The White House threatens oil sanctions if Venezuela’s Maduro crosses red line

The Trump administration is poised to level severe sanctions on Venezuela’s oil industry if President Nicolás Maduro takes drastic action such as arresting top opposition leaders or killing protesters following international recognition of the National Assembly leader as the head of state, according to current and former administration officials.

The sanctions under discussion range across a cap on oil purchases from Venezuela, penalties against the state run oil company to a full embargo. Venezuela sits on the largest oil reserves in the world.

A full embargo on purchasing Venezuelan oil is the strongest tool left in the administration’s economic arsenal, but so far officials have been reluctant to take it knowing of the chaos it would unleash on the already-suffering country.

But the administration is now ready to sanction the oil industry as the crisis heightened this week and plans are in place for a Venezuela government without Maduro. The administration has recognized the president of Venezuela’s opposition-controlled National Assembly, Juan Guaidó, as the de facto leader of Venezuela.

“They’re waiting for Maduro’s next move now,” said one person familiar with administration discussions. “If/when he does something stupid, like arrest (National Assembly Leader) Juan Guaidó or start killing protestors, oil sanctions should come fairly quickly.”

The White House, National Security Council, State Department, Commerce and Treasury departments among other agencies have been wrestling for months about which of a range of options to take.

The White House has long pushed for stronger oil sanctions, but has met resistance from almost every other agency whose top officials fear of worsening an already perilous humanitarian crisis that has already driven millions of Venezuelans out of the country and into the region.

The hope is oil sanctions will be the final step needed to finally drive Maduro from office and allow the United States and international allies to help opposition leaders inside Venezuela rebuild the once oil-rich nation and restore democratic institutions.

The White House continues to follow the “escalatory road map” that aides drew up for President Donald Trump in 2017 of available economic and individual sanctions. But many steps have largely been taken. They included tagging Maduro as a dictator, sanctions on individuals, and financial sector sanctions. The final step not taken is oil sector sanctions.

Fernando Cutz, a former acting senior director for Western Hemisphere Affairs at the National Security Council in the Trump administration, who helped draft the road map, called oil sanctions a “risky move.”

Ideally, he said, the administration waits to use the step when officials can confidently predict the outcome because if Maduro survives an oil embargo, the administration could be ensuring a new Cuba-style regime in Venezuela for years to come.

“Once we open that Pandora’s Box, we don’t know how that will close,” Cutz said.

Trump administration officials say they stand ready to provide Guaidó financial and humanitarian assistance. He has declared himself the president with international support, but Maduro is not recognizing the move and has the backing of top military officials.

On Friday, Pompeo announced that Elliot Abrams, a State Department and National Security Council veteran who served in the Reagan and George W. Bush administrations would lead the administration’s response as the new special envoy for Venezuela. The U.S. Department of the Treasury announced that diplomatic and economic relations between the United States and Venezuela would be consistent with the United States’ recognition of Juan Guaidó as the interim president of Venezuela.

“The United States will use its economic and diplomatic tools to ensure that commercial transactions by the Venezuelan Government, including those involving its state-owned enterprises and international reserves, are consistent with this recognition,” a Treasury department said in a statement.

Pompeo said Thursday that the U.S. government is prepared to dispatch more than $20 million in humanitarian aid to help Guaidó cope with the severe food and medicine shortages “ and other dire impacts of their country’s political and economic crisis.”

National security adviser John Bolton said the United States is investigating how Venezuelan government money and resources in the United States can be seized and transferred to Guaidó.

“What we’re focusing on today is disconnecting the illegitimate Maduro regime from the source of its revenues,” Bolton told reporters outside the White House Thursday. “We think consistent with our recognition of Juan Guaidó as the constitutional interim president of Venezuela that those revenues should go to the legitimate government, it’s very complicated, we’re looking at a lot of different things we have to do, but that’s in the process.”

This is not the first time the White House has threatened oil sanctions. Administration officials have outlined various options to McClatchy over the last year that range from a full embargo, prohibiting any Venezuelan oil being sold in the United States or a certain amount, sanctioning the state oil company, PDVSA and blocking sale of oil related products to Venezuela.

But in recent weeks the administration has sharpened its rhetoric and is virtually guaranteeing significant consequences should Maduro’s government in Caracas take drastic steps in response to increasing international pressure to step away from power.

Whatever sanctions might be imposed on Venezuela’s oil sector, U.S. motorists are likely to feel the impact at the gas pump.

That’s because key U.S. refiners like Citgo Petroleum, Valero Marketing, Chevron USA, Paulsboro Refining and Houston Refining have facilities designed to take the heavy crude oil that Venezuela produces, and cannot easily transition to other types of crude.

The oil industry, which opposes possible sanctions against Venezuelan oil, said U.S. sanctions would simply force Venezuela to find new markets for its heavy crude – and it may get help from allies.

“Potentially, Russia and China would play a key role in providing logistics for transport and selling Venezuelan crude abroad,” said Diego Moya-Ocampos, principal analyst for the Americas at IHS Markit, a London-based consultancy.

Venezuela currently supplies around 480,000 barrels per day of crude oil to Gulf Coast refineries. Other markets could absorb some of that oil, particularly given renewed U.S. sanctions limiting exports by Iran, a major global supplier, said Paola Rodríguez-Masiu, oil markets analyst at Rystad Energy in Oslo.

Limited sanctions on the Maduro government would starve his administration of cash, since oil exports bring in 96 percent of its foreign exchange and half its fiscal revenue, Moya-Ocampos said. But it wouldn’t necessarily topple Maduro from power immediately.

One Houston-based energy analyst said he is concerned that U.S. sanctions designed to topple Maduro could leave a bad taste elsewhere in Latin America.

Many South American nations joined the Trump administration in recognizing Guaidó as Venezuela’s interim president this week. But allergies to U.S. interventionism remain.

“The U.S. is running the risk of reviving the imperialist image that has haunted U.S.-Latin American relations for 200 years,” said George Baker, an energy consultant and publisher of newsletter.

Now that the United States has recognized Guaidó as Venezuela’s legitimate president, “it is important to demonstrate it wasn’t merely diplomatic theater,” said Benjamin Gedan, who was National Security Council director for South America during the Obama administration and official at the State Department.

But Gedan warned there is a reason why an oil embargo is referred to as the “nuclear option.”

“It is awkward that the United States remains Venezuela’s financial lifeline, but stomping on Venezuela’s economy would be highly destabilizing,” he said. “The United States should not worsen Venezuela’s humanitarian and migration crises.”

Franco Ordoñez is a White House correspondent for the McClatchy Washington Bureau with a focus on immigration and foreign affairs. He previously covered Latin American affairs for the Miami Herald and El Nuevo Herald. He moved to Washington in 2011 after six years at the Charlotte Observer covering immigration and working on investigative projects for The Charlotte Observer.