US trying to tip balance in Venezuela via oil sanctions

By Ovunc Kutlu

ANKARA (AA) - The U.S. is trying to shift the political balance in Venezuela in its own favor through the latest economic sanctions on state-owned oil company PDVSA, according to an economist from London-based Capital Economics.

The sanctions have frozen all of PDVSA and its subsidiaries' assets in the U.S. -- a move that will greatly diminish Venezuelan President Nicolas Maduro's grip on politics and oil revenues, which are vital for the country's already weakened economy.

The move will likely "lead to a large loss of export earnings in the next few months," Edward Glossop, a Latin America economist at Capital Economics, told Anadolu Agency.

"If Maduro can cling on to power during this time, perhaps by securing loans from China and Russia, he may be able to ride this out until oil exports can be diverted elsewhere. But this looks like a tall order. Political change is close," he cautioned.

While China, Russia and Turkey continue to stand behind Maduro, most Western countries led by the U.S. shifted their support towards Venezuelan National Assembly President Juan Guaido, who declared himself interim president last week.

In addition to political support, Washington has also made economic inroads with the sanctions that aim to alleviate Maduro of oil revenues and divert them to Guaido.

While the U.S. is the top destination for Venezuelan crude exports, Venezuela is the fourth biggest country that the U.S. imports crude from.

"The U.S. accounts for about 40 percent of Venezuela's total oil export earnings," Glossop said.

"This loss of export revenues will deepen the economic crisis. The $1 billion per month hit to export revenues is equivalent to Venezuela’s total monthly import bill. This will worsen goods shortages and hyperinflation," he added.

The expert said PDVSA could try to ship more oil elsewhere instead of the U.S. but admitted that it would be very difficult to fully replace lost U.S. export revenues.

While India is one country that is big enough to make up that difference, Turkey is also a large oil importer, Glossop noted.

However, he warned the U.S. could intensify its pressure on Venezuela by taking additional measures.

"The U.S. could stop Venezuela from importing its refined oil or Naptha [used to dilute Venezuela’s heavy oil]. It could also put pressure on other governments to stop importing Venezuelan oil," he explained.

PDVSA and its U.S. subsidiary Citgo also face some potential reshuffling in their management.

Concurrently with the U.S. sanctions, Guaido asked the National Assembly to name new boards of directors for PDVSA and Citgo. He added plans to dismiss Venezuelan Oil Minister Manuel Quevedo, who is also the president of PDVSA.

The latest sanctions do not prohibit Citgo from importing Venezuelan crude for its refineries in the U.S. and do not forbid American firms from continuing to operate in Venezuela.

Maduro, meanwhile, accused Washington of trying to steal Citgo, which has 3,500 employees, more than 5,000 gas stations, nine pipelines, and 48 petroleum product terminals in the U.S. alone. It also has a total refining capacity of around 760,000 barrels per day (bpd) of oil in its three refineries located at the U.S.' Gulf Coast.

Citgo, however, has been unable to send money to Venezuela since the previous U.S. sanctions on the country were imposed in August 2017.

Venezuela exported around 1.7 million barrels per day (mbpd) of oil in 2017, out of which the U.S. bought 670,000 bpd, according to the U.S.' Energy Information Administration.

Crude oil production in Venezuela has been in decline in the recent years due to mismanagement, lack of investment and economic downturn.

A major OPEC member, the country's crude output stood at 2.32 mbpd in 2015 and 2.15 mbpd in 2016, according to the organization's data.

That level declined to 1.91 mbpd in 2017, further fell to 1.34 mbpd last year, and plummeted to 1.15 mbpd in December 2018, the data showed.

Nonetheless, Venezuela leads the world with 303 billion barrels of proved oil reserves, according to BP World Energy Outlook Report 2018.

All eyes have now turned to the power struggle between Maduro and Guaido that intensified on Tuesday.

Venezuela's Supreme Court, which remains loyal to Maduro, has frozen bank accounts of Guaido and banned him from leaving the country, stating that the opposition leader has "caused harm to peace in the republic."

Since Guaido is the leader of the National Assembly, he has immunity from prosecution, with the exception of Supreme Court rulings.

U.S. National Security Adviser John Bolton quickly responded to the Supreme Court decision later on Tuesday via social media.

"We denounce the illegitimate former Venezuelan Attorney General's threats against President Juan Guaido. Let me reiterate - there will be serious consequences for those who attempt to subvert democracy and harm Guaido," he wrote on Twitter.

Maduro spoke to Russian news agency RIA Novosti on Wednesday morning, expressing his willingness to hold talks with the opposition leader.

"I am ready to sit at the negotiation table with the opposition for us to talk for the benefit of Venezuela, for the sake of peace and its future," he said.