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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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U.S. Sanctions Against Venezuela Have Failed

  • U.S. sanctions have failed to unseat President Nicolas Maduro, with Venezuela's economy showing growth and the opposition weakening.
  • Iran provides significant support to Venezuela, including rebuilding the oil industry and increasing their influence in the region.
  • As U.S. policy falters, there are calls to ease sanctions on the condition that the Maduro regime takes steps toward restoring democracy.

Despite strict U.S. sanctions implemented by former President Donald Trump in January 2019 that cut Venezuela off from global energy and capital markets, the country’s economy has returned to growth. This, along with Maduro effectively sidelining Venezuela’s political opposition, including U.S. designated interim president Juan Guaido fleeing the country, indicates Washington’s attempts to spark the regime have failed. Strict U.S. sanctions, which cut the OPEC member off from global energy and capital markets, combined with over a decade of endemic corruption, malfeasance and mismanagement, caused Venezuela’s economic backbone, its oil industry, to collapse. That triggered the worst economic and humanitarian crisis of modern times to ever occur outside of war.

It is estimated that over seven million Venezuelans have fled the near-failed state since the catastrophe started unfolding in 2014 as Venezuela’s economic backbone, its oil industry, imploded. Endemic corruption and malfeasance, along with a chronic lack of skilled labor and parts for facility refits, drove Venezuela’s oil production lower. The economic fallout from declining petroleum output was magnified by the 2014 oil price collapse, which saw Brent plummet to under $27 per barrel by early 2016, As PDVSA’s finances rapidly deteriorated, petroleum production plummeted due to a lack of crucial facility maintenance, creating a vicious cycle of declining oil output and income that sharply impacted the petrostate’s economy and finances.

That confluence of events substantially weakened the Venezuelan state as well as Caracas’ finances, nearly bankrupting the autocratic Maduro regime while causing the humanitarian and economic crisis to spiral out of control. As the state unraveled and criminal bands as well as Colombian guerillas filled the power vacuum left by Caracas in many remote regions, the humanitarian catastrophe intensified, with more than seven million Venezuelans fleeing their country since 2015. It is nearby countries in South America, notably Colombia, which have borne the brunt of this refugee crisis. As the disaster in Venezuela deepened, especially after President Donald Trump ratcheted up sanctions in 2019 and oil prices plummeted during the 2020 pandemic, calls for Washington to ease restrictions against Venezuela intensified. 

For some time, it has been clear that Washington’s strategy for containing Venezuela and initiating regime change has failed, with the Venezuelan people bearing the brunt of the fallout from U.S. sanctions. President Nicolas Maduro has effectively sidelined Venezuela’s political opposition and shored up his position as the leader of the OPEC member. He achieved this by removing U.S.-backed interim president Juan Guaido from his seat in Venezuela’s National Assembly and as the body’s speaker during the December 2020 election. In the wake of that event, the European Union’s 27 member states withdrew their recognition of Guaido as Venezuela’s interim president in early 2021. 

Guaido’s status within Venezuela’s opposition has waned sharply since the end of 2020. By October 2022, Venezuela’s opposition announced they were unwilling to back Guaido’s interim government, and in December 2022, the opposition legislature voted to terminate Guaido’s interim government, thereby formally ending his leadership. During April 2023, after Guaido had been ejected from Colombia, which ceased recognizing his claim to Venezuela’s presidency, the politician fled for the U.S. due to fears for his safety. This left Washington without a representative in Venezuela’s fractured opposition, impeding the effectiveness of U.S. policy, including attempts to restore democracy and oust Maduro.

Those events, in conjunction with signs that Venezuela’s economic meltdown has bottomed, with the economy returning to growth during 2021, seeing gross domestic product (GDP) expanding by 0.5%, illustrate that U.S. sanctions have failed. Indeed, in a surprising development, Venezuela’s economy grew by an impressive 8% during 2022, which was the third-best performance in South America, and the IMF is predicting GDP will expand by 5% for 2023, the second-highest forecast on the continent. These numbers further underscore how U.S. sanctions have failed to contain the threat posed by Venezuela and remove the autocratic Maduro regime from power.

The primary reason for Venezuela’s improving economic outlook is Caracas’ success in finding alternate sources of capital and rebuilding the country’s economically vital oil industry, which by 2020 was at the point of complete collapse. OPEC data from secondary sources shows Venezuela lifted an average of 772,000 barrels per day during July 2023, an impressive 40% increase over the 553,000 barrels per day produced for 2021. That substantial increase in petroleum output could not have been achieved without the assistance of Iran, the world’s eighth-largest oil producer. Teheran is providing Caracas with considerable material support, including the funding, parts and technicians required to rebuild key petroleum infrastructure.

