Venezuela

Trump order on Venezuela puts Russian, Chinese oil companies at risk of U.S. sanctions

John Bolton’s comments on Venezuela

U.S. National Security Adviser John Bolton's comments at the international conference on the Venezuela political crisis, organized by the Lima Group on Aug. 6, 2019.
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U.S. National Security Adviser John Bolton's comments at the international conference on the Venezuela political crisis, organized by the Lima Group on Aug. 6, 2019.



President Donald Trump’s executive order on Venezuela dramatically tightens the economic noose around Nicolás Maduro’s regime, putting Chinese and Russian companies that still buy Venezuelan crude oil at risk of sanctions and threatening to make any multinational that does business with the Caracas government a finanical pariah, analysts said Tuesday.

The measure creates a particular risk for Venezuelan magnates who amassed their fortunes in the shadows of the Hugo Chávez/Nicolás Maduro governments and who have maneuvered to protect their positions.

“What they are looking for is to be able to go against China, Turkey or Cuba, or any other nation that helps Venezuela do business operations. If you are buying their oil, you will now be on the most-wanted list,” said Russ Dallen, president of the Miami-based Caracas Capital Markets.

But the order also exposes every Chavista businessman.

“Every person linked to Maduro now becomes radioactive. And whatever they touch becomes radioactive,” Dallen added.

That applies to even those who do not do business directly with the regime, but deal with those who do. The executive order also extends overseas the prohibition of doing business with the regime. So if a foreign company, either Russia’s Rosneft or Petrochina, has a bank account in the United States, those assets can now be confiscated. “This no longer affects only Americans,” Dallen said.

Rosneft and Petrochina, which continue to buy Venezuelan crude despite the sanctions imposed by Washington in January against the state-owned Petroleos de Venezuela, may not have sizeable bank accounts in the United States but do have international assets that could now be vulnerable.

”China and Russia are the main targets, given that they continue to buy oil from Venezuela, providing the Maduro regime with resources,” Mario Mancuso and Sanjay Mullick, of the law firm Kirkland & Ellis, said in a report.

The order signed on Monday prohibits — unless expressly exempt — any dealings with any governmental entity in Venezuela, including state agencies such as the Central Bank or the state-owned Petróleos de Venezuela, as well as any individual or group directly or indirectly controlled by them.

The emphasis on state institutions sets Monday’s measures apart from the much broader economic embargo imposed on Cuba in 1962, which also prohibits operations with individuals and private companies, as well as with state entities.

On the other hand, the sanctions punish only the operations of state entities controlled by Maduro, and don’t affect those under the control of the National Assembly of Venezuela and the interim president, Juan Guaidó.

That difference could keep Citgo in the clear. Control of the U.S. subsidiary of PDVSA passed to the interim presidency.

But Monday’s order does increase the effect of the sanctions applied earlier this year, given that the new measures are specifically directed against non-U.S. individuals and companies, putting them at risk of being excluded from the U.S. financial system, according to the Kirkland & Ellis attorneys.

”That puts pressure on U.S. and non-U.S. institutions to stop doing business with” Caracas, the lawyers said.

The measures also prohibit people linked to the regime from entering the United States.

The measures do not affect humanitarian operations, such as the importation of food and medicines, and allow Venezuelans residing in the United States to continue sending economic aid to their loved ones in the South American country.

”The Treasury Department is committed to ensuring the uninterrupted flow of humanitarian aid to the Venezuelan people, which continues to suffer as a result of the mismanagement and corruption of the illegitimate Maduro regime,” Deputy Treasury Secretary Sigal Mandelker said in a statement.

”It is imperative that the international community continues to make full use of all exceptions for humanitarian reasons to ensure that food and other supplies reach Venezuelans who suffer as a result of the economic crisis manufactured by Maduro,” she added.

Diego Moya-Ocampos, a Latin American political analyst at IHS Markit, said the measures announced Monday are the hardest blow so far to the Caracas regime, extending sanctions that were previously limited to the oil and financial sectors to any economic relationship with the regime.

In practice, this means that the costs of doing business in Venezuela are going to skyrocket for international companies, Moya-Ocampos said.

“Any multinational company that is not explicitly exempted by the Department of the Treasury and has a license to operate in Venezuela is going to find it impossible to carry out any type of operation with” the Venezuelan government, Moya-Ocampos said.

“Any company that provides any type of service, logistic, technological, material or financial support to the government, in any area, is subject to sanctions. These sanctions could lead any of these companies to become international financial outcasts, without access to the U.S. financial system.”

But even if an international company succeeds in obtaining authorization to continue operating in Venezuela, the situation will become so toxic that many may have little incentive to maintain their presence there, he added.

The U.S. government was the first among more than 50 countries to ignore Maduro’s authority in January and recognize the sworn-in acting president of Venezuela, Juan Guaidó, as the legitimate head of state, accusing Maduro of establishing a dictatorship in the country.

Since then, Washington has applied a series of increasingly strong sanctions against the regime, including the state-owned PDVSA and the Central Bank, as well as more than 100 officials and relatives of Maduro.

Reporters Jim Wyss and Nora Gámez Torres contributed to this article.

Follow Antonio María Delgado on Twitter: @ DelgadoAntonioM

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