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Page added on May 24, 2018

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How To Deal With Venezuela Without Shocking Oil Markets

Public Policy

The Trump administration has, for now, opted against hitting Venezuela’s oil sector with the harshest possible sanctions despite disavowing the re-election of President Nicolas Maduro as a “sham.” The White House did issue new financial sanctions on Caracas and state oil producer Petroleos de Venezuela (PDVSA) this week, but pulled up short of a full-scale embargo on U.S. refineries importing Venezuelan crude or banning U.S. companies from selling Venezuela the light petroleum diluent the crumbling country needs to make its heavy oil usable for refining. Consider these the nuclear options of Venezuela sanctions.

The decision to hold off on such nuclear options is prudent given the current state of global oil markets. Oil prices have surged recently to multi-year highs of around $80 a barrel, mainly on the back of supply fears related to renewed sanctions on Iran. The last thing the market needs now is more headlines about sanctions wiping out yet another OPEC member’s production.

Besides, Maduro has been doing an excellent job of running Venezuela’s oil sector into the ground on his own. It’s also clear that previous rounds of sanctions are starting to have an impact on Caracas. Venezuela’s creditors have lost patience and commenced legal actions to ensure repayment of debts. Trump did not go nuclear because he didn’t have to. Barring a sudden extra-constitutional regime change, Venezuela’s political and economic crisis will likely continue. The result will inevitably be a further decline in the nation’s oil production, which brings in nearly all of its foreign currency.

The political impact of rising oil prices is not lost on President Trump. Since his inauguration, domestic gasoline prices have increased 54 cents a gallon – the average American household is paying nearly $300 more a year to fill the family SUV. The average retail gasoline price has risen from $2.33 to $2.87 a gallon over that span, a 23% increase. With the peak summer driving season about to kick off this weekend and mid-term elections looming in November, the political stakes are high for rising prices to eat into the president’s tax cut bump.

While the decision on Iran had a May 12th deadline, the president has more flexibility in dealing with Venezuela. Trump also has the biggest arrow still in his quiver should he need it in the future, though this does not offer much of a lifeline to Caracas. Maduro’s mismanagement of PDVSA is epic. Venezuela stands out for the world’s steepest production decline since 2015, a drop of nearly 40% or 800,000 barrels a day to 1.4 million barrels a day. Moreover, existing U.S. sanctions are having a significant impact on the country and its PDVSA cash cow. Although sanctions do not specifically target the oil sector, counter parties are increasingly wary of doing business with PDVSA as the sanctions regime has intensified.

American refiners have dramatically reduced imports of Venezuelan oil, which dropped to a 15-year low of 409,000 barrels a day in February from over 700,000 barrels a day in early 2017. Some refiners have stopped buying any crude at all from Venezuela, and the U.S. oil industry appears ready for a full embargo of Venezuelan oil. Even if it never comes to pass, refiners can see the further collapse of Venezuelan oil production, and finding alternative supplies at this point is smart business. While American shale is the answer for some, many domestic refineries are configured to process Venezuela’s heavy, sour grade of crude oil. Unfortunately for Maduro, such crude can also be procured from Canada, West Africa and the Middle East.

There are reasons to believe Venezuela’s collapse will soon accelerate even without President Trump using the nuclear option. While Venezuela and PDVSA have technically been in default since November, their bondholders and creditors have until recently been patient about debt repayment schedules. The recent move by ConocoPhillips to seize PDVSA assets in the Caribbean as compensation for the $2 billion of upstream holdings that Venezuela nationalized in 2007 could not only deal a blow to the state oil company’s exports, but also set off a wave of legal claims from numerous creditors seeking payment before PDVSA’s cash flow dries up. ConocoPhillips is going all out in its attempts to seize Venezuelan oil tankers, even as Caracas does its best to redirect them.

The Trump administration should support such legal claims against Caracas. Steadily and quietly bleeding the Maduro regime dry is the preferred political solution. Previous rounds of sanctions have done their work to soften up Caracas, and this week’s move to ban U.S. purchases of debt or accounts receivable issued by Venezuela or PDVSA should tighten the noose. Trump’s sanctions this week limit Venezuela’s ability to liquidate state-owned assets or finance itself using PDVSA’s U.S.-based refining subsidiary, Citgo. Venezuela will be lucky if its output doesn’t drop below 1 million barrels a day by the end of the year.

How will it end? Maduro can probably count on the support of Russia and China, which have invested billions of dollars in recent years to keep his regime afloat. There are limits to how long such support will last, however. While military coups are not uncommon in Latin America, the danger in Venezuela is that it could lead to a dictatorship backed by Russia or China, which would not be seen as a win for America.

