The Trump administration has taken its regime change campaign in Venezuela to the next level, initiating a new set of sanctions that some analysts liken to a total economic embargo of the country.
On Monday, President Trump signed an executive order freezing all government assets and implementing a total ban on transactions with the government. It’s the latest in a multi-year effort that has seen a steady ratcheting up of the economic pressure. It began with sanctions on individuals, and ballooned into restrictions relating to access to U.S. financial markets, and then sanctions on oil sales.
Now any company – not just American companies – are barred from doing business with the Venezuelan government, according to Washington.
It’s a significant escalation of the regime change effort. U.S. national security adviser John Bolton delivered a bellicose speech in Lima on Tuesday, declaring “now is the time for action.” He also said that the measures will “work in Venezuela and it will work in Cuba,” which is an odd assertion given that a six-decade economic embargo of Cuba has failed by any measure. If anything, sanctions have proven to be an unreliable sledgehammer – whether in Iran, Iraq, Cuba or Venezuela, sanctions have a long track record of deepening human misery while also failing to achieve political objectives.
With that said, the move will likely increase the pressure on President Nicolas Maduro, even though he has withstood everything that Washington has thrown at him thus far.
At the same time, the new sanctions also undercut the diplomatic effort that Juan Guaidó has initiated with other Latin American governments in an effort to end the stalemate, and also the tepid negotiations that have taken place with the Maduro regime. Related: Hedge Funds Unexpectedly Set The Stage For An Oil Rally
But the Trump administration is going for broke. The New York Times described the move as “the last big card in its sanctions hand.” Last week, the U.S. Commerce Department released a post-Maduro agenda to overhaul Venezuela’s economy, which includes sweeping privatization.
“For immediate relief, the United States will ease sanctions, promote domestic and international trade credit, deploy technological advisers and engage international financial institutions to rebuild confidence in Venezuela’s new economic policies,” Commerce Secretary Wilbur Ross said in Brasilia in a meeting with infrastructure executives.
Multinational companies are eyeing the chance to jump in once Maduro is removed from power. “The opportunities are huge. We are looking at rebuilding a country from scratch,” said Ricardo Wernikoff, Oracle sales director for Latin America, according to Reuters.
Obviously, oil will be at the center of the U.S.-backed reconstruction effort. The U.S. wants to privatize and open up the oil sector, a far-reaching overhaul that would be radically different from anything that Venezuela has experienced in decades. It’s as much a political and ideological project as an economic one. “Reversing socialism will be done by facilitating private investment, rehabilitation of power generation and oil-bidding rounds,” Ross said at the meeting in Brazil last week.
These plans are likely why the Trump administration recently extended the waiver that it had granted to Chevron, allowing the American oil giant to continue operating in the country while just about everyone else has been frozen out.
Chevron could claim 34,000 bpd of production in Venezuela in the second quarter, although that understates its role. The company is pivotal to multiple projects that total roughly 200,000 bpd. Related: Heavy Oil Supply Crunch Cushions Canada From IMO 2020
But the problem for Chevron is that it’s far from clear whether the American-led regime change effort will succeed. Analysts are not convinced the sanctions will dislodge Maduro. “The White House is having a tough time enforcing Iran sanctions, after all. For Venezuela sanctions, even allies that share the U.S. position, such as the Europeans and Latin Americans, have not coordinated sanctions policy.” Benjamin Gedan, an Obama administration Latin America adviser and current adviser with the Wilson Center, told the Wall Street Journal.
Chevron disclosed some of the risks to its Venezuelan assets in a recent 10-Q filing with the Securities and Exchange Commission. “The operating environment in Venezuela has been deteriorating for some time,” Chevron stated.
The company said the “carrying value” of its investments in Venezuela was approximately $2.7 billion, but said the fluid situation poses serious risks. “Future events could result in the environment in Venezuela becoming more challenged, which could lead to increased business disruption and volatility in the associated financial results,” Chevron said.
“Challenged” seems like an understatement.
Venezuela’s oil production stood at 734,000 bpd in June, down only slightly from previous months. The new round of sanctions could heighten the economic pressure, but it remains to be seen whether the embargo will affect oil exports, which are already under existing sanctions.
By Nick Cunningham of Oilprice.com
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