The Trump administration stepped up its effort at regime change in Venezuela on Monday, announcing sanctions intended to cripple the country’s oil sector.
The U.S. government will bar most transactions between any American companies and PDVSA, with some limited exceptions. The U.S. Treasury Department justified the sanctions, saying that PDVSA has “long been a vehicle for embezzlement.” The sanctions immediately put 500,000 bpd of Venezuelan oil exports at risk, as well as some 100,000 bpd of U.S. exports of diluents to Venezuela.
Citgo, the U.S.-based subsidiary of Venezuela, would be allowed to continue to operate, but its revenues will be diverted into a designated account. The Trump administration is trying to put Venezuela’s oil revenues into the hands of its preferred president, Juan Guiadó.
The threat of oil sanctions on Venezuela has been on the table for the better part of two years. Former U.S. Secretary of State Rex Tillerson repeatedly hinted at the possibility of oil sanctions, but the U.S. government held off on such a drastic move over fears that it would deepen the humanitarian crisis in Venezuela and it would also result in the U.S. bearing responsibility for the crisis.
Both of those things are now happening. Prior American sanctions have arguably made the humanitarian situation much worse, and the new round will surely deepen the misery inside the country.
Moreover, the U.S. is actively seeking regime change in Venezuela and is no longer trying to hide that fact. If there was any question about American intentions, those were put to rest late last week with the appointment of Elliott Abrams as the special envoy for American policy on Venezuela.
Abrams is infamous for his involvement in the Iran-Contra affair, his support for strongmen in Central America that engaged in massacres in the 1980s, as well as his efforts to discredit reports of those killings. In many ways, he personifies the very dark period of American foreign policy in Latin America in the 20th century. His elevation to lead American policy on Venezuela is a little on the nose, but to be sure, the Trump administration no longer has any compunction about broadcasting its desire for regime change.
Trump’s National Security Advisor, John Bolton, was holding a yellow legal pad at a press conference, which had “5,000 troops to Colombia” scribbled on it. He did not mention that fact, and the White House declined to backtrack when asked about it, a spokesman responded by saying “as the President has said, all options are on the table.”
In the meantime, the sanctions on PDVSA alone are a dramatic escalation in the campaign to oust Maduro, and they amount to a “nuclear bomb,” Franscico Monaldi of the Baker Institute at Rice University said in comments to the New York Times. However, he pointed out that Chevron, Halliburton and Schlumberger are going to be allowed to continue to work in Venezuela. That suggests that Venezuela’s oil production may not entirely collapse.
The motivation by the U.S. government is to rip Venezuela’s oil sector out of Maduro’s hands and place it under the control of Juan Guiadó. As such, the U.S. wants Venezuela’s oil sector to remain alive, if on life support.
But the sanctions seriously complicate the situation. Venezuela has been exporting upwards of 500,000 bpd to American refiners on the Gulf Coast. Any shipments already at sea will be allowed to reach their destination, but sales will be barred going forward. PDVSA can seek alternative destinations for its crude, such as in India and China, but it is going to have to offer some painful discounts to complete sales in those markets.
However, if the sanctions starve the Venezuelan government of hard currency, Maduro and PDVSA may struggle to meet it soaring debt obligations. That could put Citgo in the sights of swarming creditors, something that Maduro clearly sees as a possibility. “With this measure they’re setting out to steal the Citgo company from all Venezuelans,” Maduro said at the diplomatic ceremony in Caracas. “No, Donald Trump. No, no, no.” The U.S. estimates that the sanctions could cost the Maduro government around $11 billion in missed revenue over the next year, and the new measures also freeze around $7 billion in assets.
As for the global oil market, Venezuela is now in danger of suffering steeper supply losses, something that U.S. Treasury Secretary Stephen Mnuchin dismissed as a minor problem. “There has been excess oil,” Mnuchin said, according to the NYT. “Many of our friends in the Middle East will be happy to make up the supply.”