, a consultant and onetime director of the Venezuelan national oil company.

He said it would take regulatory power away from PDVSA and transfer that to a new agency, opening up Venezuela’s oil riches to international entities.

“It is very, very pro-foreign investment,” he said.