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Who would U.S. sanctions on Venezuelan oil really hurt?

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The Trump administration is weighing new sanctions on Venezuela, but it’s not clear who they’ll actually impact most.

A woman walks past a shuttered shopfront with “hunger” painted on it, in Caracas, Venezuela. Large swaths of Venezuela’s capital were shuttered and silent Thursday as opponents of President Nicolas Maduro called a major national strike. CREDIT: AP Photo/Ariana Cubillos

The Trump administration is weighing its options in how to deal with the ongoing crisis in Venezuela, as President Nicolas Maduro moves forward with his plan to consolidate power by creating a constituent assembly to rewrite the country’s constitution.

Venezuela has been in deep political and economic crisis in recent months. Corruption, dropping oil prices, and vigorous protests have resulted in nearly 100 deaths as Maduro pushes for a special assembly that would tear up the 18-year-old constitution and lead to what critics fear will be a single-party state. A July 16 symbolic vote showing mass opposition for the plan has not prompted Maduro to change course.

Recent U.S. sanctions have targeted individuals, such as Vice President Tareck El Aissami, who the Trump administration accuses of playing a role in international drug trafficking, a charge the vice president denies.

The Associated Press reports that a senior administration official said Tuesday that “all options” — including sanctions targeting Venezuela’s oil exports — “are being discussed and debated.”

In comments made prior to a Friday panel at the Atlantic Council in Washington, D.C., Luis Almagro, secretary general of the Organization of American States (OAS), said what an analysis of the “collateral damages” that could be caused by general sanctions is necessary.

“Sanctions are the strongest international tool for applying pressure,” said Almagro, but simply applying pressure via sanctions would “in no way resolve internal pressures.”

With currency devaluation of over 60 percent and an inflation rate that has already zoomed past 700 percent this year, it’s hard to see how the south American country can survive losing its top oil customer. The United States buys almost half of Venezuela’s oil, an industry that accounts for around 95 percent of the South American country’s export revenues.

The extent of the economic crisis in the country is dire. Food and medicine shortages are hitting the population hard and rates of infant and maternal mortality have risen precipitously. The country’s economic contraction rivals that of countries going through armed conflicts, like Syria and the Central African Republic.

Would U.S. sanction targeting Venezuela’s oil exports help worsen what has been described as its “death spiral?” Would it compel Maduro to change his mind about creating a constituent assembly on July 30?

The Brookings Institute’s Venezuela working group produced a paper in April that laid out five things that the United States could do to give Venezuela “a path out of crisis.” The first four included ways the United States could offer support — directly or via mechanisms such as the International Monetary Fund — to affect change.

Sanctions are the final resort, a move the authors considered “risky” because “the Maduro government would be able to more credibly shift blame for the economic crisis onto the United States, and should be accompanied by well-publicized efforts to deliver humanitarian aid through credible civil society and nongovernmental organizations.”

There’s good reason to question the efficacy of oil sanctions. In the case of Iran for example, oil sanctions weren’t nearly as effective as banking sanctions, which eventually applied the needed pressure to bring the Islamic Republic to the negotiating table to discuss its nuclear program.

Why would oil sanctions be any more effective in Venezuela?

Francisco Rodriguez, chief economist at the NY-based Torino Capital, says U.S. sanctions in Iran were not aimed at regime change, whereas Venezuela’s are.

“But here we’re talking about sanctioning a government in order to try to…bring about a direct change in the government, and that makes it far more complicated for them to be effective,” he told ThinkProgress. “In this sense, it’s really difficult to cut the access to resources to the Venezuelan government without cutting the access to resources to the Venezuelan people.”

Still, he added, what might be more effective is imposing conditions on the use of financing.

“You could require that any new debt acquired by the Venezuelan government…are used only for imports and foods and medicines.”

U.S. oils sanctions would also have a serious impact on Venezuela’s recovery.

“[An oil embargo] would entail Chevron, Schlumberger and Halliburton actually pulling out of Venezuela, and these are fundamental to the country’s oil infrastructure,” said Rodriguez. Additionally, it would require a divestment of U.S. refinery Citgo from Venezuela’s state oils-and-gas company, PDVSA — which means it would have to pay off $4 billion cash in bonds, which, he said, “would create a mess for PDVSA…it would take a lot of time for them to recover from that.”

Beatriz Borges, executive director of Venezuela’s Center for Justice and Peace said that the situation in her country is not a humanitarian crisis, but an emergency.

“In Venezuela, there are no resources for dealing with this crisis. And that’s why it’s not a crisis, it’s an emergency…Venezuelans are dying. The statistics that are so shocking — that’s the reality that we are living,” said Borges.

While she supports sanctions against individuals and officials, she told ThinkProgress that Venezuelans would benefit from the United States — and the international community — focusing on getting food and medical aid into Venezuela, rather than applying broad economic sanctions.

“I’m talking about humanitarian actions,” said Borges, adding that the United States should work with NGOs, churches, and civil society groups in Venezuela to get aid into the country via humanitarian channels.

Unilateral U.S. oil sanctions would hit Venezuela hard at a time when it might not be able to withstand another blow.

“The evidence from the past four years that we have is that when Venezuela has less external resources, Venezuelan people suffer. Venezuelan living standards have declined significantly over the past four years,” said Rodriguez. “If Venezuelan oil exports fall by another $10 billion and imports by another $10 billion, this humanitarian emergency could turn into a humanitarian catastrophe.”


Who would U.S. sanctions on Venezuelan oil really hurt? was originally published in ThinkProgress on Medium, where people are continuing the conversation by highlighting and responding to this story.

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