To Power Syria, Chávez Sends Diesel

Venezuela Readies Fourth Big Fuel Shipment, Documents Show, Highlighting Bid to Help Damascus Work Around Sanctions

BY JAY SOLOMON AND KEITH JOHNSON
Venezuela Readies Fourth Big Fuel Shipment, Documents Show, Highlighting Bid to Help Damascus Work Around Sanctions

WASHINGTON-Venezuelan President Hugo Chávez and his state-oil company are providing vital energy support to Syrian President Bashar al-Assad and conducting business with Syrian firms blacklisted by Washington and Brussels, according to documents relating to the deals.

Venezuela's President Hugo Chávez, who has trumpeted his support for Iran and Syria in an 'anti-imperial' and anti-U.S. axis, delivering a speech in September 2009 in Syria.

That puts Venezuela alongside Russia and Iran in an informal bloc of nations working to stymie the West's efforts to topple Mr. Assad and break up his military alliance with Iran, U.S. officials and Syrian activists say.

The support centers on diesel fuel sent by Venezuela to Syria, shipments that officials from both sides of the trade have publicly confirmed. But the deals are structured to bring other benefits, including shielding Syria's dwindling foreign-exchange reserves, the documents show.

Oil company Petróleos de Venezuela SA, or PdVSA, is processing its fourth major shipment of diesel fuel to Syria in the past eight months, according to Venezuelan and Syrian corporate documents reviewed by The Wall Street Journal.

Venezuela also is helping Damascus evade Western sanctions by purchasing Syrian energy and conducting trade with two firms, the Commercial Bank of Syria and Sytrol, the state's oil-marketing firm, according to the documents. Both companies are on U.S. and European Union sanctions lists.

Diesel is crucial for powering Syrian tanks and other military vehicles that are driving Damascus's continuing crackdown on Mr. Assad's political opponents. Even by conserative estimates, more than 10,000 Syrians have been killed by Damascus's security forces since the uprising against his regime began 18 months ago.

"The huge movements of tanks and heavy armor require an enormous amount of heavy diesel," said Louay Sakkar of the Syrian Support Group, an activist organization calling for greater support for Syria's rebel army. "It's like the lifeblood of the killing regime."

Venezuela and its state oil company have defended its rights to sell diesel to Syria. President Chávez has trumpeted his support for Iran and Syria as part of his desire to build an "anti-imperial" coalition of countries fighting what he calls American hegemony.

Syrian officials in Washington didn't respond to requests to comment. Syria's oil minister acknowledged receiving a shipment from Venezuela in May.

Russia, meanwhile, said Monday that its previously agreed arms exports to Syria will continue. But Vyacheslav Dzirkaln, deputy chief of the Russian state agency that supervises arms sales, told Russian news agencies that Moscow won't conduct new weapons sales to Syria until the conflict calms down.

Before Mr. Assad's crackdown, Syria imported the majority of its diesel and energy products from Europe. In 2010, Syria's trade with Venezuela equaled only around €5 million, or about $6 million. This year's fuel shipments are estimated to be worth hundreds of millions of dollars.

The Obama administration has been monitoring Mr. Chávez's Syrian trade but doesn't have the tools at this time to stop it, senior U.S. officials say.

Recently enacted U.S. penalties on Damascus don't empower the State Department or Treasury to target non-American companies that engage in business with blacklisted Syrian firms, unless they employ American nationals or receive U.S. financing. This differs from American sanctions on Iran, which allow for the targeting of any foreign company dealing with designated Iranian entities.

Last year, the State Department sanctioned PdVSA for selling refined petroleum products to Iran, though the measure only prevents the Venezuelan company from winning U.S. government contracts. PdVSA still exports about 850,000 barrels of crude oil to the U.S. a day in nongovernmental trade. The company also maintains its ownership of Citgo Petroleum Corp., the U.S.-based energy company.

"Any provision of support to the Syrian regime is abhorrent, and we continue to work with our international partners, using all tools at our disposal, to maximize the financial pressure on Assad and his supporters," said a U.S. official.

U.S. lawmakers, led by Sen. Marco Rubio (R., Fla.) are drafting legislation that could target companies like PdVSA, according to congressional officials. The new law would specifically sanction firms purchasing energy products from Syria or engaging in any business with blacklisted Syrian firms.

"There's tremendous concern about Venezuela and the role it's playing," said Sen. Rubio in an interview Monday. "You still see Hugo Chavez using the wealth of the Venezuelan people and squandering it to help Assad."

PdVSA has made three major shipments of diesel fuel to Syria so far this year on a ship called the Negra Hipolitain a bid to help Mr. Assad's government stave off slackening supplies, according to the corporate documents. The company is currently planning on sending a fourth.

