The US announced sanctions last week that are intended to produce the most damage possible to the government of President Nicolas Maduro: the oil sector and its state company, PDVSA.
The sanctions ban US firms from exporting goods or services to Petroleum of Venezuela (PDVSA). It is part of a campaign to force Maduro to step aside and cede power to Juan Guaido, the opposition leader. US refineries are also banned from buying crude from PDVSA unless the money is paid into accounts not tied to Maduro.
The worry in Venezuela, however, is that the measures will only lead to more suffering in a country already mired in hyperinflation and chronic shortages of food staples and medicine.
The goal of the sanctions is to increase the people’s suffering and trigger even larger protests than those that have rocked Venezuela over the last few weeks. Opposition protests have outnumbered those in favour of the government, but Maduro has maintained the crucial support of the military by offering senior members positions in government and PDVSA.
The sanctions also aim to hit those kingmakers in their wallets, although the vast illegal economies which they also run – from drug trafficking to illegal mining and extortion – will be unaffected.
PDVSA, so long Venezuela’s economic lifeline, is unlikely to be able to weather the current storm: while the country may have the world’s largest proven oil reserves, it has been increasingly racked by fuel shortages due to crumbling infrastructure.
The crude that comes out of the ground is high in sulphur, which can only be processed into gasoline at certain refineries. With Venezuela’s refineries in disrepair, oil is shipped to the US and refined there, before being sold back to the troubled nation to meet demand at the pumps. In the first eight months of 2018, imports from the US rose 76% to 125,000 barrels per day, according to the US Energy Information Administration.
Maduro will try to court other crude buyers in an effort to alleviate the impending crisis, but those calls are likely to be rebuffed. PDVSA’s woes could also isolate Maduro from his chief patron, Russia, which invests up to $20bn in Venezuela, experts say, of which a significant portion goes to PDVSA.
Russian energy giant Rosneft has loaned more than $6bn to PDVSA. That loan is being repaid through deliveries of crude oil to Rosneft through 2019, and is dependent on PDVSA’s ability to pump oil.
Declining production in Venezuela last year led to reports that Igor Sechin, an influential ally of Vladimir Putin, personally flew to Caracas in November to complain to Maduro and signalled the Kremlin’s growing impatience.
China, another vital ally to Maduro, is also showing consternation, with PetroChina planning to scrap a $10bn oil refinery in the south of the Asian superpower, Reuters reported on Thursday.
