President Nicolas Maduro said Sunday’s vote for a new Constituent Assembly would bring peace to the country, but the immediate impact is likely to be expanded US sanctions. Fresh trade measures by Washington may embolden opposition to Maduro, including from the military. That offers hope for Venezuelans, but American companies like Phillips 66 and Chevron would share the costs.
Members of the new legislative super-body elected on Sunday will have the authority to rewrite the constitution and to override the opposition-controlled National Assembly, strengthening the Socialist president’s grip on power. The administration of President Donald Trump, which last week imposed sanctions on 13 of Maduro’s closest allies, has threatened to respond by targeting the South American country’s oil sector with new restrictions.
Oil generates 95 per cent of Venezuela’s export income and the United States is the largest cash-generating market for state oil company PDVSA. A cut in oil revenue would further tighten the government’s budget for basic necessities and increase the risk of Venezuela defaulting on its foreign debt this year. Both dynamics would exacerbate social instability and could prompt the military — reluctant to use excessive violence against civilians, and keen to maintain its own dollar inflows — to reconsider its loyalty to Maduro and force him to negotiate a transfer of power.
Venezuela is the third-largest supplier of crude oil to the United States, providing an average of 741,000 barrels a day last year, according to the Energy Information Administration. US companies such as Phillips 66 and Chevron, which respectively took 18.5 percent and 13.1 percent of Venezuelan crude exports in 2016, will feel the impact if Washington interrupts that trade.
Even if new sanctions prohibit only exports to Venezuela, US oil companies would have a lot to lose. Venezuela bought 75,000 barrels a day of light crude from the United States in 2016, or nearly 15 percent of American exports. PDVSA mixes that with its heavy crude to make it commercially viable. American refineries that sell to Venezuela would have to find alternative customers.
The US oil industry is already facing the costs of government sanctions against Russia and Iran. Economic measures against Venezuela might bring diplomatic success, but it would surely come at an additional price.