US steps up oil sanctions pressure on Venezuela

The US administration is stepping up sanctions against Venezuela's oil sector after its year-long campaign to force a change of government in the Opec producer stalled.

Venezuela's oil production fell to 750,000 b/d last month, according to Argus estimates — lower by 450,000 b/d from January 2019 when the US imposed sanctions that prohibited imports of Venezuelan crude into the US. But they have not prevented Venezuelan president Nicolas Maduro from maintaining his tight grip on power. The imposition of new sanctions yesterday on Russia's Rosneft Trading — the main lifter of Venezuelan cargoes over the past year — is supposed to accelerate the process of removing Maduro from power, or so Washington hopes.

The sanctions against Rosneft Trading will pressure the Maduro government into agreeing to hold presidential elections, the State Department's Venezuela envoy Elliott Abrams says, promising "more steps and further pressure in the coming weeks and months."

Washington's demand for a new elections reflects the tough choices facing the Venezuelan opposition under the leadership of National Assembly speaker Juan Guaido, whom the US recognizes as Venezuela's interim leader. Guaido early this year barely beat back an attempt by the government to displace him as the parliament speaker and faces a harder test when the five-year legislative term ends in December.

The Venezuelan opposition is divided on whether to take part in the next parliamentary election at all, absent guarantees of a free ballot. The solution, according to Abrams, is to hold a presidential election first — the US and the more than 50 countries that recognize Guaido hold that Maduro's May 2018 re-election was fraudulent.

Maduro's government denounced the latest sanctions as "arbitrary" and a violation of "the right to free trade and free enterprise." Moscow issued a similar assessment, taking a shot at Washington for trying to grab market share for "US oil producers facing hardship" because of competition from Russian companies.

Guaido, predictably, celebrated the new sanctions as a "hard blow to the dictatorship," referring to the Maduro government that the sanctions are aimed at toppling.

Rosneft, which is lifting cargoes from Venezuela in repayment of past debt, may not even have run afoul of the existing US sanctions regime that aims to starve Maduro of cash revenue. But the White House decision was hardly accidental. US officials believe — rightly or wrongly — that Moscow has been a key lifeline for Maduro. Imposing sanctions on a subsidiary of the largest Russian oil producer - a day before its quarterly results were due - is supposed to add leverage for the administration as it quietly negotiates with Moscow to find a resolution to Venezuela's protracted crisis.

The optimal scenario, from Washington's perspective, is for Rosneft to fully end its involvement in the Venezuelan oil industry in exchange for the lifting of sanctions while the Kremlin facilitates Maduro's exit.

But the Russian foreign ministry said the new sanctions will not alter Moscow's policy toward Venezuela.

Ahead of US elections in November, the White House also views the escalation in Venezuela oil sanctions as a smart domestic political play, with no downside for US consumers given the oversupplied global oil market. The Joint Technical Committee of the Opec+ group has provisionally recommended to tackle the glut by cutting an extra 600,000 b/d in production in the second quarter. Russia is yet to state a final position on the proposal.

The decline in Venezuela's oil industry is likely to accelerate, running counter to the stated US goal of salvaging it in order to underpin economic revival under a future democratic leadership. What may matter more is reinvigorating the anti-Maduro campaign during a year when President Donald Trump is facing a tough re-election campaign. The White House already has been working to leverage its sanctions policy against Havana and Caracas into political advantage in Florida, a battleground state that is home to Americans of Cuban and Venezuelan descent.

By Haik Gugarats