Will the U.S. hit Venezuela with more penal­ties?

Gas prices could surge with stricter sanc­tions against oil-rich na­tion.

Los Angeles Times - - BUSINESS - By Rob Nikolewski

Oil and U.S. gaso­line prices have been edg­ing higher since the Trump ad­min­is­tra­tion hit Venezuela’s pres­i­dent with sanc­tions Mon­day. But it’s un­clear if broader, tougher penal­ties are still to come against the oil-rich na­tion that could bring a sig­nif­i­cant in­crease in en­ergy prices.

U.S. re­tail gaso­line prices rose to an av­er­age $2.33 a gal­lon Wed­nes­day, up a nickel from a week ear­lier, ac­cord­ing to AAA. In Los An­ge­les, the av­er­age pump price hit $2.969 a gal­lon Wed­nes­day, an in­crease of 4.5 cents from the pre­vi­ous Wed­nes­day.

Bench­mark U.S. crude closed at $49.59 a bar­rel on Wed­nes­day, up 43 cents from the day be­fore, and Brent crude, the in­ter­na­tional stan­dard, rose 58 cents to close at $52.36 a bar­rel. That fol­lows last week’s gains, be­fore the much-an­tic­i­pated sanc­tions were of­fi­cially an­nounced, which were the best so far this year.

Prices may go higher if the Trump ad­min­is­tra­tion de­cides to im­pose stricter sanc­tions, in­clud­ing what some an­a­lysts call “the nu­clear op­tion” — a to­tal ban on crude oil im­ports from Venezuela into the U.S.

“If we did full-blown sanc­tions, no more im­ports from Venezuela, that would prob­a­bly add a cou­ple bucks to the oil price right away and maybe 20 cents to gaso­line,” said Dan St­ef­fens, pres­i­dent of the En­ergy Prospec­tus Group, based in Hous­ton.

The U.S. Depart­ment of the Trea­sury on Mon­day said it is freezing any per­sonal assets that Ni­co­las Maduro may pos­sess un­der U.S. ju­ris­dic­tion, one day af­ter the Venezue­lan pres­i­dent cel­e­brated an elec­tion that will con­sol­i­date his power through­out the coun­try.

World lead­ers called the elec­tion a sham, and late Mon­day, Trea­sury Sec­re­tary Steven T. Mnuchin said in a state­ment, “Yes­ter­day’s il­le­git­i­mate elec­tions con­firm that Maduro is a dic­ta­tor who dis­re­gards

the will of the Venezue­lan peo­ple.”

At least 10 peo­ple were killed dur­ing protests of Sun­day’s vote to elect a new con­sti­tu­tional assem­bly that will have the power to shut down the coun­try’s congress, draft new laws and post­pone elec­tions. Maduro is slated to run for re­elec­tion in 2018.

The left­ist gov­ern­ment said 8.1 mil­lion peo­ple took part in the vote, a num­ber that was widely dis­puted.

Even though Venezuela pos­sesses one of the world’s largest re­serves of crude oil and is a mem­ber of OPEC, the pow­er­ful Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries, the na­tion’s econ­omy is in a state of dec­i­ma­tion as gro­cery store shelves go bare and med­i­cal sup­plies have all but van­ished.

Ac­cord­ing to Steve Hanke, pro­fes­sor of ap­plied economics at Johns Hopkins Univer­sity, the an­nual in­fla­tion rate in Venezuela ex­ceeds 900%.

“The econ­omy is re­ally in a death spi­ral,” Hanke said.

Last week, the Trump ad­min­is­tra­tion, Mex­ico and Colom­bia slapped sanc­tions on 13 mil­i­tary and gov­ern­ment of­fi­cials with ties to Maduro. And the U.S. has warned that Venezue­lan of­fi­cials con­nected with the ef­fort to over­haul the assem­bly may also face sanc­tions.

But im­pos­ing sanc­tions raises its own set of com­pli­ca­tions.

“The prob­lem I have right now is, when you have an econ­omy that’s in such dis­ar­ray that the sanc­tions will not hit Maduro, his gen­er­als and the peo­ple who have ac­cess to all the money they have stocked aside, but it will hit the folks who are al­ready re­ally suf­fer­ing,” said Jeremy Martin, vice pres­i­dent of en­ergy and sus­tain­abil­ity at the In­sti­tute of the Amer­i­cas, a think tank at UC San Diego that con­cen­trates on en­ergy is­sues in the Western Hemi­sphere.

An­other com­pli­ca­tion is that Venezuela sends 750,000 bar­rels of crude oil a day to the U.S., trail­ing only Saudi Ara­bia and Canada as the largest sup­plier to the U.S.

Re­fin­ers such as Chevron Corp., based in San Ra­mon, Calif., as well as the trade group Amer­i­can Fuel & Petro­chem­i­cal Man­u­fac­tur­ers say sanc­tions on im­ports would hurt U.S. busi­nesses and con­sumers with­out ad­dress­ing the is­sues in­side Venezuela.

“I frankly do not think the Trump ad­min­is­tra­tion is ready to give a call to the CEO of Chevron and say, ‘Sorry, you’re go­ing to have to pull out of that coun­try af­ter all that in­vest­ment you’ve put in there,’ ” said Raul Gal­le­gos, a se­nior an­a­lyst based in Colom­bia for the con­sult­ing group Con­trol Risks.

“The good news is the Trump ad­min­is­tra­tion and the world are tak­ing this se­ri­ously,” said Gal­le­gos, who has writ­ten a book about the oil in­dus­try in Venezuela called “Crude Na­tion.”

“The bad news is that the in­ter­na­tional com­mu­nity still needs to come to terms with the fact that this [Maduro] regime has ab­so­lutely no scru­ples. Th­ese are not peo­ple you can trust sit­ting across a ne­go­ti­at­ing ta­ble, so you need to think of new ways to deal with this rogue regime.”

Hanke be­lieves sanc­tions don’t work in gen­eral and will keep the Maduro gov­ern­ment in power for a longer pe­riod of time.

“Maduro is al­ready clev­erly us­ing the tar­geted sanc­tions the U.S. al­ready has in place to his ben­e­fit,” Hanke said. “He says, ‘Look what the U.S. is do­ing to us, they’re try­ing to de­stroy our econ­omy. The rea­son we have all this in­fla­tion is be­cause of the United States,’ and a lot of peo­ple be­lieve it.”

Oil sales ac­count for more than 90% of Venezuela’s rev­enue, but years of mis­man­age­ment by the coun­try’s state-run oil com­pany and flat global oil prices have left the econ­omy in tat­ters.

“Every time we think things couldn’t get any worse, they do,” Martin said. “I think the se­cu­rity sit­u­a­tion, par­tic­u­larly in Caracas, is get­ting to­ward a law­less­ness where it’s very con­ceiv­able to see, and I hate to say this but, civil war break­ing out.”

Fed­erico Parra AFP/Getty Im­ages

PEO­PLE LINE UP to vote Sun­day in Caracas, Venezuela. At least 10 peo­ple were killed dur­ing protests of the vote to elect a new con­sti­tu­tional assem­bly in the na­tion. World lead­ers called the elec­tion a sham.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.