Frustrated by a deteriorating situation in Venezuela, the Trump administration has widened its sanctions program on the Maduro government, sending a strong signal to the regime and its supporters. These new measures suggest the search for a balance between increasing pressure on the regime, while protecting U.S. interests and the Venezuelan population. After weeks of closely tailoring its measures to target only Maduro and his inner circle, the Treasury Department widened its scope. The U.S. government restricted the ways for the Venezuelan government could raise money, retaliating against the August 19 de facto dissolution of the country’s elected parliament.
The administration must be prepared to be patient and vigilant about the program’s potential unintended consequences. If the President grows impatient that these new measures are not bearing fruit, another escalation in sanctions raises the danger of an excessively oppressive sanctions regime which could turn out to be counterproductive to the aims of the United States and the Venezuelan opposition. Given the general trajectory of the administration’s foreign policy, that would be grave mistake in a region that distrusts many of Trump’s policies.
The administration’s move should limit the negative impact for both the U.S. economy and the people of Venezuela. Because the sanctions prohibit dealing solely in new debt for PDVSA (Venezuela’s national oil company), U.S. investors caught holding the company’s previously issued debt can still trade it and recoup their investment. Instead, the most onerous debt restrictions fall on Venezuelan government debt, which many U.S. firms had already been distancing themselves from. The sanctions are smartly structured to counter the financial engineering the Venezuelan government had been using to obscure their trading in government bonds, thereby no longer being able to preempt sanctions.
Importantly, the United States refrained from a wide assault on the Venezuelan energy industry and PDVSA specifically. The ripple effects of such a move for Venezuela’s larger economy would have been profound, especially if the United States had barred it from selling oil in U.S. dollars. PDVSA is Venezuela's largest employer and is an essential contributor to the country's gross domestic product (GDP), government revenue, and export earnings.
As part of the roll-out, the Treasury Department’s Office of Foreign Assets Control (OFAC) also issued a general license for CITGO, a wholly-owned subsidiary of PDVSA, allowing the U.S.-based energy company to conduct a variety of financial transactions without fear of running afoul of U.S. sanctions. CITGO has about 3,500 employees, and there may have been a sense in the White House that cutting them off from the U.S. financial system would only harm Americans. A similar calculation may have staved off wider action against importing Venezuelan crude oil, which is a major supplier of U.S. refiners based around the Gulf Coast.
For the people of Venezuela, the administration appears to be signaling that it is cognizant of the pitfalls of harsh sanctions. The administration has allowed OFAC to issue general licenses for certain humanitarian activities to show a willingness to maintain a lifeline for the people of Venezuela. These actions will also contradict the Maduro regime’s messaging that the U.S. was engaging in a “financial blockade” of the country. The administration should keep those calculations in mind, ensuring that humanitarian organizations have the guidance necessary to operate in the country.
The administration has tried to strike a balance between ratcheting up pressure on Maduro and minimizing the wider consequences for the Venezuelan people. In not opting for a total embargo, it, for now, avoided a situation in which a high level of macroeconomic chaos would erode U.S. standing in the eyes of Venezuelans and complicate U.S. efforts to work with other Latin American states in isolating the regime. The United States would risk becoming a useful scapegoat for the economic ills brought on by Maduro himself. These risks suggest the importance of successful implementation of sanctions programs in the future, especially as the administration has found itself mired in controversial sanctions debates around Russia, Iran, and North Korea.
So far, the administration has succeeded in its complicated balancing act in Venezuela, but a satisfactory endgame still remains far in the future. The White House should keep paying close attention to facts on the ground, coordinating with partner nations in the region and the Organization for American States, and patiently implementing the new sanctions in place before further escalating. A sanctions program that is too aggressive would punishing ordinary citizens rather than regime cronies. Such a course would damage U.S. credibility in the region for years to come.
Bhatiya is a Research Associate with the Center for a New American Security’s Energy, Economics, and Security Program