Juan Guaido is trying to take control of Venezuela’s state-owned oil company, but it could split the company in two.

Juan Guaido, Venezuela’s opposition leader trying to wrest power from incumbent President Nicolas Maduro, just announced he has appointed his own Board of Directors to lead PDVSA, the Venezuelan state-owned oil and gas company and parent company of Citgo.

The announcement came from Guaido’s embassy in the U.S. and likely has overwhelming support from U.S. officials given that the U.S. recognizes Guaido as Venezuela’s interim President after he self-declared himself as such. Maduro already has an existing board of directors for PDVSA and still has strong support in Venezuela and from international countries as well; however, Citgo is a U.S. registered corporation.

As a result, Venezuela has two national leaders as presidents (though one self-declared and one elected), with two parliaments, and now one state oil company controlled by two management boards.

Apart from this dilemma, there is a long list of PDVSA creditors in Venezuela fighting to seize major assets in Citgo or even assume control of the organization. One of these creditors is Rosneft, a Russian state-owned oil company which provided PDVSA with a huge loan using a majority stake in Citgo as the collateral. Other creditors include Crystallex and ConocoPhillips, among others.

Citgo, PDVSA Battle Could Be Decided in US

To resolve the situation, the matter may be moved to the courts, and most probably a United States court, in this case.

Considering that the U.S. government recognizes Guaido as the interim president of Venezuela, it is possible that the court will rule in Guaido’s favor. This is largely because there is an existing precedent which the U.S. courts will want to follow – a 1949 case involving Communist China with U.S. bank Wells Fargo.

The Chinese Nationalist Government owned the Bank of China, which had a deposit of $626,860 with Wells Fargo Bank. Communist China overthrew the Nationalist government and controlled mainland China under Mao Zedong, but the beaten Nationalist government fled to Taiwan, formerly known as Formosa.

This left the Bank of China with two boards of directors – one controlled by the new Communist government, and the other by the fleeing Nationalist government which first set up a management board. In late 1949, the displaced Nationalist government tried to withdraw the $626,860 kept with Wells Fargo, but the bank refused to release the money because the new Communist government also laid claim to it.

Precedent Favors Guaido

The matter was referred to a U.S. court in California. And in 1952, the court was convinced from legal arguments that the deposed Nationalist government now based in Taiwan was the only Chinese government recognized by the United States. The court ruled in their favor and released control of the Wells Fargo account to the Chinese Nationalist government, even though they had retreated to Taiwan.

Based on this precedent, it is very likely that the appointed U.S. court would rule in favor of Guaido as the newly U.S. recognized leader of Venezuela to control Citgo. But since there are palpable fears that Guaido’s board of directors may be considered illegitimate in Venezuela, Citgo may end up being managed by the opposition while Maduro’s government controls its parent company PDVSA.

Meanwhile, the U.S. government imposed sanctions on PDVSA oil exported to the U.S. in order to punish Maduro. Since Citgo has reduced exports delivered to it from PDVSA, the latter might need to look for new markets for its crude oil if Guaido ever wins control of Citgo.