Return Of US Sanctions On Venezuela's Oil Sector Could Trigger Revenue Loss, Fuel Shortages, Analysts Warn

The potential re-imposition of U.S. sanctions on Venezuela’s oil and gas sectors could significantly impact the country’s oil revenue, energy investments, and domestic fuel supply, according to industry experts.

What Happened: The U.S. has ordered a cessation of all business transactions between U.S. entities and Venezuela’s state miner Minerven. The U.S. has also indicated that it will reverse its relaxation of energy sanctions in April if President Nicolas Maduro‘s administration fails to adhere to the terms of a previously signed agreement for a fair presidential election, reported Reuters.

The U.S. has been increasing pressure on Venezuela since the country’s top court upheld a ban on the leading opposition candidate, Maria Corina Machado, from participating in the election. The U.S. initially imposed oil sanctions on Venezuela in 2019 but granted sanctions relief in October 2023, following the election deal.

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Analysts and executives fear that the reimposition of sanctions could lead to a reduction in Venezuela’s oil revenue, making it harder for the country to meet its energy needs. The move could also discourage new energy investments and increase the risk of domestic fuel shortages.

“Price discounts on Venezuela’s crude had reduced a lot and cashing sales proceeds became easier for state company PDVSA. That was helping Maduro,” according to Francisco Monaldi, director of the Latin American Energy Program at Rice University’s Baker Institute.

“If the license is withdrawn in April, the proceeds will be reduced again and the scenarios of strong economic growth and a competitive election will fade.”

Despite Washington’s ongoing authorizations for debt repayment deals with companies like Chevron Corporation CVX, Eni, Repsol SA REPYF, and Etablissements Maurel & Prom EBLMY to prevent a complete severance of ties with Venezuela, sustainable investment for expanding output may still be uncertain.

“Specific licenses to one or two companies are not going to be very beneficial as a return of investment to Venezuela,” said Ali Moshiri, CEO of Amos Global Energy, which has interests in the South American country.

Why It Matters: The increased sanctions come amid rising tensions between the U.S. and other nations, such as Russia, who have criticized the U.S. for its sanctions against Venezuela. Last year, in April, Russia’s Foreign Minister Sergei Lavrov pledged to help Venezuela evade these sanctions.

This reinstatement of sanctions could also exacerbate the already dire situation in Venezuela. In May, thousands of Venezuelans fled the country due to Maduro’s rule, amassing at the U.S. border as pandemic-era asylum restrictions were lifted.

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