Energy analysts and investors expect President Donald Trump will ratchet up sanctions against socialist Venezuela to include the country’s oil industry.
Under the direction of Trump, the U.S. government sanctioned embattled President Nicolas Maduro Monday after he held a vote Sunday to rewrite Venezuela’s constitution in a way that opposition parties say makes the country effectively a socialist dictatorship. The U.S. government hasn’t yet sanctioned the oil-dependent nation’s energy sector, but analysts say those penalties are probably on their way.
“Maduro is not going to be deterred, so the question is what happens when the new constituent assembly starts dismantling the existing institutions or we have further bloodshed,” Helima Croft, head of commodity strategy at the energy investment firm RBC Capital Markets, told CNBC Tuesday. “I think we will start to see escalating economic measures.”
The current sanctions freeze the Venezuelan president’s assets under U.S. jurisdiction and prevent Americans from doing business with him. However, experts don’t believe the action will be enough to change the country’s behavior.
“Personal sanctions make it harder for the elite to benefit from corruption and increase the punishment associated with it,” Stuart Culverhouse, chief economist at the investment firm Exotix Capital, wrote in a research note. “But, as the experience of sanctions elsewhere shows, it can take a long time to achieve the desired effect.”
If the U.S. government sanctions Venezuela’s oil industry, it would likely be far more effective in changing the socialist regime’s behavior. The proposed oil sanctions won’t be a total embargo of all Venezuelan crude but could include a ban on the sale of U.S. oil and petroleum products to Venezuela along with financial restrictions on the country’s state-owned oil company.
Socialist officials stripped the country’s Congress of power in late March in what opposition leaders called a coup. Venezuela’s Supreme Court ruled that all powers vested under the legislative body will be transferred to the country’s highest court.
Venezuela’s socialist economy is already in a state of economic collapse, even though the country has some of the world’s largest petroleum reserves. The government run oil industry supplied 95 percent of Venezuela’s hard currency, so U.S. oil sanctions could accelerate the country’s economic meltdown and force the nation to default on its debts. Venezuela is already in a state of economic collapse and the country’s socialist government is only tightening its grip.
Sanctioning Venezuelan oil could encourage U.S. companies to produce more energy domestically, a foreign policy expert told The Daily Caller News Foundation Monday.
Former Obama Department of Energy official Adam Sieminski told Axios that the U.S. shouldn’t ramp up sanctions against Venezuelan oil in response to abolition of the country’s constitution because doing so would allow the country to blame its problems on the U.S. and drive the socialist regime into the arms of Russian President Vladimir Putin.
Long before the sanctions were even considered, the Maduro regime already claimed the U.S. was “waging economic warfare” against Venezuela. Maduro regularly blames the U.S. for what his administration sees as a “national and international boycott of Venezuela” and low global oil prices.
Venezuela has purchased more than $4 billion worth of arms from Russia since 2005, and the countries have been holding joint military exercises since 2008. Venezuela is arguably Russia’s most important economic and military ally in South America, and the two countries have a strong bilateral relationship.
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