Intensifying pressure on Venezuela could prove counterproductive for Washington since the socialist Maduro regime survives mainly on blaming America for its problems. That makes headline-grabbing unilateral measures like an oil embargo tricky business for President Trump. A multinational response that reduces any potential shocks to the oil markets is the best option. With Russia and China unlikely to play ball, the Trump administration needs Brazil, Colombia, Argentina and other South American countries affected by the Venezuelan refugee crisis to maintain economic pressure on their neighbor and show its suffering citizens a future that doesn’t involve Maduro.

A successful multination response may seem like a stretch given President Trump’s stance on immigration and threat to quit the North American Free Trade Agreement (NAFTA), but he’s earned some respect in the region by calling Maduro’s government a “dictatorship” – something the previous administration wouldn’t do. Some believe the region may even be moving toward a Trumpista perspective, and that the president could find willing partners in the leaders of Colombia, Argentina and Chile. An “Americas first” strategy, combined with measured economic sanctions could bring an end to the Maduro era without roiling global oil markets or the November midterm elections.

Forbes



23 Comments on "How To Deal With Venezuela Without Shocking Oil Markets"

  1. CAM on Thu, 24th May 2018 7:41 am 

    So what is the end game? A totally broken and destroyed country with millions of starving people? Then what? Another Libya, Somalia, or Yemen? Who plans to anti up the money that will be needed to restore the country? Or, do we just let them all die? Does anyone have any plan at all?

  2. "Lucifer" on Thu, 24th May 2018 8:07 am 

    Come on Cam, you should know what the plan is by now.

  3. twocats on Thu, 24th May 2018 8:34 am 

    just the price of going against the US empire. plenty of corruption in Venezuela – but on the whole Chavez was a plus for the people.

  4. MASTERMIND on Thu, 24th May 2018 8:38 am 

    GLOBAL FINANCIAL BREAKDOWN CONTINUES: Economic Growth Chokes On Massive Debt Increases

    https://srsroccoreport.com/global-financial-breakdown-continues-economic-growth-chokes-on-massive-debt-increases/

  5. MASTERMIND on Thu, 24th May 2018 8:40 am 

    Cam

    The plan is to make them collapse..That is why the US slapped a ton of santations on them when their economy went south..Then the elites can argue Socialism doesn’t work..This proves a tiny elite hoarding everything and Capitalism are the best..

  6. Davy on Thu, 24th May 2018 8:56 am 

    “but on the whole Chavez was a plus for the people.”

    I thought that for a while until the truth came out of the Chavista corruption. The unrealistic nationalization of many companies that turned into a disaster was likely the nail in the coffin. Chávez was one of those personalities that milked his country of riches so he could be a leader on the world stage. He wanted to be a Latin American version of Putin. The combination of these things with falling oil prices is what brought down Venezuela. Chavez effectively sidelined the US so blaming the US for Venezuela woes is just more anti-American nonsense. It is true the US continued to cause problems there but with little to no effect because Chavez had constructed his leadership around anti-Americanism and pro Russia/Chinese alliances.

  7. fmr-paultard on Thu, 24th May 2018 9:06 am 

    ^mm^ supertard is right you’ve done nothing. same as eurotard and master race theedrich. ^mm^ you guys lost, time to move out of make legal move against yoru parents before they do. judge has decided, precedent is set.

    you can be a computational chemist you want but you are nothing. pastor manning said you can train a black man to be a computational chemist or a physician but you have no lick of sense of the world.

    mater race theedrich better pray to the holy mother for guidance instead of attacking fathertard francis like that jerk jones is doing

  8. MASTERMIND on Thu, 24th May 2018 9:08 am 

    Davy

    You have any sources to back up your claims?

  9. MASTERMIND on Thu, 24th May 2018 9:08 am 

    Trump Cancels June 12 Singapore Summit With North Korea’s Kim

    https://www.bloomberg.com/news/articles/2018-05-24/trump-cancels-june-12-singapore-summit-with-north-korea-s-kim

  10. Duncan Idaho on Thu, 24th May 2018 9:19 am 

    We shall see——
    Just about everyone thought this would crash two years ago.
    The news feed is very suspect- I have no primary sources presently.
    We will find out.

  11. Antius on Thu, 24th May 2018 9:24 am 

    This would appear to be another case of the US sanctioning a country for not allowing ‘free access’ of US companies to their resources. This would appear to be the same sort of treatment that they try and dish out to the Russians, but of course, Russia is much bigger and has huge internal resources that it can always find a market for.

    It doesn’t paint the US in a very good light. It makes you guys look like greedy bullies. Or rather, the people pulling your strings are greedy bullies. Yet another symptom of the infiltration of US politics by powerful big money players.

