How Trump’s Venezuela Sanctions Could Undercut His Iran Policy
The U.S. president takes direct aim at Maduro’s power, but the economic pain could spread.
The oil sanctions that U.S. President Donald Trump levied on Venezuela Monday represent Washington’s strongest effort yet to oust embattled leader Nicolás Maduro by starving his regime of funds.
But the move could exact a larger strategic cost. The new U.S. sanctions, which could take lots of Venezuelan oil off the market, also will likely make it that much harder to put the screws to Iran with tougher restrictions on Tehran’s oil sales later this spring.
“The Venezuela sanctions, along with sanctions on Iran’s oil exports, will create a tighter market for heavy crude oil,” said Sara Vakhshouri, the president of SVB Energy International. Together, “that would lead to another round of 180-day U.S. waivers on Iran’s oil exports.”
After brandishing the threat of oil sanctions for a year, the Trump administration on Monday took dead aim at the lifeblood of Maduro’s government, which is almost entirely reliant on revenues from exporting crude oil. The sanctions come less than a week after the United States and many other countries in the region recognized Juan Guaidó, the head of the opposition-controlled National Assembly, as Venezuela’s legitimate president, and are meant to make it impossible for Maduro to cling to power.
“The United States is holding accountable those responsible for Venezuela’s tragic decline, and will continue to use the full suite of its diplomatic and economic tools to support interim President Juan Guaidó, the National Assembly, and the Venezuelan people’s efforts to restore their democracy,” Treasury Secretary Steven Mnuchin said in a statement. He said oil sanctions would be lifted if PDVSA, the state-owned oil company, were to pass control to Guaidó or another “democratically elected” leader.
The U.S. measures, while stopping short of a full embargo on Venezuelan exports, are still a potentially devastating double whammy.
They prohibit refiners in the United States, which imported about 580,000 barrels a day of Venezuelan oil over the last year, from buying any more crude from PDVSA. That’s especially important because the United States is one of the few destinations for Venezuelan crude that actually pays for it; countries such as Russia and China accept Venezuelan oil as partial payment for billions of dollars of debt.
Just as important, the U.S. measures also prohibit the export from America to Venezuela of ultralight oil that Venezuela needs to mix with its extremely heavy oil in order to get it out of the ground. Together, the measures threaten to both starve the regime of funds in the short term and make it harder to pump more oil to sell elsewhere.
“The sanctions are really well designed. They’ll have a financial impact on Maduro and impact PDVSA’s heavy crude output,” said Kevin Book, the head of ClearView Energy Partners.
The U.S. measures, which cap a steady, yearslong escalation of financial pressure on Maduro and his inner circle, sparked an angry response in Caracas, as well as in Moscow and Beijing, two of Venezuela’s staunchest allies. Maduro said the United States was trying to steal Venezuelan assets and vowed to challenge the sanctions legally.
Russian Foreign Minister Sergei Lavrov also accused the United States of seeking regime change with the harsh sanctions and promised to do everything to support Maduro’s embattled government. China’s Foreign Ministry also criticized the U.S. move and warned that Washington would have to be held responsible for inflicting more economic pain on a country already suffering food shortages, mass migration, and disease outbreaks.
What’s not clear is how willing Moscow and Beijing will be to throw good money after bad by supporting Maduro with either fresh loans or buying more oil. China has lent Venezuela more than $50 billion and is nervous about getting repaid, while Russia has lent Venezuela about $17 billion and is already expecting Caracas to have trouble meeting its payments.
But both countries have a stake in Maduro’s survival—and that of the Venezuelan oil industry—not just as a geopolitical foil to the United States but due to their heavy financial investments over the years.
“Russia and China are going to want to help PDVSA keep pumping the oil it needs to repay those debts,” Book said.
Mindful of the importance of Venezuelan oil for U.S. Gulf Coast refineries, and always leery of doing anything that could send gasoline prices higher, the Trump administration seems to have found a way to inflict maximum pain with a minimum of disruption to the oil market. The ban on buying Venezuelan crude doesn’t start immediately and gives companies the ability to keep using their main supplier.
But in the meantime, proceeds from those purchases won’t go to Maduro but will be held in escrow. That means that U.S. refineries could keep running as normal for the next few months, even while Venezuela’s coffers wither. U.S. National Security Advisor John Bolton estimated the sanctions could cost Maduro’s regime $11 billion over the next year—if he stays in power that long and the sanctions remain in place.
“It’s clear that the administration is trying to keep the pressure squarely on Maduro and PDVSA instead of the Gulf Coast refiners,” said Elizabeth Rosenberg, a former U.S. Treasury official now at the Center for a New American Security.
Alternatively, Venezuela could try to find fresh buyers for its oil. Russia and especially China have snapped up lots of Venezuelan crude in recent years but almost exclusively in repayment for tens of billions of dollars in loans to Caracas. Venezuela would probably have to offer big discounts on its oil to entice buyers in other countries to purchase what the United States stops buying.
“It can go to a lot of places, but it cannot go anywhere anytime soon at the price refiners in the Gulf were paying,” Book said.
The impact of the new sanctions promises to be ferocious. Venezuela is about 98 percent dependent on oil sales for government revenue, so starving the regime of current sales, and the ability to pump more oil, threatens Maduro’s ability to use oil money to secure the loyalty of the military and his cronies and to win popular support by funding social programs.
On the downside, the U.S. measures, by poleaxing the one source of funds that Venezuela has, threaten to aggravate the country’s economic crisis, which has already seen hyperinflation, malnourishment, and mass unemployment. The sanctions are nothing more than “economic sabotage designed to force regime change by starving the very people we claim to be helping,” said Democratic Rep. Ilhan Omar on Twitter. (Bolton didn’t help dispel suspicions about U.S. motives when he told an interviewer that the sanctions and a new government would be good news for U.S. oil companies, which would again be able to dive headfirst into the Venezuelan oil patch.)
“It’s always a concern with sanctions that go after big economic targets in any regime,” Rosenberg said. “There will always be different interpretations over whether U.S. sanctions amount to collective punishment or whether the burden is on the regime’s elites.”
Another concern is the impact of the new sanctions on the global oil market. The United States already has tough sanctions on Iranian crude oil exports, which have cut Tehran’s oil sales from about 2.5 million barrels a day to under 1 million barrels a day now. While that shortfall has been made good by increased production in the United States, Saudi Arabia, and Russia, further moves to choke off Venezuelan supplies could send oil prices creeping back up by the second quarter of the year, just ahead of the summer driving season.
At the same time, reduced global supplies would hit just as the United States has to decide how hard to squeeze Iran’s oil exports. In November, despite talk of completely shutting down Iran’s oil sector, the Trump administration gave eight countries permission to keep buying Iranian oil. In May, the administration must decide whether to grant additional waivers to buyers of Iranian oil to allow them to keep importing—or whether to push for “zero exports,” which has long been the goal of hawks within the administration.
The latest moves on Venezuela just made that tougher to achieve.
Despite the hard-liners’ quest for an end to Iranian oil exports, Book also expects market realities to temper the White House’s objectives. “The tighter the market is, the more pragmatic the administration will be,” he said. Trying to convince other countries that have long bought Iranian oil to go cold turkey is hard enough in a normal market. As global supplies dwindle, especially due to the pressure on PDVSA, that becomes an even bigger challenge.
“If the market is actually tighter, the job for State Department officials will get that much harder,” he said.