Vice President Pence’s call Monday for Venezuela to suspend its “sham” May 20 elections, in a speech to the Organization of American States (OAS), was a tough and high-profile message that the U.S. administration wants change in Caracus and is prepared to continue to intensify pressure on the Maduro regime. He also called for the OAS to suspend Venezuela, and for its members to join with the United States in further isolating the regime.
New sanctions announced at the same time, against three drug kingpins, and 20 companies that they control, also reflect a U.S. policy of continuing to ratchet up pressure on the Maduro regime, and these measures should command regional support. Four of those companies were in Panama, and we can assume that the Panamanian government will work closely with the U.S. administration to enforce these rules, a positive step in regional cooperation.
Sanctions are not the cause of Venezuela’s deepening economic and humanitarian crisis. The blame falls squarely on decades of populist and unsustainable economic policies, reinforced by an increasingly authoritarian government. Still, with oil production falling and reports of increased defections from the military, the Maduro government looks fragile. Strengthened international sanctions at this critical moment can have a meaningful impact, through squeezing the cash flow to the government, punishing those that help keep it in power, and sending a strong signal of international support for a restoration of democratic institutions and institutions.
That said, the measures announced Monday fell well short of the vice president’s rhetoric. Narrow in scope, they seemed disconnected from the broader condemnation of corruption and authoritarianism by the Maduro regime and those that support it.
There are several good options for turning the screws on the Venezuelan government. For example, there would be broad international support for going after corruption in the distribution of food aid, 70 percent of which may be stolen according to Treasury Secretary Mnuchin.
Further, and more meaningful for markets, would be energy-related sanctions to prevent Venezuela from selling oil into global markets. A comprehensive energy ban would dramatically squeeze the flow of cash to the Maduro regime, and there are reports that the administration has a well-developed proposal ready to present to the president. But there are measures short of that, including a ban on the sale of diluents that are critical to refining, or restrictions on oil service companies and insurance coverage, that could be effective interim steps.
Why the administration did not act Monday on either of these two options is unclear. Perhaps they believe that the deepening economic crisis, with collapsing energy production, and amidst reports of increased defections within the military, the days of the Maduro regime are numbered and its better to let that government fall of its own weight. "Don’t break it, don’t own it." But, failure to act carries its own risks.
While U.S. rejection of the May 20 elections is no surprise, the vice president’s speech has now put a clear flag in the ground. Assuming the elections do go ahead on May 20, and the government moves to consolidate power, the international community will need to act quickly and powerfully to signal that the election is not recognized. Energy sanctions or something equivalently significant would be appropriate and would be a strong signal. That’s the stick. But there also needs to be a carrot.
Once there is a government in Caracus that will respect and restore democratic institutions and norms, allow humanitarian aid, and stop the oppression, the international community will need to reengage quickly. The cost of the recovery will not be cheap, by some accounts more than $60 billion, but the benefits — not only to the Venezuelan people devastated by the policies of this regime, but to the region as a whole, are profound.
Robert Kahn is head of Sovereign Special Situations, an economic advisory, and former senior fellow at the Council on Foreign Relations. He is an adjunct professor at American University.