Fabiola Zerpa, Eric Martin and Patricia Laya, Bloomberg News

CARACAS
EnergiesNet.com 01 29 2024

Venezuelan President Nicolas Maduro’s backsliding on his promise of free and fair elections is likely to prompt the return of some US sanctions, though the Biden administration will probably refrain from imposing the stiffest penalties related to oil, according to analysts.

Maduro has jailed aides to the opposition presidential candidate, María Corina Machado, and Venezuela’s top court last week upheld a ban against her and others holding office. That dimmed the glimmer of hope that Maduro would face real competition in his quest for reelection this year.

Yet the US, which suspended sanctions last year after Maduro committed to a democratic process, has plenty of incentives to continue negotiating with the Venezuelan leader and to keep more lenient policy in place, experts say.

“From the Biden administration’s perspective, sanctions were not working in the first place,” said David Voght, managing director at IPD Latin America, an energy research group.

And easing sanctions, he said, has “achieved certain key wins.”

Maduro is allowing the US to send undocumented migrants on flights back to Venezuela, helping President Joe Biden take a tougher stance on immigration in an election year. And Venezuelan oil driller PDVSA is boosting exports directly to US ports now that restrictions have been lifted on its sales, helping keep oil prices in check and providing support, even if modestly, to its economy.

On Friday, Venezuela’s top court closed the path for Machado to run for president this year, putting the Biden administration in the awkward position of deciding whether to reinstate sanctions it had suspended to support free and fair elections.

Some experts say it’s likely that Biden will choose a half-measure to punish Maduro for Venezuela’s antidemocratic moves, perhaps reimposing sanctions on gold exports or restricting only new oil production deals. One person familiar with the process said that the US could partially reimpose sanctions on oil production by limiting licenses and only allowing for some projects but not all to continue, short of the total ban that existed before October.

Neither move would be a significant blow to Maduro in the short term, but they would allow Biden to show he’s taking action. It would also give some leeway until a final date for presidential elections is set. Venezuela’s government has agreed with the opposition the country will go to the polls in the second half of 2024. Yet, this might further delay the financing from the international banking system that’s crucial for local oil firms. 

“It is highly unlikely that the Biden administration will reimpose the same oil sanctions scheme that existed” previously, said Francisco Monaldi, a fellow in Latin American energy policy at Rice University’s Baker Institute for Public Policy. 

“Most probably the US will end the gold license as a first warning expecting that an opposition agreement for a presidential candidate is reached before April, when the oil license expires,” he added. A ban on state-owned gold miner Minerven was imposed in 2019 to prevent lucrative sales that keep the military loyal to Maduro.

The State Department on Saturday said that the US is reviewing its sanctions policy toward Venezuela. 

No decisions regarding Venezuela’s sanctions have been taken yet, and the Biden administration expects to complete its review within days, according to people familiar with the process, who asked not to be identified without permission to speak publicly. The National Security Council and Treasury Department on Sunday declined to provide additional comment.

Following Friday’s Supreme Court ruling, the Venezuelan opposition and the US government are likely evaluating whether the court’s action is final or if there’s a way to negotiate with the Maduro regime for Machado to be included in the election, or for the opposition to accept a replacement candidate, said Mark Feierstein, the US National Security Council’s senior director for western-hemisphere affairs in the Obama administration.

“I think the administration is hopeful that negotiations will continue between them and the regime,” said Feierstein, now a senior adviser at the US Institute of Peace.

Oil Sanctions Unlikely

Even if Venezuela is no longer as significant an oil player as it had been previously, the US has reasons to ensure the country remains a supplier. A partial re-imposition of sanctions not related to oil would leave energy major Chevron Corp. free to keep sending oil shipments to US refineries and increasing its output. The San Ramon, California-based firm has more than doubled its production during 2023, and plans to drill this year.

European firms like Eni SpA and Repsol SA are currently producing oil and gas, with operations secured by comfort letters extended by the US Treasury Department’s Office of Foreign Assets Control. A partial reimposing of sanctions would not affect their business. PDVSA, Chevron, Eni and Repsol didn’t immediately reply to requests for comment.

Trading firms have also approached Venezuela to restart direct purchases. Any halt in ongoing talks with the international banking system to reestablish financing for the sector because of the recent political squabble will further delay efforts to increase output.

“There’s potential for a partial reimposition of sanctions to signal that the US is serious, but negotiations can continue,” Feierstein said. “The mining one is the easiest to do, and the limits on financial transactions were more harmful to US investors than Venezuela. Oil is the most serious one, and I’d be surprised if they did that immediately.”

bloomberg.com 01 28 2024