Foreign Policy

How oil can break the back of Venezuelan despotism


Earlier this month, President Trump promised to take “strong and swift economic actions” if Venezuelan president Nicolas Maduro moved forward with Sunday’s referendum that would create a Constituent Assembly and enable him to rewrite his country’s constitution, effectively granting himself dictatorial powers.

Talking to reporters, a senior Trump administration official explained that “all options are on the table,” including an outright embargo on the sale of crude oil, on which Maduro’s besieged government is heavily dependent. Paired with sanctions on individual human rights abusers, an oil embargo has the best chance of reversing the Maduro regime’s behavior. The U.S. government should supplement these moves with aid to the Venezuelan people, who have suffered terribly under Maduro, and who would also feel the impact of an embargo.

{mosads}The Trump administration recognizes the need to uphold the democratic ambitions of the overwhelming majority of the Venezuelan people. Thus, Trump’s “swift economic actions” may also include sanctions against Petróleos de Venezuela, S.A (PDVSA), Venezuela’s state oil company. With an average of 700,000 barrels a day being exported from Venezuela to U.S., sanctioning PDVSA would slash Venezuelan government income by 75 percent.  For this reason, an oil embargo would provide the best opportunity to end Maduro’s despotic advances and cut-off corrupt Venezuelan officials from continuing to steal from their most lucrative source of revenue.

The Maduro regime has been intent on avoiding default, but with only $10 billion in reserves against approximately $140 billion in debt to foreign creditors, Venezuela has limited options. If its constant stream of revenues from PDVSA was reduced, the country’s currency crisis would be exacerbated and would bring Venezuela’s government closer to the precipice of default.

The Trump administration should also consider that an embargo would come with costs, and it should seek to mitigate them. An embargo could allow the regime the pretext to reinforce its narrative of a hostile U.S. government meddling in its domestic affairs. Venezuela is also the third largest importer of oil into the U.S., and thus such a move could also raise the price of oil in the short term for domestic U.S. consumers.

As Venezuela’s crisis worsened in the past months, state oil company PDVSA used 49.9 percent of its holdings in its wholly-owned U.S. subsidiary CITGO as collateral for a loan from Kremlin-linked Rosneft. The potential for Rosneft to own CITGO, a likelihood if PDVSA defaults, it would “expose critical U.S. infrastructure to national security threats.” The controversy over a U.S. based entity potentially being owned by a Russian oil company has posed serious legal questions for U.S. policymakers.

Alongside the threat of Venezuela becoming increasingly indebted to countries that don’t share U.S. interests — such as Iran, Russia and China — Russia’s direct involvement in “critical” U.S. energy infrastructure is a serious economic and national security threat. If these countries continue to bankroll Maduro’s increasingly authoritarian regime, they will enable his regime to further support drug trafficking and terrorism in the region.

According to its website, PDVSA supports “almost all” of the social missions and development programs run by the Venezuelan government. The decision to undertake an oil embargo could thus have a severe impact on the impoverished condition of the Venezuelan people, who rely heavily on PDVSA’s social aid. There exists the possibility that turmoil, including a potential refugee crisis, will spill into Colombia and Brazil, which are both already facing their own internal issues.

The U.S. needs to emphasize to Brazil and Colombia that it desires the preservation of their stability. The U.S. must therefore take steps to recognize and mitigate the impact of its actions on civilian Venezuelans while maximizing the pain it inflicts on Venezuelan leadership. These measures could include providing Venezuela’s neighbors with aid packages in preparation for potential refugees, planning a package of economic relief with the IMF, and encouraging Venezuela through multilateral diplomacy to open its borders for food distribution assistance.

The current food shortages are the product of Venezuela’s state-directed import scheme, which enriches its leaders at the expense of its people. If Maduro refuses to change this system or let food assistance in, the U.S. should work with allies party to the International Criminal Court to refer Venezuela’s regime to the court for crimes against humanity.

The U.S. government has already made steps to curtail the ongoing corruption plaguing the Venezuelan government. Thirteen high-ranking officials were designated for their complicity in undermining democracy, disregarding human rights, and indirectly causing the deaths of 104 individuals through the violent repression of protests. Aside from the proposed oil embargo, former and current PDVSA officials were also sanctioned for their role in the “engine of corruption”.

Targeted sanctions may not end here. An unnamed U.S. government official told Reuters that sanctions against the “Pablo Escobar of Venezuela,” Diosdado Cabello, and Defense Minister Vladimir Padrino Lopez may also be imposed. Cabello’s potential designation is especially because of his role as leader of the Cartel de los Soles, a network of drug trafficking cells plaguing Venezuela’s military and has reigned with impunity for decades. For years the U.S. government has successfully used sanctions to bring dangerous regimes to the negotiation table, a critical goal with Maduro’s regime to be able to reinforce regional and national security.

While it appears Maduro’s July 30th referendum was executed according to plan, the U.S. should make it clear that this extreme step away from democratic values is not tolerated. The U.S. should consider the dissolution of the National Assembly, the usurpation of its powers, or any changes to the Venezuelan Constitution as “red lines” that would trigger a new rounds of sanctions. These red lines should be communicated to Venezuela and other regional governments well in advance, so the U.S. can establish a credible deterrent and have enough lead time to form a regional humanitarian response.

By teaming up with regional allies to fight endemic corruption and break the back of Venezuelan despotism with an oil embargo and targeted sanctions, the U.S. can make an unprecedented commitment to fight South American demagoguery.

Michaela Frai is a Research Associate for the Latin America Project at the Foundation for Defense of Democracies. Alex Entz is a Research Analyst for FDD’s Center on Sanctions and Illicit Finance. The Foundation for Defense of Democracies is a non-partisan research institute focusing on national security and foreign policy. Follow FDD on Twitter @FDD.

The views expressed by contributors are their own and not the views of The Hill.


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