Earlier this year, Teheran-controlled National Iranian Oil Refining and Distribution Company (NIORDC) committed to revamping the 955,000-barrel-per-day Paraguana refining complex, which is the largest such facility in Venezuela and one of the biggest globally. This comes on the back of NIORDC embarking on a $116 million refit of the 147,000 barrel-per-day Palito refinery, Venezuela’s smallest such facility, in May 2022. In February 2023, it was announced that PDVSA had committed to ordering two Aframax tankers from Iran Marine Industrial Company, known as SADRA, for a total cost of $67.5 million. That will expand the fleet of tankers at Caracas’ disposal, which are used to clandestinely transport Venezuelan crude oil to foreign buyers. 

Teheran is also providing considerable support to Caracas to bolster oilfield operations and production. The key is the provision of a stable supply of condensate, which is needed to make Venezuela’s extra-heavy oil flow so that it can be shipped to foreign buyers, which is the main reason behind PDVSA’s ability to boost petroleum output since 2021. Teheran and Caracas recently signed an agreement where the world’s eighth-largest oil producer committed to not only rebuilding Venezuela’s refineries but also developing oil fields, many of which operate intermittently because of ramshackle machinery. Those undertakings will support further production growth for Venezuela while strengthening Iran’s presence in Latin America. 

Teheran’s presence in Venezuela is bolstering Iran’s influence across Latin America, allowing the pariah state to challenge traditional U.S. regional hegemony. This not only poses a threat to Washington that is too close for comfort but is ratcheting up geopolitical instability in a volatile region, particularly with Teheran using its proxy Hezbollah to interfere in Latin American politics. The terrorist group has been connected to bombings, assassinations, cocaine trafficking and attempts to influence governments in South America. Caracas, as part of its alliance with Teheran, has allowed Hezbollah, a U.S.-designated terrorist organization, to establish training camps in Venezuela, increasing the risk of the militants launching an attack on U.S. soil.

The considerable suffering of everyday Venezuelans, along with strict U.S. sanctions failing to trigger regime change and Iran’s burgeoning subversive influence in South America, makes it a crucial time for Washington to change policy toward Venezuela. Since 2021, the Biden administration has made it clear to the Maduro regime that sanctions relief is available if there are clear moves to restore free elections and democracy in Venezuela. The White House has already tinkered with existing sanctions, granting energy supermajor Chevron a license to recommence lifting oil and allowing Itali’s Eni as well as Spain’s Repsol to receive oil exports from Venezuela in exchange for reducing outstanding debt.

Earlier this year, members of Venezuela’s opposition called for Biden to relax crippling sanctions, as has the UN Special Rapporteur on unilateral coercive measures and human rights. This occurred because U.S. sanctions have simply failed to trigger regime change or even contain the Maduro regime; instead, they simply have had a devastating impact on everyday Venezuelans who are bearing the brunt of the suffering caused. U.S. officials are drafting a proposal to ease sanctions against Venezuela, but only on the condition the Maduro regime makes genuine efforts to restore democracy. A White House source stated in an August 2023 Reuters article, “Should Venezuela take concrete actions toward restoring democracy, leading to free and fair elections, we are prepared to provide corresponding sanctions relief.” 

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The White House is committed to allowing Venezuela to boost oil exports if sanctions are eased. The extra revenue that will be generated, combined with a growing inflow of foreign energy investment, will allow PDVSA to undertake critical maintenance and refits of heavily corroded energy industry infrastructure. In that event, it is speculated Venezuela can boost oil production to as much as one million barrels per day, but that will only occur if Maduro takes genuine measures to allow free elections and restore democracy, which is highly unlikely to occur anytime soon. Venezuela’s president will not step down and expose himself, members of his family and the government to arrest by U.S. authorities or, worse, attacks from illegal armed groups and retaliation by victims of his regime.

By Matthew Smith for OIlprice.com

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  • Mamdouh Salameh on September 12 2023 said:
    This is the most obvious statement of the year. Not only did US sanctions fail against Venezuela, but they have also failed miserably against Russia, Iran, Syria and numerous countries around the world.

    Other than the valiant resistance of the Russian, Iranian and Venezuelan people and their steadfastness in the face of unprecedented sanctions, the sanctions have become synonymous of US oppression, viciousness and hegemony and also the ugly face of capitalism. That is why they have virtually been rejected by most countries as unlawful, sadistic, unjustified and a violation of international law.

    Furthermore, US sanctions have accelerated the global drive towards de-dollarization and also towards both a New multipolar World Order and a global financial system away from the dollar.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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