WASHINGTON — The White House is once again considering sanctions that could choke Venezuela’s oil production as the Trump administration weighs its next “strong and swift” action to take against Venezuelan President Nicolas Maduro, two senior administration officials told McClatchy.
While a full embargo on purchasing Venezuelan oil — the so-called “nuclear option” — is being actively discussed, the administration is zeroing in on more surgical sanctions that block the sale of oil and oil processing products by U.S. companies to Venezuela and hinder Caracas’ oil industry without directly impacting the Venezuelan people.
“It’s very real,” a senior administration official told McClatchy. “It’s a matter of considering when doing the next sanction or the next round of sanctions will maximize the pressure.”
Specifically, the government is looking at prohibiting the sale by U.S. companies of about 3.5 million barrels of oil and other refined oil products to Venezuela, such as the diluent naphtha, which is used to thin the tarlike heavy oil so that it can flow through more than 60 miles of pipelines from the Orinoco oil belt to the nation’s coast, where it can be either upgraded or exported.
It’s been months since the United States imposed its last significant set of sanctions against the Caracas government, leading to concerns among Venezuelans in the United States that the Trump administration has eased up on the Maduro government. But administration officials say the Maduro government continues to find excuses to abuse and consolidate its power, such as the arrests of opposition leaders without real evidence for a foiled drone attack against the president.
A full oil embargo would likely starve the desperate Maduro government of much needed capital during a massive economic crisis that is struggling with hyperinflation expected to grow 1 million percent by years end. But the Trump administration has been resistant to take more drastic measures because of the impacts on the suffering Venezuelan public, potential harm to the U.S. oil industry and the American consumer who is already seeing increasing gas prices.
But the senior administration officials said they’re working on a new package of sanctions that would be released in the next three months. Oil industry analysts said they have been brought in by the White House and State Department over the last several weeks to discuss the potential impacts of both a full embargo or, the second, more targeted approach involving oil sales to Venezuela.
“I said the second one is better,” said Russ Dallen, a managing partner at the U.S. investment bank Caracas Capital Markets, which tracks Venezuelan oil shipments, who advised U.S. officials on this issue. “I said, Look, they’re killing themselves anyway. If we get involved right now, they’re going to try to blame us. They already are, but when your opponent is shooting themselves in the foot, don’t stop them.”
One third of Venezuelan oil is processed in U.S. refineries. An embargo on oil from Venezuela, the fourth-biggest supplier to the U.S., could force a slowdown in production at Gulf Coast refineries and a temporary spike in gasoline prices.
Large U.S. refineries like Valero Energy Corp. and Marathon Petroleum Corp. have already shifted away from processing heavy crude in order to lessen the potential impact from sanctions on their businesses as well as consumers.
Blocking sales to Venezuela of products like naphtha would affect the industry less, but could still hurt refiners who are increasing their sales of refined products to Latin America, said Michael Leger, chief executive officer at refining consultancy Turner, Mason & Co.
“If you reduce that market, that means somebody has to cut back and that could have an impact on the profitability of U.S. refiners and ultimately what U.S. consumers have to pay,” Mr. Leger said, noting it could also impact gas prices.
In the short term, blocking U.S. oil sales could choke the Caracas regime’s production capabilities. In the long term, Venezuela would still be able to produce oil by getting the commodities elsewhere, like Russia or China, but Mr. Dallen said it would cost the state-run company, PDVSA, more because they’d have to find and buy those products for more elsewhere. Venezuela could also get around the sanctions by, for example, buying the U.S. products from a third country.
Venezuela holds the largest oil reserves in the world and PDVSA is the country’s primary source of income. Sixty percent of Venezuela’s revenue comes from oil. Yet record high inflation, food shortages and deadly protests have gripped the once-mighty oil nation and millions have fled.
PDVSA has been plagued by mismanagement and corruption that has led to historically low production levels. As of July, Venezuela’s oil production was 1.3 million barrels per day, according to OPEC.
Upheaval in the global oil markets — and its potential impacts on the U.S. consumer — is serious enough that the Trump administration has begun to tap U.S. oil reserves in the United States, which is now 700 million barrels, to help soften the possible impact
On Monday, the Department of Energy announced it would sell 11 million barrels of the heavy crude oil similar to that produced by Venezuela.
Venezuela could still count on $28 billion in oil revenues if it received full value, or about $60 a barrel, for its 1.3 million barrels a day. Mr. Dallen’s analysis shows it is really only making about $11 billion a year because half of the oil produced is delivered at a loss or as a loan repayment to China and Russia, several hundred thousand more barrels are delivered to Cuba at no cost and some also is donated domestically for cheap gas programs. U.S. refiners are among the few customers that actually pay the Venezuelans cash for their oil.
“The U.S. is pretty much the only country keeping the lights on in Venezuela,” Mr. Dallen said.
President Donald Trump has periodically taken steps from an “escalatory road map” aides have drawn up that outlines the available economic and individual sanctions meant to pressure Mr. Maduro restore Democratic institutions.
Another senior administration official told McClatchy that oil sanctions are one of the few remaining options the administration has that meet Mr. Trump’s “strong and swift” parameter outlined when Mr. Maduro last year took major steps to consolidate his power. The U.S. government has already sanctioned 70 officials, including Mr. Maduro, and restricted U.S. investment and financial transactions, including those involving Venezuela’s new digital currency.
Last month, Mr. Maduro was also named as a suspect in a U.S. investigation into the embezzlement of more than $1 billion from PDVSA.
On a recent weeklong trip through South America, Defense Secretary Jim Mattis said Mr. Maduro has only himself to blame.
“This is not some act of God,” Mr. Mattis said. “It’s not something that just had to happen because it was a natural disaster. In fact, they sit on enormous oil reserves. They’ve got tremendous opportunity for their people,” Mr. Mattis told reporters. “And we abhor the wholly misguided Maduro regime.”
Some administration officials are worried that Venezuela’s problems are becoming the new normal. People inside, who want change, whether it’s the opposition, military or private sector need to take more aggressive steps, another administration official said.
“We need the people to stand up,” the official said. “it’s not going to be an external force that creates change.”
While the United States, Canada, the European Union, Switzerland and Panama have all imposed sanctions, the United States still wants other countries in the region to issue sanctions, visa revocations or take other measures to isolate the Venezuela.
“At some point, the region has to take a step back from its standard line of we will not interfere in another country’s politics,” the senior administration official said. “They’re really going to have to take an active role.”
First Published: August 27, 2018, 1:15 a.m.
