Venezuelan oil industry sanctions remain an option, Mnuchin says

The Trump administration placed sanctions aimed specifically at Venezuelan President Nicolas Maduro on July 31 in response to worsening political and social conditions there, but stopped short of invoking such measures on the country’s oil industry. That step remains an option, however, US Treasury Sec. Steven T. Mnuchin said.

Asked during the daily White House press briefing whether sanctions targeting exports of US light crude oil to Venezuela as well as imports of Venezuelan heavy crude to the US might be invoked, Mnuchin replied: “Our objective is not to do anything that hurts the people of Venezuela. But let me just say we will continue to monitor all of our specific options.”

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) placed sanctions on Maduro, effectively freezing his personal assets that are under US control and prohibiting US persons from dealing with him. The July 31 sanctions came a day after Maduro’s government held elections for a National Constituent Assembly that the Trump administration said aspires to replace the democratically elected National Assembly, rewrite the constitution, and impose an authoritarian regime.

“By sanctioning Maduro, the United States makes clear our opposition to the policies of his regime and our support for the people of Venezuela who seek to return their country to a full and prosperous democracy,” Mnuchin said earlier in the day when the sanctions were announced. “Anyone who participates in this illegitimate [constituent assembly] could be exposed to future US sanctions for their role in undermining democratic processes and institutions in Venezuela."

Support remained strong among many Washington global energy observers for not moving immediately against the national oil company, Petroleos de Venezuela SA (PDVSA), because it would further damage the country’s primary industry that already has lost many of its most qualified employees as the governments of Maduro and his predecessor, Hugo Chavez, turned it into a cash cow for their ambitious social programs.

International collaboration

“The key moving forward is that any additional US sanctions are done in collaboration with countries in Latin America and beyond,” Jason Marczak, who directs the Atlantic Council’s Latin American Growth Initiative, told OGJ on Aug. 1. “What we’re trying to accomplish is getting the Venezuelan government to abandon policies that are eliminating democratic institutions in that country. Unilateral sanctions send a message, but actions are more effective when countries work together.”

Frank A. Verrastro, senior vice-president and trustee fellow at the Center for Strategic and International Studies, said, “I think the administration is proceeding with a staged approach. The president’s statement yesterday spelled out his goals. I think the administration is issuing one more round of threats but has sectoral sanctions under consideration. How quickly they would roll these out is uncertain.”

The constituent assembly was scheduled to convene within 72 hours of Sunday’s vote, so that might be the trigger for the Trump administration’s next steps, he told OGJ on Aug. 1.

“There are several options for putting economic pressure on the Venezuelan government,” said Marczak. “It makes sense to start with less severe steps, saving more dramatic moves such as fully restricting Venezuelan oil imports and exports for later because they would affect not only operations in Venezuela but refining in the US.”

Sanctions need, finally, to reflect the popular will of the Venezuelan people, and not hurt them when they have suffered so much already, he maintained. “Because so many Venezuelans now rely on the government for basic goods, sanctions we impose that affect that need to be accompanied by humanitarian assistance so what we do doesn’t aggravate the basic plight the Venezuelan people face today,” Marczak said.

Possible first step

“I think enough people have expressed concern about restricting imports to the US and the impacts this would have on domestic consumers. So the first step might be restricting exports of light products to Venezuela as well as light oil the refineries there use as a diluent,” Verrastro said.

He noted that about 750,000 b/d of exports come in to the US for refineries to process, and they can’t be replaced with light crude. Importing the heavy crude for which many US refineries are configured from other foreign suppliers would be difficult, since Saudi Arabia, the main alternative, has restricted exports to support global crude prices, Verrastro said.

That might lead to a release of crude from the US Strategic Petroleum Reserve, which would take weeks and potentially create major logistical and contractual problems at a time when the US has imposed sanctions on other oil producing countries, he added. “I think the administration is proceeding cautiously. There’s a method here, however, and it looks as if it’s sequential,” Verrastro told OGJ.

Policymakers need to start working now so they can deal with the eventual successor to Maduro’s regime, he indicated. CSIS issued a report, “Venezuela’s Post-Crisis Recovery and Reform,” on July 31 that proposes a comprehensive “day after” framework for Venezuela, the US, and the international community to promote inclusive stability, security, and prosperity.

Contact Nick Snow at [email protected].