India's Nayara supplying fuel to Rosneft in exchange for Venezuelan oil: Report

India's Nayara Energy has been using Russian giant Rosneft as an intermediary to acquire Venezuelan oil, paying it in fuel rather than cash to avoid violating US sanctions, three sources with knowledge of the transactions said.

The United States in January prohibited US-dollar transactions for oil sales from Venezuela's PDVSA or its units, a measure intended to cut off cash flows and increase pressure on President Nicolas Maduro, whose 2018 re-election has been dismissed as a sham by Washington.

The sanctions have made some banks wary of processing any transaction for Venezuelan oil, even if the seller is not the state-run company. They have also scared away some of PDVSA's customers, while prompting others to buy Venezuelan crude from intermediaries like Rosneft, the sources said.

In exchange for the Venezuelan oil, Nayara, part-owned by a Rosneft-led consortium, is shipping cargoes of gasoline and gasoil to the Russian firm, according to the sources, who declined to be named as they are not authorized to speak to media.

The United States further tightened sanctions on Venezuela in August, threatening non-US companies with punitive action if they 'materially assist' Maduro's government.

But Washington has said that firms, including Rosneft, that take Venezuelan oil to monetize loans are not violating sanctions as long as cash does not reach Maduro's coffers.

Rosneft declined to comment. Nayara Energy and PDVSA did not reply to requests for comment.

Crude-for-fuel swaps are a way around the complications that have arisen because of the sanctions, which have virtually eliminated cash exchanges. PDVSA boosted deals involving barter and swaps following a first round of US financial sanctions on the firm in 2017.

Strategies for dealing with the sanctions remain diverse. Another Indian refiner, Reliance Industries, is scheduled to resume direct loading of Venezuelan oil next week after a four-month pause, according to sources and internal documents.

Reliance bought Venezuelan oil from Rosneft during that period rather than directly from PDVSA, according to PDVSA's trade documents. But the refining firm has since opted to resume dealing with Venezuela and is also supplying PDVSA with fuels permitted under U.S. sanctions, it said last week.

Both Nayara and Reliance are long-time customers of PDVSA and the two refiners are still eager consumers of the type of heavy sour crude that the OPEC member sells, even as the U.S. sanctions have driven away many other former buyers of its oil.

Nayara doubled its intake of Venezuelan crude in August from July, while Reliance received 18% more from the Latin American nation, according to tanker data shared with Reuters by industry sources last month.

OIL FOR LOANS

Rosneft has been acting as an intermediary for most of the Venezuelan crude supplied to international markets, according to PDVSA trade documents. Rosneft accepts oil from PDVSA as payment for billions of dollars in loans extended to Venezuela over the past decade and then ships the barrels onto refineries that used to buy directly from Venezuela, including Nayara's facilities.

Rosneft now receives more Venezuelan crude than any other buyer as refiners worldwide have cut purchases to avoid violating sanctions, or because they cannot find banks to process the transactions.

China's CNPC suspended Venezuelan oil loading shortly after the latest sanctions, sources previously told Reuters, adding to Venezuela's growing inventories of unsold oil. CNPC declined to comment.

PDVSA's crude production has slumped to its lowest level in decades. In September, Venezuela's crude production averaged 846,800 barrels per day, 32 percent below target, following output cuts due to the mounting inventories, according to unofficial PDVSA figures seen by Reuters.