Washington’s recent sanctions against Venezuelan state-run oil company PDVSA have started to ensnare its US unit, Citgo Petroleum, making it harder for the refiner to obtain the credit it needs to purchase crude, according to six traders and banking sources.

Fewer oil providers are willing to sell cargoes to Citgo on open credit, instead requiring prepayment or bank letters of credit to supply its 749,000-barrel-per-day refining network, the sources said.

Two sources at Canadian oil suppliers said their companies are no longer allowed to trade with Citgo directly, and have begun selling cargoes through third parties to avoid the credit risk. Citgo’s three US, refineries, one each in Illinois, Texas and Louisiana, account for about 4 per cent of domestic fuel capacity. They are major suppliers of gasoline, diesel and jet fuel. If financial troubles raise the cost of obtaining crude, its profits would be squeezed, making the company less competitive.

Citgo had remained immune from its parent’s straits until this year. But US sanctions levied in recent months against Venezuelan officials, PDVSA executives and the country’s debt issuance have deterred banks and suppliers from extending even routine credit, the sources said.

Citgo’s main crude supplier is Venezuela, but the company also buys US and foreign oil. It has told some providers they can charge more to reflect the added credit risk.

"We are now more conservative when dealing with PDVSA or any of its units," said an executive from a trading firm with a long term business relationship with PDVSA.

"Banks that have refused to provide credit have a very rational thinking, they don’t want to be exposed to sanctions. It does not take too much to have banks nervous," he added.

The US government did not intend sanctions to affect existing private credit agreements at Citgo or PDVSA.