Much of Syria's public transportation, farming industry and military is powered by diesel, several nationals say, making shortages a national security threat to Mr. Assad's government. Import costs also are a growing challenge to Damascus as its foreign-exchange reserves have been dwindling due to the international sanctions and a European Union oil embargo that has cut off one-third of the Syrian government's revenues.

"We've provided some supplies to Syria. We're willing to help," Venezuela's Energy Minister Rafael Ramírez told reporters in Caracas in May. "We've sent three shipments."

The transactions have been negotiated and executed directly between PdVSA and executives from Sytrol, Syria's state oil-marketing firm, which is facing U.S. and EU sanctions. The shipments have originated from PdVSA's operations in Puerto La Cruz, Venezuela, and delivered on the Negra Hipolita to the Syrian port of Banias, according to the corporate documents.

A big part of the negotiations between PdVSA and Sytrol, according to the documents, is to find ways for Syria to obtain the Venezuelan diesel fuel without burning through its foreign-exchange reserves.

The May shipment of more than 30,000 tons of diesel was largely made in exchange for Syria exporting Naphtha fuel back to Venezuela. Banias Refinery Co. sent PdVSA an invoice for over $26 million on May 30 for a shipment of nearly 33,000 metric tons of Naphtha, which is used in producing lighter fluid, cleaning solvents and fuel for stoves.

"The value of exported Naphtha cargo...shall be offset against the value of [imported] diesel," the president of Sytrol, Mohammad Alrobeh, wrote PdVSA that month.

It isn't clear whether Venezuela is using or reselling the Naphtha.

The fourth delivery of Venezuelan diesel, according to the documents, also is likely to result in a swap for Naphtha fuel. Sytrol is seeking the delivery of the diesel by the end of July and has instructed PdVSA that payments will be made in euros through the Venezuelan company's account at the Commercial Bank of Syria, which is sanctioned by the U.S. and EU.

"We are willing and ready to sell to you," Mr. Alrobeh wrote to PdVSA again on June 20.

A spokesman for PdVSA in Caracas, Alfredo Carquez, said he didn't have knowledge of a fourth shipment of diesel being prepared for Syria. But confirmed that three shipments have been made. "President Chavez and the [oil] minister have both said that we are a sovereign nation, and we have the right to do business with whomever we wish," Mr. Carquez said.

The executive added that the U.S. sanctions on Syria affect U.S. nationals and American businesses, not Venezuelan firms, so any possible action by the State Department or Treasury "doesn't concern us."

He said he has also heard allegations that PdVSA's diesel is used to power Syrian tanks, but that the company isn't responsible for the end use of any refined product, unless the sales contract specifically defined certain uses. The contracts in question don't spell out uses.

The issue of diesel shipments to Mr. Assad's government has posed a policy dilemma for the Obama administration ever since new sanctions were placed on Damascus last year as a result of Mr. Assad's crackdown.

Some U.S. officials have voiced concerns about cutting off diesel exports on humanitarian grounds, due to fears that Syria's population could blame the West for their travails. Some in the Obama administration have argued for allowing Mr. Assad to continue to buy imported fuel, arguing that he would increasingly draw down his foreign-exchange reserves if forced to pay for imported fuel, something mitigated by Venezuela's swap agreements with Damascus.

Even Syria's political opposition is split on the issue of cutting off all energy exports to the country. While they would like to see Mr. Assad's tanks run out of fuel, they also worry that a shortage of diesel could equally undermine the political and military opposition inside Syria.

"In general, we want to see all sanctions tightened and strengthened," said Ammar Abdulhamid, a political activist based in Washington. "But the issue of diesel is complicated, as our own people could get hurt."

Chávez, Assad Ties

Moments in the relationship between Syria and Venezuela:

August 2006 After hero's welcome in Damascus, Venezuela's Hugo Chávez vows to 'dig the grave of U.S. imperialism.'

November 2006 Syria announces plans to build oil refinery with Venezuela, Iran.

June 2010. In Venezuela, Assad announces plan with Chávez to strengthen a 'Caracas-Damascus axis.'

October 2010 Assad stresses need for direct air routes between Venezuela and Syria.

February 2012 Amid reports that Caracas has sent diesel to Syria, Chávez says he's 'free' to ship diesel to Assad.

June 2012 Venezuelan and Syrian oil firms negotiate a fourth big shipment of diesel to Banias port, documents show.

Article By Jay Solomon and Keith Johnson. A version of this article appeared July 10, 2012, on page A9 in the U.S. edition of The Wall Street Journal, with the headline: To Power Syria, Chávez Sends Diesel.