US sanctions oil on Venezuela for breaking election promises

The US has reimposed sanctions on Venezuelan oil, claiming that President Nicolas Maduro’s socialist revolution government “failed” to meet its commitments of holding a fair and free presidential election in this year.

The Biden administration has taken this measure to acknowledge that the sanctions relief granted six months earlier, failed to convince Maduro of a genuine competitive election.

Washington, aware of the possibility that new sanctions against Venezuela could push up crude in an election year, will allow US-based Chevron to maintain a joint venture between PDVSA and Venezuela’s state oil company. PDVSA has steadily increased its output.

In Barbados in October, Maduro signed an agreement with the US-backed coalition to hold elections. But the ink hadn’t even dried when his government began a massive crackdown.

Maria Corina Machado was barred from running. Her chosen replacement candidate wasn’t allowed to register, and some members of her campaign were arrested. According to polls, Machado was expected to beat Maduro in a landslide.

“We’ve determined that while the Venezuelan authorities met some key obligations, they also fell short in several other areas,” said a senior US official, describing a “continued pattern of harassment and violence against civil society and opposition figures”.

Officials from the US administration added that Maduro has upheld “certain elements” of the Barbados Agreement, including setting a date for elections, updating the electoral registry and “starting the process to allow international observation”.

Washington and Caracas completed another gesture of cooperation in December, when 10 Americans, including six that the US classified as wrongfully held, were released from a Venezuelan prison in exchange for Alex Saab’s release, a Colombian ally and businessman of Maduro who US prosecutors had accused of siphoning off $350mn in Venezuela to US accounts.

Maduro, despite belligerent statements from his government in recent weeks said he “would never close the door to dialogue” with the US. He added that last week, Washington’s envoys met his negotiators in Mexico. “I tell my negotiators that they should give [Joe] Biden this message: If you want, then I want. Maduro stated that if you don’t wish, I do not want.

As a response to Washington’s reimposition sanctions, Jorge Rodriguez, president of Venezuela’s congress, accused Washington breaking a commercial deal reached with Caracas. Rodriguez stated that “we respect our word and will never accept an ultimatum.” We will see who kept their word and fulfilled their commitments.

Biden’s administration is juggling between a desire to punish Maduro, who has reneged on his promises of fair and free elections, with other concerns. The administration is concerned about pushing Venezuela into the arms its allies Russia, China and worried that new sanctions could spur more Venezuelans to migrate towards the US.

Venezuela was once a major oil producer. Its production fell from almost 2.9mn b/d per day in 2014, to less than 400,000 b/d by 2020. This is due to years of mismanagement and Trump’s “maximum-pressure” sanctions designed to overthrow Maduro.

According to Opec, Venezuela’s crude production increased to an average of 800,000 barrels per day in the first quarter this year. This was due to a temporary lifting of sanctions in October and increased investments in Chevron’s oil joint venture. According to Opec figures, the lifting of sanctions in October allowed Venezuela to directly sell its crude oil without paying high fees to black market intermediaries.

Venezuela is home to the largest oil reserves in the world, as well abundant natural gas. In the last six months, energy companies have flocked to Caracas to seek possible deals with Maduro.

News reports state that Shell and Trinidad’s gas company have signed a deal to export Venezuelan gas offshore via Trinidad. Repsol of Spain and Maurel & Prom from France also signed deals. Separate US sanctions licenses covered these. US officials refused to confirm whether the permits will continue, citing confidentiality in commercial transactions.

US companies that invest in Venezuelan gas and oil but are not covered by licences already issued will have until the 31st of May to close their operations. According to a US State Department announcement on Wednesday, the Office of Foreign Assets Control of the US Treasury “will review requests for specific licences to continue operations beyond the end of wind-down” on a case by case basis.

Venezuela’s Oil Minister Pedro Tellechea said to reporters that sanctions will not harm the country’s economic situation and foreign companies can apply for individual licenses at the US Treasury.

Analysts say the decision to tighten the sanctions on Venezuela’s oil sector will have a limited impact on Venezuelan production and exports in the short term, but it could hurt the country’s long-term recovery.

“There won’t be any significant impact on Venezuelan output as the general licence revoked Wednesday wasn’t generating investment,” Francisco Monaldi said, a Venezuelan expert in oil at Rice University’s Baker Institute. He said that Chevron was the most important investor in Venezuela’s oil industry, as it had its own licence to operate. The reimposition sanctions will have a slight impact on the availability of dilutients for non-Chevron project.

Asdrubal Oliveros of the Caracas-based consultancy Ecoanalitica calculated that renewed sanctions would cause Venezuela to lose foreign income of about $3bn and a 3.6% decrease in the growth of the gross domestic product — a price Maduro will pay.

Oliveros stated that it was crucial to not cede too much space in Maduro’s analysis of cost-benefit. This may give the government a reason to tighten up the political dynamics through more repression and less space for the opposition during the elections.