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Intel Brief: The U.S. lifted sanctions on Venezuela’s oil sector


 
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Date: 23/10/2023


Where: Venezuela


Who’s involved: U.S. President Biden, Venezuela President Maduro, Venezuelan opposition leader Machado




What happened?

  • On Wednesday, 18/10/2023, the U.S. Treasury Department temporarily eased some sanctions imposed on Venezuela’s oil, gas, and mining sectors. The decision comes after Venezuelan President Maduro and opposition parties reached an agreement on elections scheduled for 2024.

  • Oil sector bans are not the only area that has been the subject of negotiations in recent months between the two countries. On Wednesday, 18/10/2023, deportation flights from the United States to Venezuela resumed, marking a significant concession by President Maduro. The Venezuelan government also stated that it will make resources available to help with deportation operations.

  • U.S. Secretary of State Anthony Blinken stated that President Maduro has until the end of November 2023 to implement established electoral commitments, including lifting restrictions on opposition candidates and releasing political prisoners. Should the Venezuelan government fail to meet its electoral commitments, the United States could decide to resume sanctions. On the other hand, if Maduro complies with the electoral guarantees, the provisional license lifting U.S. sanctions for six months could be extended.

  • After resuming long-suspended negotiations, on Tuesday, 17/10/2023, Nicolas Maduro finalized an agreement with the opposition guaranteeing its participation in elections to be held in the OPEC member country in the second half of 2024. The negotiations took place in Barbados, and the talks were mediated by Norway.

  • However, while the administration agreed to let the opposition choose its candidate for the 2024 presidential election, the agreement does not guarantee the reverse of bans blocking some opposition primary candidates from holding office. Several candidates are technically still barred from taking office, including the primary’s front-runner, Maria Corina Machado.

  • On Sunday, 22/10/2023, Venezuela held primary elections to pick the opposition candidate who will run against Maduro in the first presidential election since 2012. Although vote casting is still in process, it seems that Machado routed the other nine candidates despite the ineligibility, securing 93 percent of the vote and emerging as Maduro's opponent in the 2024 presidential election.

  • Maduro, ruling since 2013, is expected to run again for re-election, although he has not yet officially announced his candidacy. In 2019, his presidency was contested by Juan Guaidó, who was chosen interim president by the Constituent Assembly, causing a presidential crisis. Nevertheless, Maduro remained in power, and in 2022, opposition parties voted to dismiss Guaidó as interim president.

  • Economic and diplomatic tensions between Venezuela and the United States are longstanding. Under Trump's administration, the U.S. adopted an aggressive sanctions policy against Venezuela to foster a political transition by putting financial and economic pressure on the Maduro regime. The first U.S. sanctions against Venezuela date back to 2006, imposed by President Bush on the Chávez regime. However, President Trump implemented the most restrictive sanctions against Venezuela, known as the "maximum pressure" policy. Starting in 2017, Venezuela has been denied access to U.S. financial systems. In 2019, several industry-specific sanctions were implemented, especially for Venezuela's state oil company, PDVSA, such as preventing the export of Venezuelan oil to its chosen markets and freezing bank accounts or banning access to properties in the United States. In 2022, the U.S. granted a temporary six-month license to Chevron, a major private oil company operating in Venezuela, authorizing the production of petroleum products.


Analysis:

  • The easing of diplomatic tensions and economic bans between Venezuela and the U.S. can be traced to several factors.

  • First, the U.S. is seeking to boost global oil flows and ease current high prices caused by sanctions on Russia following the Ukraine invasion, and Saudi Arabia and other OPEC+ countries decisions to extend the reduction of production and exports.

  • However, although it is expected for Venezuela’s oil output to gradually increase in 2024, the chances that Venezuelan exports can rapidly recover from the losses of recent years and significantly increase oil production are low without considerable investments. It seems unlikely that state-run PDVSA will be able to quickly boost Venezuela’s severely deteriorated oil production and export crude at fair and affordable prices. Indeed, Venezuela, the world's largest proven oil reserves, used to produce nearly 3 million barrels of oil daily. Partly due to U.S. sanctions, Venezuela's economy, primarily tied to oil production and exports, contracted by about two-thirds between 2014 and 2020.

  • U.S. re-engagement in Venezuelan politics and economy could also help halt rising Chinese influence in Venezuela and the Latin American region. Indeed, since the beginning of U.S. sanctions, China has replaced the United States as the primary purchaser of Venezuelan oil and economic sponsor of the country. As recently as last month, Maduro and Xi Jinping strengthened their cooperation in several areas, including security, aviation, trade, and investment.

  • The lifting of sanctions on Venezuela could also be Biden's response to growing domestic tensions, including regarding the increasing flow of migrants. Under Maduro, more than 7 million people have left Venezuela, with many heading to the U.S. Recently, Venezuelans stood out as the nationality most arrested for illegal entry at the U.S. border, replacing Mexicans. Moreover, although the decision to resume economic and diplomatic relations is drawing controversy and opposition from Republicans, the Biden administration may be seeking to strengthen its position through a strategy to address the energy crisis ahead of the 2024 presidential election.

  • Regarding the democratic concessions granted by Maduro, many international observers and opposition representatives are skeptical that the president will fulfill his pledges, especially the removal of bans preventing opposition members from holding office. While democratic concessions are a necessary prerequisite to the U.S. lifting bans, many believe that the agreement will not lead to real regime change. Instead, renewed relations with the U.S. and easing the regime’s stronghold may represent a strategic propaganda move to lift the country's economy and gain more support ahead of the 2024 elections.

  • Nevertheless, the primary elections held on 22/10/2023, organized independently by the opposition and civil society, registered an unexpected turnout of voters, indicating the population's desire for change and democracy.



Conclusion:


Venezuela agreed to grant fair and internationally monitored elections in 2024 in exchange for lifting some economic sanctions by the United States. The U.S. is seeking to re-kindle economic ties with the OPEC country to curb the global energy crisis. However, renewed market access for Venezuela's severely disrupted oil sector will not provide economic benefits in the short term. While the international community hailed this agreement as “a step toward Venezuela's democratic transition,” the actual freedom of the upcoming elections remains a question. The sanctions relief may be a political maneuver by the Biden administration to gain domestic support, potentially ameliorate the energy crisis, and challenge Chinese influence in the Latin American region.




 












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