US to stay course on Venezuela sanctions

  • Market: Crude oil
  • 11/23/21

The US administration will stay the course on Venezuela oil sanctions after deeming the country's 21 November local elections as neither free nor fair, all but ending a brief flirtation with a more conciliatory policy.

Venezuelan president Nicolas Maduro's government "deprived Venezuelans yet again of their right to participate in a free and fair electoral process," US secretary of state Tony Blinken said a day after Maduro celebrated the victory of his United Socialist Party (PSUV), whose candidates swept most gubernatorial and local races amid low turnout.

President Joe Biden's administration earlier this year said it would consider lifting some of the financial and oil sector sanctions in effect against state-owned PdV and the Venezuelan government if the elections showed "substantive, credible advancements" toward restoring democracy in Venezuela.

But even before the balloting began, US officials described the process as neither free nor fair and said the sanctions would remain in place.

Financial sanctions in effect since 2017 and 2019 oil sanctions have taken a toll on PdV's output. But Venezuela has found ways to adapt — crude output has surpassed 600,000 b/d, partly reflecting condensate imports from Iran that are helping PdV to dilute extra-heavy crude from the Orinoco oil belt. Venezuela was producing over 1.2mn b/d before the oil sanctions took effect.

Biden's administration has maintained its predecessor's policy of sanctions and recognition of opposition leader Juan Guaido as the country's interim leader, despite misgivings about whether the policy can achieve the US goal of forcing Caracas to hold competitive presidential and parliamentary elections.

The Treasury Department's sanctions enforcement arm, the Office of Foreign Assets Control (OFAC), in a September filing with a US court weighing how to auction PdV's US refining arm Citgo on behalf of creditors suggested that the end of the Venezuelan opposition-controlled National Assembly's mandate in January 2022 would also end Guaido's authority as interim president.

But some hawkish Democrats and Republicans in US Congress, sensitive to conservative voter sentiment ahead of November 2022 midterm elections, have called on Biden to maintain the fiction that Guaido is Venezuela's legitimate leader, even though other opposition forces are gaining ground inside the country. And that domestic pressure seems to have worked.

"We recognize interim president Guaido and his government," assistant secretary of state Brian Nichols told lawmakers last week. "We continue to work with them closely, and I do not expect any change in that regard."

The Venezuelan government withdrew from negotiations with the mainstream opposition in October. Ahead of the 21 November election, opposition divisions deepened, particularly over whether to participate in the 21 November elections as a mobilization tactic. US diplomats had to shield opposition candidates who participated in the process from criticism from more hardline figures who insisted on maintaining an electoral boycott.

"We commend the political parties and candidates as well as voters who decided to participate in this process despite its flaws," Blinken said.

After Guaido's formal mandate ends in January, the US is likely to maintain its recognition of him as the country's last legitimate leader, even though Guaido himself has dwindling support in Venezuela. This status quo scenario would reopen a policy gulf with the EU, which dispatched a mission to monitor the Venezuelan elections and has been more inclined to use carrots rather than sticks in dealing with Caracas.

The EU electoral mission gave an upbeat assessment of the vote despite noting shortcomings such as the failure to register some opposition candidates and the use of fuel and food giveaways to influence voters by members of the ruling party. The elections marked the return of "the majority of political parties and candidates to the electoral arena," EU foreign affairs commissioner Josep Borrell said today, expressing hope that its observer mission would help facilitate credible and inclusive elections in the future, including a presidential election.


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