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Oil Soars On Venezuela Coup Attempt

Oil prices rose on Tuesday,…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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Chaos Erupts In Venezuela As Trump Backs New President

The Venezuelan opposition staged massive protests in dozens of cities across the country on Wednesday, putting President Nicolas Maduro in jeopardy. Importantly, the protests came with the blessing of the U.S. government, which declared that President Nicolas Maduro was a “usurper” that had no legitimacy to the presidency.

The Trump administration has decided to go all-out to support the demonstrations in a seeming effort to overthrow Maduro. Vice President Mike Pence spoke in a video addressing the Venezuelan people on Tuesday, stating that Maduro was a dictator. “The United States supports the courageous decision by Juan Guaidó, the president of your National Assembly, to assert that bodies’ constitutional powers, declare Maduro a ‘usurper,’ and call for the establishment of a transitional government,” Pence said.

On the eve of the protests, Pence pledged U.S. support. “We say to all the good people of Venezuela: Estamos con ustedes. We are with you. We stand with you. And we will stay with you until democracy is restored and you reclaim your birth right of Libertad. Muchas gracias y vayan con Dios.”

In a separate Op-Ed for the Wall Street Journal, Pence said that “the U.S. will not stand by as Venezuela crumbles.” He declared his support for Guaidó, before adding: “Nicolás Maduro must go.”

The video and op-ed essentially amount to a formal declaration of support from the American government for regime change in Venezuela, although the administration wouldn’t characterize it that way. Related: Private Investment In Natural Resources Hits Record High

Other support came from regional powers, including Brazil, Chile and Colombia, as well as the Organization of American States (OAS). Luis Almagro, the Secretary-General of OAS, has already been calling Guaidó the “interim president” of Venezuela.

Maduro was dismissive on Tuesday. “Who elects the president of Venezuela? Mike Pence?” Maduro asked during a live address on state television.

Guaidó is now the face of the attempted overthrow, and is seeking to unite the country against Maduro. To date, the opposition has been fractured, scattered and dispirited. “The silence with which the year started will become a roar of freedom, democracy and strength without precedent,” Guaidó declared on Tuesday. “We’re all immersed in this crisis except the usurper.” It’s notable that Guaidó and Pence both used the same term for Maduro.

The Washington Post reported that on Monday “dozens of Venezuelan National Guard personnel stole arms from two Caracas units, kidnapped four officials, and recorded themselves in a northern slum urging people to join them in rebellion,” a sign that Maduro is starting to lose his grip on his security forces.

The gambit by Guaidó is dangerous. It offers Maduro a pretext for a much more serious crackdown. But Maduro’s control is also looking increasingly fragile. The decisive factor will be whether or not the armed forces abandon Maduro.

The protests on Wednesday were widespread – and truly massive. Guaidó declared himself the rightful president of the country. Wednesday afternoon, President Trump upped the ante by recognizing Guaidó as president.

It isn’t clear what happens next and Maduro’s ouster, should it come, does not guarantee a return to stability. The U.S. has a long and disreputable track record toppling governments in Latin America, many of which were done in the name of democracy but were, in fact, anti-democratic coups that paved the way for right-wing dictatorships. The memory of this history is still alive in Latin America and the vocal support of the Venezuelan opposition by the U.S. government in January 2019 must be seen in this context.

In fact, the misery in Venezuela has been made much worse by U.S. sanctions. And although Trump and Pence say that Maduro is not legitimate, Maduro’s recent election was made possible because the opposition boycotted the election. It’s important to point out that the American government is seeking regime change, which again, does not come with a rosy track record. Related: An Unlikely New Hotspot For Energy Storage

Meanwhile, the implications for the oil market are profound. The Trump administration has explored punitive measures targeting Venezuela’s oil sector multiple times over the past two years, but has repeatedly held off, fearing blowback. Several U.S. refineries on the Gulf Coast still import heavy sour crude from Venezuela, and those volumes are not easily replaced by oil from Texas, which is light and sweet.

Moreover, the OPEC+ production cuts are taking heavier oils off of the market, further complicating the global supply mix. Sanctions on Venezuelan oil “would ensure that our US Gulf coast refiners that are optimised to run heavy crude will not have the same access to it,” Geoff Moody, a VP of government relations at the American Fuel & Petrochemical Manufacturers, told Argus Media.

The Trump administration is reportedly considering punitive sanctions on Venezuela’s oil sector as a way to increase the pressure on Maduro, measure that could come as soon as this week.  At the time of this writing, those measures were not announced.

The turmoil in Venezuela could lead to unexpected and sharp supply outages. “In our base case, we estimate that Venezuela’s oil production will decline about 350k b/d on average in 2019, or more than 20% vs. 2018; however, considering the multiple risks factors, a decline of up to 700k b/d, to about 800k b/d, is a real possibility,” Barclays said in a note last week.

The investment bank added that even a sizeable disruption may not lead to a price spike because the market is still well-supplied. “Though it is clear that a major disruption in Venezuela’s oil flow could be ahead, the oil market may ignore the possible physical effect in the short term,” Barclays wrote.

By Nick Cunningham of Oilprice.com

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