Some significant events have occurred that could herald a strict approach, led by the United States government, to the restructuring of Venezuela's inherited debts. It is noteworthy that, on Friday night, the Trump administration issued an executive order declaring a national emergency to "safeguard Venezuelan oil revenues deposited in U.S. Treasury accounts for embargo or legal proceedings, ensuring that these funds are preserved to promote the objectives of U.S. foreign policy." While there may be additional clarifications, the policy approach in this case is negative for creditors wary of a restructuring process similar to that of Iraq, led by the United States, which could force them into a multisector negotiation without the usual tools of embargo and enforcement, while specifically linking Venezuelan oil revenues to U.S. national security objectives. The ambiguity surrounding Trump's comments about the "indefinite" control of the U.S. over Venezuelan oil export revenues will increase concern.
The recently promulgated executive order specifically links the prevention of the confiscation of Venezuelan oil revenues to the promotion of U.S. national security and foreign policy interests and objectives. The order blocks embargoes, judgments, decrees, liens, attachments, and similar measures on "Foreign Government Deposit Funds" held in U.S. Treasury Accounts. Markets are likely to interpret the link between oil revenues in Venezuela and U.S. political interests as negative for bondholders, especially if the U.S. is going to exercise "indefinite control" over Venezuelan oil export revenues. The executive order also lends credence to an emerging market narrative around U.S. incentives to clean up the inherited debt in Venezuela in order to achieve a foreign policy victory, with parallels to similar incentives at play in U.S. involvement in the restructuring of Iraq in 2003. Recall that in 2003, the Bush administration signed Executive Order 13303 - "Protection of Iraqi Development Funds and Certain Other Properties in which Iraq has Interests" - which protected Iraqi funds and revenues from legal embargoes, allowing the country to restructure without significant legal hurdles typically presented to creditors.
The parallels between Trump's recent executive order and Bush's Executive Order 13303 are striking, as they exempt sovereign oil revenues from legal processes under the pretext of a national emergency.
With all this in mind, there is also a more optimistic interpretation. Some operators interpret the Executive Order as a preventive measure to stop creditors from specifically seizing the "30 to 50 million barrels of high-quality oil authorized" that the U.S. plans to receive in the coming days, according to Trump's post on Truth Social on Tuesday night, and NOT as a measure intended to exempt Venezuelan oil revenues in general. Desk is skeptical of this more optimistic interpretation, given that the legal architecture for applying both the strict and broad interpretations is too similar. In summary: do you think that the recent U.S. seizures of crude will become common practice, or are they an isolated case?
Also over the weekend, Treasury Secretary Bessent briefly spoke with Reuters and conveyed the following two messages: (i) that the Treasury Department would be working on decriminalizing oil sold by PDVSA to the U.S. (among other multinational corporate buyers) and (ii) that Bessent would meet with the heads of the IMF and World Bank this week to discuss the resumption of relations with Venezuela and the possibility of tapping into Venezuela's $5 billion SDR reserves to contribute to national reconstruction. The initial reading is optimistic, as this accelerates the timeline for the publication of Article IV, a prerequisite for comprehensive restructuring negotiations. It is noteworthy that many restructuring experts have recently argued that the biggest obstacle to publishing Article IV is not the gathering of national accounting data, but obtaining approval from the IMF Board to resume oversight activities. It is unclear if the IMF would send a mission while Venezuela is still under U.S. interim protectorship, nor is it likely that the IMF will accept a rigged process where U.S. oil companies gain preferential access to new oil concessions.
Bessent's meeting with the Fund and the World Bank suggests that these differences are being resolved. It is not inconceivable that the IMF would send a mission in the next six months and publish Article IV by the end of the year.
I believe it is worth setting aside the legal terms and making sure we agree on identifying the central issue: What will the U.S. stance be towards private creditors? Will the U.S. be a favorable jurisdiction for bondholders or prioritize new monetary guarantees and the future value of Venezuela's reconstruction effort? I do not believe this question will be answered soon. But, when the U.S. articulates its policy through an executive order and defines what is considered and what is not as a basis for collateral for inherited creditors, it helps us understand the situation.
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