Will Oil Sanctions Be the Straw That Breaks Maduro’s Back?
U.S. sanctions on Venezuelan oil is likely to hurt, not cripple, PDVSA. Decreased oil revenue has been a staple of Maduro’s tenure and thus unlikely to dislodge military support for his regime. The imposition of economic pain risks hurting those who are members of the opposition and take away from the resources needed to challenge Maduro’s hold on the Presidency.
The emergence of a legitimately elected challenger, Juan Guaidó, to Venezuelan authoritarian leader, Nicolás Maduro, has generated substantial international attention to the plight of Venezuelans, who are starving and lacking basic medical care. The United States has joined many other countries in recognizing Guaidó as the legitimate head of state for Venezuela. This week, the Trump administration declared its intent in removing Maduro from power and implemented severe sanctions on Venezuela’s state-owned oil company Petróleos de Venezuela, S.A., (PDVSA). These sanctions prohibit most American businesses from handing over payment for oil purchases to PDVSA. Instead, financial transactions are to be placed in a blocked account that presumably will be accessible to Guaidó should he replace Maduro as President.
The importance of high quality replica rolex day date 118208 36mm mens stainless steel oil sanctions is due to the fact that approximately 90% of Venezuela’s economy is based on its petroleum industry. The military runs PDVSA, which has been used by both Maduro and his predecessor, Hugo Chávez, as a personal piggy bank. U.S. sanctions are intended to cut off the flow of revenue to Maduro and persuade the military they would benefit more from a Guaidó presidency. The Trump administration asserts that “the financial penalties are expected to block $7 billion in assets and result in $11 billion in export losses over the next year for Venezuela’s government, starving it from its most important source of revenue and foreign currency.” These numbers, however, don’t quite add up.
Total exports from Venezuela have averaged 11 billion U.S. dollars per year since 2016. However, the Treasury Department’s exemptions for some American companies with large interests in Venezuela’s oil industry means that the actual impact on exports and assets will be less than the U.S. claims. These companies are: The same day the sanctions were announced the Treasury Department granted exemptions to the following American companies:
- Chevron Corporation
- Halliburton
- Schlumberger Limited
- Baker Hughes, a GE Company
- Weatherford International, Public Limited Company.
Chevron and its joint venture with Phillips 66 handled 32% of Venezuelan oil imports in 2016. That’s actually more than Citgo, a subsidiary of PDVSA operating in the U.S., whose refineries processed 26% of Venezuelan oil imports. The other companies granted exemptions—Halliburton, Schlumberger Limited, Baker Hughes, and Weatherford International—wrote off $1 billion owed by PDVSA in the second quarter of 2017, so they likely make up a large share of the $7 billion in assets the administration says they are blocking from the Venezuelan government. All of this is to say, while the impact of the sanctions will be severe, it is unlikely to cripple the Venezuelan government enough to ensure its demise. Instead, it will deepen the humanitarian crisis of the Venezuelan people and deprive the opposition of resources needed to challenge Maduro.
It is important to keep in mind that Maduro has been weathering steep declines in oil revenues and the resulting collapse of the Venezuelan economy since he took office in 2013. Because of the collapse of oil prices and the drop in PDVSA oil production, Venezuelan exports to the U.S. fell from $30 billion in 2014 to $15.5 billion in 2015. The chart below shows the dramatic decline in Venezuela’s overall oil fruitlab nicotine salt e liquid old popsicle production. Moreover, the Kim dynasty in North Korea and the Castro Family in Cuba show that authoritarian leaders are often resilient to international economic pressure. Although sanctions sometimes work, they can also backfire by further entrenching the governments they were designed to oust.
Two years ago, I wondered how much longer could the Maduro regime survive in light of a growing opposition movement that was becoming increasingly unified in the desire for new leadership. That Maduro remains in power is a tragedy for the Venezuelan people. The current momentum and energetic support for Guaidó within Venezuela and by the international community has me cautiously optimistic that political change may be on the horizon. That is all the more reason, however, the U.S. should be cautious in any direct economic or political intervention. The focus of U.S. policy needs to be on how to support Venezuela’s opposition rather than involve itself in an economic war with the Maduro government.