  12. Davy on Thu, 24th May 2018 9:25 am 

    Mm, got any sources to refute my claims? So you are saying you want an empty link like what you redundantly post? If I have a link it is supported with words from the article. I am not like you and others here who do empty links to support no specific points. I have been following Venezuela since Chavez started. I have multiple post here on P.O. google them maybe you can learn something.

  13. MASTERMIND on Thu, 24th May 2018 9:31 am 

    Davy

    You have to prove your claims first, before I can refute them..I can tell you never went to college..You would be laughed out of class..And I still have no idea what broken links even means..The links work fine for me..I guess since you can’t attack the studies, you just attack the links themselves..That is strange..But gutless babies will always find a way to close their mind so they don’t have to face reality..

  14. fmr-paultard on Thu, 24th May 2018 9:32 am 

    why should p*ssy grabber make peace with NK (meaning give aid). he’s all talk and no action.

  15. MASTERMIND on Thu, 24th May 2018 9:37 am 

    Antius

    The US have done nothing but cause massive chaos in Latin America throughout the last one hundred years..They have overthrown numerous governments and slapped sanctions on nearly all the countries for no logical reasons..Anything to stop socialism and make it look horrible..Anything to keep the money and power in a the hands of a tiny elite..And keep their taxes low..Last year the UN voted to remove sanctions on Cuba. And only two countries out of around 150 voted to keep them in place..The US and Israel..

  16. fmr-paultard on Thu, 24th May 2018 9:50 am 

    nobody wants democracy because it doesn’t work. this is because resources are always limited and opening it to everyone will up consumption unnecessarily and drive down caring. supertards want their own stuff and the term that describe it is “private property”. even the idea of housing amputated jihadists in their plantation in order to boost ag. production is a no no. private property even laid fallowed or non productive through implementation of permacutism is still private property. nobody wants to give up their trash because they fear it’s treasure to another woman

  17. fmr-paultard on Thu, 24th May 2018 9:51 am 

    why would you want material comforts so much anyways. supremetard said man can not live on bread alone. i’m not about to look at the drugs problems and call supremtard a liar.

    master race theedrich better pray to holy mother. that’s how he can gets off the basement

  18. joe on Thu, 24th May 2018 9:51 am 

    Where is MBS?

    “Finally, with the death and coup rumours flying thick and fast, the Saudi Arabian authorities released a couple of pictures of the Prince this week. One photo showed the prince attending a cabinet meeting in Jeddah while in another he was seen chairing a meeting of the Council for Economic and Development Affairs. However, this move gave rise to probing questions. Why wasn’t a video released? Why didn’t the prince attend any public events in the last month?”

    “https://www.ibtimes.co.in/where-mbs-why-isnt-saudi-arabia-quashing-rumours-his-death-outright-770066”

  19. joe on Thu, 24th May 2018 9:57 am 

    Trump to ‘recognise’ Israeli Golan.


    Exclusive: Israeli minister says U.S. may soon recognize Israel’s hold on Golan”

    “https://www.reuters.com/article/us-mideast-crisis-syria-israel-usa-exclu/exclusive-israeli-minister-says-us-may-soon-recognize-israels-hold-on-golan-idUSKCN1IO2YU”

  20. MASTERMIND on Thu, 24th May 2018 10:02 am 

    Joe

    Golan is where they discovered billions of barrels of oil..

    Partition of Syria: US and Israel eye Golan Heights oil
    http://www.atimes.com/partition-syria-us-israel-eye-golan-heights-oil/

    Western firms primed to cash in on Syria’s oil and gas ‘frontier’
    https://medium.com/insurge-intelligence/western-firms-plan-to-cash-in-on-syria-s-oil-and-gas-frontier-6c5fa4a72a92

  21. MASTERMIND on Thu, 24th May 2018 10:12 am 

    Joe

    I bet MBS was injured..Likely shot or stabbed..That takes a little while to heal from..I doubt he is dead…Or they would have come right out by now and said something..he could be on life support though or hanging on by a thread and will die though..There is obviously something wrong with him or he would just come right out and make an appearance to the media anywhere..

  22. MASTERMIND on Thu, 24th May 2018 10:32 am 

    Eight women accuse Morgan Freeman of inappropriate behavior

    https://www.cnn.com/2018/05/24/entertainment/morgan-freeman-accusations/index.html?utm_medium=social&utm_term=image&utm_source=twCNN&utm_content=2018-05-24T15%3A02%3A18

    This Me Too movement is dangerous…

  23. Davy on Thu, 24th May 2018 12:35 pm 

    Master baiter, I don’t have to do shit. I can also tell you dropped out of college and now are unemployed. What else you need to know?

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