US sanctions came into effect on Sunday to block Venezuela’s economic lifeline of oil exports, in what Washington hopes will be a major blow in its fledgling campaign to topple leftist President Nicolas Maduro.
As of 12:01am Washington time (11:01am in Cambodia), the US will take action against anyone who deals with state-owned Petroleos de Venezuela, or PDVSA, or any entity in which the company holds at least a 50 per cent stake.
It is among a volley of steps by US President Donald Trump’s administration to oust Maduro and install opposition leader Juan Guaido, who is recognised by more than 50 countries, including most in Latin America.
On Friday, the Trump administration said it would block any US assets of Foreign Minister Jorge Arreaza, confirming it has no desire to negotiate with Maduro, a socialist firebrand who presides over a crumbling economy but has withstood three months of intense pressure.
Until the crisis, Venezuela exported 500,000 barrels per day to the US, its largest customer, with PDVSA omnipresent, if not highly visible, through ownership of the Citgo refining and gas station chain.
The US has already moved to put Citgo under the control of Guaido, who appointed his own board.
Even though sanctions legally came into force on Sunday, “the reality is that the oil trade between the United States and Venezuela has been absolutely limited and fallen sharply”, said Mariano de Alba, a Washington-based international law expert from Venezuela.
But the sanctions will still have an effect, with Washington vowing to enforce them against any foreign company with interactions in the US – including the US financial system, which dominates the globe.
As of Sunday, “there is no doubt that the sanctions are in force and that any company assumes bigger risks than they did before this date”, de Alba said.
Searching for customers
Energy-hungry India was the third-biggest buyer of Venezuelan oil in 2017 after the US and China and until recently had been a major source of cash.
But Indian companies have backed off in the face of US sanctions, making China and Russia the crucial economic and political backers of Maduro – whose re-election last year was widely criticised for irregularities.
The sanctions take effect just as global oil markets are trending higher after the US similarly demanded that all countries, notably India and China, stop buying oil from Iran.
Oil is the blood of Venezuela’s crippled economy, accounting for 96 per cent of exports.
The country nonetheless is facing a major economic crisis, with projections that inflation could soar to a mind-boggling 10 million per cent this year.
Some 2.7 million Venezuelans have fled since 2015 faced with shortage of basic goods and medicine, according to UN figures.
One immediate problem for Venezuela is not its exports but its imports. It used to rely on 120,000 barrels of light crude each day from the US to blend with its heavier oil. It will need to turn to other suppliers to sell its own crude, increasing production costs.
US-based consultancy Rapidan Energy Group says PDVSA’s production could temporarily fall by 200,000 barrels per day.
It would be a stunning further reduction for PDVSA which pumped 3.2 million per day in 2008, a figure that had nosedived to just 840,000 in March.