Update Country Report Curaçao 14 May 2019

Event

The US government confirmed in early May that it will apply a sanctions waiver to Curaçao, allowing refinery operations to continue despite the sanctions on Venezuela.

Analysis

The government had been concerned that US sanctions on Venezuela, and particularly on Venezuela's state-owned oil firm, PDVSA, would adversely impact the already anaemic economy, which has contracted for the past three years. Curaçao's Isla refinery is currently operated by PDVSA, which would mean that all refinery operations, plus supporting industry, would be under sanctions. This could have had broader implications beyond the refinery and ancillary services, with some businesses unwilling to operate in Curaçao for fear of being implicated in sanctions-busting.

As such, the US sanctions waiver provides both relief and reassurance for Curaçao. The actual financial impact of the waiver will be relatively small, given minimal levels of production at Isla owing to PDVSA's ongoing production and shipment problems. However, the waiver means that other refinery and related services can continue, preventing the economic and reputational cost of shuttering Isla and cutting all remaining ties with PDVSA.

The government had lobbied the US hard for this waiver, with a US Congressional delegation visiting Curaçao in late April. Given that Curaçao is the site of a US Air Force Forward Operating Location and that the island nation has agreed to act as a humanitarian aid hub for Venezuela, the US appears willing to accommodate Curaçao and mitigate the economic fallout of the sanctions. The US decision may well have been supported by the low revenue that PDVSA will be receiving from Isla, and also the fact that PDVSA's operating licence expires at the end of 2019. Indeed, the sanctions waiver expires in January 2020 and is therefore apparently timed for after Isla's lease is handed over to a new, as yet undecided, operator.

Impact on the forecast

The sanctions waiver will reassure US and other international investors that they are able to continue operating in Curaçao, even if further sanctions are imposed on Venezuela and PDVSA. This waiver will not boost economic growth prospects, but it prevents the scenario of a further major economic decline. As such, our economic growth forecast remains unchanged; we expect GDP to grow marginally this year, by 0.4%.