Washington will consider blocking Venezuela’s critical crude exports to the United States if President Nicolás Maduro doesn’t halt plans to rewrite the constitution, senior administration officials confirmed Wednesday.
The announcement comes as the Trump administration continued to tighten the screws on Caracas with another round of personal economic sanctions Wednesday, freezing the U.S. assets of 13 current and former government officials.
But the administration is warning, once again, that even harsher economic sanctions are coming if Maduro doesn’t call off Sunday’s vote to elect 545 delegates to the National Constituent Assembly, which critics fear will lead to dictatorship.
Blocking Venezuela’s oil exports to the United States is “seriously under consideration,” if Sunday’s vote goes through, the official said. “All options are still on the table for the president.”
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The dramatic step would take the U.S. into unknown territory, analysts said, with no guarantee that the effort would constrict Venezuela’s economy sufficiently to force a wedge between Maduro and his allies.
At issue are the estimated 740,000 barrels of heavy crude that Venezuela ships to the United States every day that are a critical source of hard currency for the government. Stemming that flow is one of several options that U.S. lawmakers are looking at if Maduro pushes through with his unpopular plan to rewrite the constitution.
But some oil-sector experts say Venezuela would eventually recover from the hit by increasing exports to Asia and India. And they wonder if the United States is willing to walk away from its third-largest crude supplier and a country that sits on the world’s largest oil reserves.
Despite the animosity between Caracas and Washington, the two nations have deep business ties. U.S. powerhouses like Chevron, Weatherford, Schlumberger and Halliburton have contracts with state-run oil company PDVSA. Just this month, Oklahoma-based Horizontal Well Drillers said it would be making an initial investment of $200 million to finance the drilling of some 200 wells in Venezuela.
“The bigger question is whether Trump is ready to impose sanctions that would make it impossible to do business in Venezuela,” said Raul Gallegos, an associate director at the consulting firm Control Risks in Colombia, and the author of “Crude Nation: How Oil Riches Ruined Venezuela.”
“This is the biggest oil patch on the planet,” he added.
Although the United States receives less than half of Venezuela’s crude exports, it’s Venezuela’s largest cash-generating market. And that makes it crucial.
“The United States is important for Venezuela because it’s the only invoice that is paid on time, and they can count on that,” said Luis Giusti, who was the CEO of PDVSA until 1999. “It’s money that comes punctually with every shipment.”
And for a cash-strapped administration in a country that has seen its agricultural sector collapse, that money is key to keeping the country fed.
Most of Venezuela’s other crude clients are paying for shipments in kind, or accepting them as repayment on existing debt. And that’s what could make these sanctions so effective, said Russ Dallen, a managing partner at Caracas Capital who advises U.S. lawmakers on Venezuela.
Venezuela is “pretty much dependent on us [the United States] for cash,” Dallen said. “We’ve been supporting the revolution.”
Sanction skeptics argue that Venezuela would likely find markets for the excess crude in Asia and India, even if it was sold at a discount.
“It’s a valuable resource and you will have clients lining up to buy it,” Gallegos said. “Outside of the initial disruption, it’s not impossible to recover from.”
U.S. pump pain?
There are also worries about how U.S. gas prices might be affected. Venezuela’s heavy crude is an important feedstock for some Gulf Coast refineries that are configured to process that specific type of oil.
“The refineries could try to find sources of the same kind of [heavy] crude, which is not that easy,” Giusti said. “But very likely they would begin to process a lighter crude and pay more. It would be an inconvenience but it would be manageable.”
New York-based Eurasia Group predicted that an outright shutdown of Venezuelan imports “could have a modest impact on gasoline and diesel prices in the U.S. as refiners pass along the [additional] cost.”
But Trump might already have a solution. He’s said he wants to sell half of the 700-million barrel U.S. Strategic Oil Reserve to reduce the budget deficit. And that would more than cover the Venezuelan shortfall, Dallen said.
“Trump could look like a genius at the end of the year,” he said.
Perhaps the fiercest debate is over how the sanctions might hit the average Venezuelan — the people Washington says it’s trying to help.
Dallen and others point out that the petrodollars aren’t trickling down to the population anyway and that the current food and medicine shortages aren’t due to lack of funds but poor management and corruption. Sanctions, they say, won’t change that.
And it’s not clear that more economic pain will change the dynamics on the ground, said Jorge Salazar-Carrillo, a professor at Florida International University, who suggested that Venezuelans, like Cubans before them, seem to have an increasing threshold for discomfort.
“It’s a very dark situation,” he said. “Like Cuba for many years, [Venezuelans] have been able to survive by adjusting to an economy that the government has been collapsing around them.”
What’s certain is that Maduro will try to capitalize on the crisis.
“From a propaganda perspective, this is the mother lode” Gallegos said. “You are finally doing the whole David and Goliath theme and [the Maduro administration] can use it to energize people who are on the fence.”
As columnist Moisés Naím, Venezuela’s former trade minister, wrote in El País newspaper, “an oil embargo imposed by Donald Trump would be a marvelous and opportune lifesaver for Maduro.”
A poll released this week by Torino Capital and Datanalisis found that 63 percent of Venezuelans believe the opposition should not promote U.S. sanctions.
Given the challenges to blocking oil imports, other ideas have been floated. Some analysts advocate a more modest approach, including stepped-up sanctions on government officials, or blocking the export of U.S. refined petroleum products to Venezuela. On Friday, Reuters reported that the administration is considering even harsher Iran-style financial sanctions that could prevent Venezuela from accessing the U.S. banking system.
Even so, after more than three months of protests that have left more than 100 dead, Maduro has sometimes hinted that he might consider postponing Sunday’s vote. And there are reports of backroom negotiations.
That has some hopeful that Washington’s economic arsenal won’t be needed.
“The best sanctions,” Dallen said, “are the ones that aren’t used.”
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