Sanctions on Venezuelan Crude Could Have Far-Reaching Consequences

Posted by PortVision

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To impose sanctions or not to impose sanctions? That is the question the Trump Administration is grappling with in relation to Venezuela’s exports of crude oil to the U.S. The answer could have an impact on everything from the oil business in the United States to the current political and humanitarian crisis in Venezuela—attributed in large part to the repressive policies of President Nicolas Maduro.

This blog will look at some of the arguments, pro and con.

The case against sanctions

In a letter sent on July 18 to President Trump, Port of Corpus Christi chairman, Charles W. Zahn, made the case that U.S. sanctions on Venezuela’s crude would negatively impact refineries operated here in the States by Citgo, a subsidiary of Venezuela’s state-owned oil company, Petroleos de Venezuela, S.A., also known as PDVSA. At three sites in Texas, Louisiana, and Illinois, Citgo refines nearly 750,000 barrels of crude oil every day, most of it from Venezuela.

In his letter to Trump, Zahn wrote: “In 2016, the U.S. imported over 271 million barrels of crude oil from Venezuela or about 9.4% of total US crude oil imports. Sanctions that would limit U.S. imports of crude oil from Venezuela would disadvantage many U.S. refineries, including refineries at the Port of Corpus Christi that have made large capital investments to process discounted heavy crude oil from Venezuela.”

Sanctions, Zahn went on to say, could also raise the prices American consumers and businesses pay for gas, diesel, and jet fuel.

Zahn questioned whether those sanctions would actually have the desired effect of punishing the Maduro regime: “In the event of unilateral sanctions, Venezuelan crude oil currently exported to the U.S. could simply be diverted to other nations, most likely trade competitors in Asia. In that case, the sanctions would be ineffective and would only harm U.S. interests.”

Even though the goal of such sanctions would be to influence political reforms in Venezuela, Zahn maintains they would ultimately “hurt U.S. producers, refiners, consumers, businesses, as well as the trade balance and the economy.”

An even stronger case against sanctions is also being made by those who predict that that action would bring about the total collapse of Venezuela’s already imperiled economy, which relies on oil for 95 percent of its export revenues. Sanctions, some say, would only exacerbate the country’s already-soaring inflation and the shortages of food and medical supplies that have led to violent protests and societal chaos.

The case for sanctions

New impetus for sanctions has its roots in the Maduro administration’s stated plan to re-write the Venezuelan constitution at the end of July, despite massive protests and a recent informal national referendum rejecting that idea. If that plan does move forward, it would strengthen Maduro’s dictatorial hold on the country and, according to Florida senator Marco Rubio, “be a complete annulment of the democratic order in Venezuela.”

President Trump sees the creation of a new constitution as a red line that would necessitate strong economic action—oil sanctions, most probably—by the U.S. And here’s how another Republican lawmaker, Ileana Ros-Lehtinen, sums up the rationale for the pro-sanctions viewpoint: “We shouldn’t buy oil from the thugs around the world.”

The oil sanctions conundrum

Sanctions or no sanctions? Both approaches have far-reaching consequences. And neither choice presents a sure path to improving the current situation in Venezuela. It’s a dilemma involving nothing less than the future of democracy in that country vs. the economic impact on U.S. refineries, businesses, and consumers. 

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Posted on Aug 2, 2017, 6:07:00 AM

Topics: Tankers, oil, Crude