The potential reimposition of U.S. sanctions on Venezuela’s oil and gas sectors is poised to severely impact the country’s oil revenue, hinder new energy investments, and heighten the risk of domestic fuel shortages, as per insights from analysts and industry executives. This development follows Washington’s recent directive to halt all business dealings between U.S. entities and Venezuela’s state miner Minerven. Additionally, the U.S. has threatened to revert to stricter energy sanctions by April unless President Nicolas Maduro’s administration adheres to the conditions of a previously signed agreement for conducting a fair presidential election.
This escalation of U.S. pressure comes in the wake of Venezuela’s supreme court decision last week, which maintained a ban on leading opposition candidate Maria Corina Machado from participating in the election. The U.S., which first targeted Venezuela with oil sanctions in 2019, had eased these restrictions in October 2022 in acknowledgment of the election agreement.
The relaxation of sanctions had poised Venezuela for significant economic gains. According to Caracas-based consultancy Ecoanalitica, Venezuela’s total oil revenue was expected to increase to about $20 billion in 2024, up from around $12 billion in 2023, fueled by larger exports of crude and petrochemicals to cash-paying customers across various countries, including the U.S. and India. Francisco Monaldi, the director of the Latin American Energy Program at Rice University’s Baker Institute, noted, “The easing of sanctions had considerably reduced price discounts on Venezuela’s crude, and state company PDVSA found it easier to cash in sales proceeds, which was beneficial for Maduro.”
However, the potential withdrawal of the license in April could severely dampen these prospects. “If the license is withdrawn, we could see reduced proceeds, diminishing the likelihood of strong economic growth and a competitive election,” Monaldi added. Experts also warn of an imminent risk of severe fuel scarcity in the country.
The situation remains precarious even if the U.S. continues authorizations for certain companies to deal in debt repayment arrangements with Venezuela. Ali Moshiri, CEO of Amos Global Energy, highlighted that specific licenses to a few companies would not significantly boost Venezuela’s oil production or yield substantial investment returns.
The initial easing of sanctions, which began in November 2022 with a special license to Chevron, marked a significant shift for Venezuela’s economy. Since 2019, PDVSA had to resort to swaps and intermediary sales to avoid sanctions, impacting its oil trading operations. The easing of sanctions saw a rise in oil exports and a 5% boost in Venezuela’s GDP in 2023, while also enabling plans for public spending expansion.
Venezuela’s oil minister, Pedro Tellechea, asserted on Tuesday that the country is prepared to counter the effects of renewed sanctions. He also warned of potential repercussions for the U.S. due to reduced Venezuelan oil exports. Despite these assertions, the looming threat of sanctions is already causing unease among companies planning to purchase Venezuelan oil or engage in energy projects within the country.
