Will US Sanctions Move the Political Needle in Venezuela?

On January 28, 2019, the US announced sanctions against Venezuela's state-owned oil company, PDVSA, a move to restrict socialist President Nicolas Maduro's flow of oil revenues and strengthen the hand of the opposition—led by Juan Guaidó—to trigger elections in Venezuela. The sanctions against PDVSA (and other government-owned companies) are expected to come into force in April. While companies would be permitted to continue commercial transactions, all payments would be held in a "blocked account" inaccessible by Maduro.

The already weakened Venezuelan economy is highly dependent on the petroleum sector and on the US as an import market. Venezuela exports nearly 40 percent of its crude oil production to the US; in November, Venezuela exported to the United States 570 million of the 1.5 million barrels per day it produced. Refiners across the waters in the US will also feel the pain as Venezuelan producers seek alternative buyers for its heavy crude in India, China, and elsewhere, even if at lower prices. An estimated 7 million barrels of Venezuelan oil is currently idling in tankers around the Caribbean with no destination.

Maduro and the country's oil producers will not be the only ones affected by the proposed sanctions. The already roused populace that benefits from the social system will see their livelihoods further diminished by the Government's restricted budget. Some are speculating about global economic ripples as well; oil prices fell by more than 2.5 percent following the announcement of sanctions and oversupply represented by those languishing shipments offshore could further imbalance markets in the short-term.