Threat of US oil sanctions on Venezuela sparks fears of economic ‘collapse’
Venezuelan lawmakers warned Tuesday the country could be headed for a “catastrophic” meltdown if the United States limits or blocks its crude exports amid an escalating struggle over the fate of the socialist administration.
The fears come as the White House confirmed it’s considering a range of political sanctions against the South American nation if it goes ahead with plans to rewrite the constitution, including a ban on oil imports.
“All options are on the table,” a senior White House official said. “We understand that we are dealing with options that sometimes have consequences – of course, in Venezuela, but also in the United States.”
Since taking office, President Donald Trump has slapped high-ranking officials in the country with sanctions, but in recent weeks there has been increased Capitol Hill chatter about hitting Venezuela’s critical oil industry.
US Sen. Marco Rubio, a Florida Republican working closely with the White House on Venezuela policy, said ending Venezuelan oil imports – once considered unthinkable – would directly target the government of President Nicolas Maduro.
“I don’t believe the Venezuelan people are enjoying the benefits of a declining oil industry,” Rubio told The Miami Herald. “It’s going entirely to enrich those who are tied to it, and to pay for debt obligations.”
If that happened it would decimate the country’s economy and send the nation into a tail-spin, said opposition congressman Angel Alvarado, who is a member of the legislative economic commission.
“The consequences for Venezuela would be catastrophic,” he said. “It would be a collapse without precedent.”
Venezuela exported 291 million barrels of oil and oil products to the United States in 2016. And Alvarado said those sales represent about 75% of the country’s export revenue, or about $11 billion a year. The US market is particularly vital to the country because it’s one of the few countries paying in hard currency, he said. By contrast, China has pre-purchased much of its fuel through loans, and other countries, such as Cuba, Nicaragua and Jamaica, pay for their fuel through goods and services.
Venezuela needs the US money to finance imports of food and medicine, and turning off the tap would only aggravate a grinding hunger problem, Alvarado said.
“We already have a humanitarian crisis in Venezuela,” he said. “Sanctions would accelerate the crisis... But the problem here wouldn’t be an embargo, it’s our economic model.”
Although limiting Venezuela’s oil imports to the US is seen as a powerful weapon, it’s not clear how effective it would be.
“Extending existing sanctions, which are targeted mainly at individuals, to oil exports could precipitate default, and perhaps the collapse of the government, although it may not be immediate as the government finds ways around them and relies more on its friends,” Stuart Culverhouse, the chief economist for Exotix, a London-based investment bank, said in a statement. “There are examples whereby governments have continued to muddle through even in the face of tight sanctions.”
The regime in Cuba, after all, has managed to stay in power despite the half-century US embargo. And sanctions could give Maduro some political relief in a region that’s still allergic to the perception of Washington meddling.
On Tuesday, Bolivian President Evo Morales said the talk of more US sanctions and “political conspiracies against Venezuela” was “shameful.”
But Rubio and Miami Republican Reps. Ileana Ros-Lehtinen and Carlos Curbelo praised the potential sanctions against Venezuela, even as some White House officials worry about the economic implications.
“I’m for them, I don’t think that we should buy oil from Maduro,” Ros-Lehtinen said. “We’re becoming more energy independent. We shouldn’t buy oil from the thugs around the world, and that sends a strong signal.”
“The more that we can do to put pressure on the regime at this critical point in time when they’re more isolated than ever, the better,” Curbelo said. “I understand the debate on oil sanctions how it is fungible so it may or may not make a difference, but when it comes to Venezuela at this point I think everything should be on the table, and we should be as aggressive as possible, because it’s clearly gone on way too long and people are suffering to an extreme degree.”
The increased tensions come after the country held an informal referendum Sunday rejecting government plans to rewrite the constitution.
Despite the strong turnout, Maduro says the vote was meaningless and he’s pushing forward with plans to hold elections next week to choose more than 500 delegates for the National Constituent Assembly. Critics fear the administration will use the new entity to cling to power and destroy the last vestiges of democracy.
On Monday, Trump suggested that election was a red line. “If the Maduro regime imposes its Constituent Assembly on July 30, the United States will take strong and swift economic actions,” he said in a statement.
On Tuesday, Rubio spoke to the Herald in equally grave terms: “If this vote moves forward on July 30... then the US position would be that would be a complete annulment of the democratic order in Venezuela.”
The US would consider the elected National Assembly to be Venezuela’s rightful power, Rubio added.
Venezuela’s foreign minister, Samuel Moncada, fired back on Tuesday, saying the country would re-evaluate its relationship with the United States “because we will not be humiliated by anyone.” Even so, the two nations have been at odds for years and haven’t exchanged ambassadors since 2010.
The export sanctions might not be Washington’s only option. On Monday, Bloomberg News, citing anonymous government sources, said the administration was also planning on sanctioning Venezuelan Defense Minister Vladimir Padrino and government hardliner and congressman Diosdado Cabello. In the Herald interview, Rubio called Cabello “the Pablo Escobar of Venezuela,” referring to the late Colombian drug lord.
“It’s not about retribution or vengeance,” Rubio said about the US approach. “It’s about restoring democratic order.”
The senator said he spoke to Vice President Mike Pence about Venezuela on Tuesday and twice last week, and has spoken to Trump about Venezuela in the past five days. Rubio also spoke for the first time Monday to Leopoldo Lopez, the Venezuelan opposition leader moved from jail to house arrest earlier this month.
There are still hopes for a diplomatic solution. Earlier this week, there were reports that Colombia and Cuba might be discussing a potential negotiated exit for Maduro.
Pressed on that issue, the White House official declined to comment.
“Obviously we’re not going to comment on anything that’s happening in any kind classified manner, but I’ll say that we welcome and hope for democracy to be restored in Venezuela as quickly as possible,” the official said. “The United States isn’t taking a position on an exile of President Maduro. We’re leaving it to the Venezuelan people to make their decisions through democratic means on what they want next.”
Colombian President Juan Manuel Santos “has played a key role,” the official said, and the White House has also reached out to other “like-minded leaders around the world.”
“My sense of it is that Canada, Brazil, Mexico, Argentina and the US could play a critical role,” Rubio told the Herald. “I remain hopeful that someone around the Maduro regime will realize that this doesn’t end well for them, for the country, and chooses a different path forward. But I don’t see a lot of hopeful signs at this point.”
Alvarado, the congressman, said he’s still hopeful that the administration will pull back from the brink and avoid further international isolation:
“We can’t allow a small group of corrupt people who want to hold onto power force the entire country into a collapse.”