Let’s take it in parts: oil is Venezuela’s main source of revenue. Venezuelans depend on its sale to survive. But PDVSA, the state-owned oil company produces less and less oil each year. When former president Hugo Chávez assumed power in February 1990, the country produced 3.5 million barrels of oil per day. I n 2013 when Nicolás Maduro became the president, the country was producing 2.7 million barrels per day. Today, Venezuela is only producing 1.7 million barrels per day, according to OPEP. What was once a gold mine is now running dry.
Why?
The mismanagement of PVDSA, the economic crisis, the ever-growing debt, and rampant corruption have led to a lack of maintenance on important infrastructure which means that several oil refineries cannot run.
69 executives at PVDSA and CITGO (PVDSA’s subsidiary in USA) are in jail, including 2 ex-presidents of the company. A third, Rafael Ramírez, the once-all-powerful ex-secretary is now a fugitive. Venezuela’s attorney general stated that between 2009 and 2015 4.5 billion dollars were stolen from PDVSA as a result of corruption and the legislative assembly estimates that it cost the state a total of 11 billion dollars between 2004 and 2014.
If the US prohibits the purchase of Venezuelan oil, it would, without a doubt, be one of the strongest sanctions that it could impose. Venezuela exports 1.3 million barrels per day. The state uses around 40%, to pay the country’s debt with China and Russia. In other words, it uses its oil to pay back an estimated debt of 50 billion dollars, which means that the exports don’t generate revenue for Venezuela. Of the 800,000 barrels per day that do generate revenue, about 500,000 are exported to the US.
As if Venezuela is not dependent enough on the US, it also buys form the United States light crude and gasoline that it mixes in with its own heavy crude in order to sell the product in the country’s internal market.
What could the US do?
It could suspend Venezuelan oil imports. It could prohibit the sale of light crude and gasoline. It could also suspend insurance coverage for PVDSA’s oil tankers.
It is speculated that if other countries also join in on the sanctions, for example Panama, who has up to now denied it, they could stop the passage of these oil barges through the Panama Canal.
How would these sanctions affect Venezuela?
Donald Trump’s administration has already imposed financial sanctions on Venezuela that are causing some series effects: neither Venezuela nor the PVDSA can borrow money. CITGO, which has refineries and gas stations in the US cannot send dividends to Venezuela. On top of that, CITGO is mortgaged by bondholders and a Russian company. Without revenue from oil sales, Venezuela would be further strapped to find a way to pay for food, medicine, and parts; these are all sectors where there is already massive shortages.
Inflation, which is already an ordeal of itself and was at 2000% in 2017, would get worse. The county could default or be unable to pay its debts. If Venezuela stops importing American gasoline, it would impact the automotive sector that is already deteriorated due to a lack of production and auto parts. According to the Venezuelan Automotive Chamber, the country went from producing 170,000 vehicles in 2007 to only 2,768 in 2016.
What does this mean for the US?
The truth is that the US is producing more and more oil every day, which means that it is becoming less and less dependent crude imports; including Venezuelan oil. CITGO and other refineries in the Gulf of Mexico will be left without oil to refine; meaning that they would have to import oil from other countries. The Association of Refineries in Texas protested the sanctions that would hike up their costs and lower their earnings as a result of having to import oil from other countries farther away. It is also possible that oil prices could go up in certain parts of the US.
With sanctions on Venezuelan oil, Caribbean countries in Petrocaribe would also suffer. These countries receive subsidized oil (some 150,000 barrels per day) and also have benefits in their payment plans.
What options does Venezuela have?
Venezuela could sell its oil to China, Russia, or India; but opening up new markets wouldn’t be so easy because they would have to open special refineries to process Venezuela’s heavy crude oil. American oil companies that operate within Venezuelan oil zone could be expelled.
Politically, an eventual oil embargo victimizes Venezuela and gives the left reason to continue attacking the US for being imperialist and interventionist.
The truth is that Venezuela already lives with the effects of what we could call its own sanctions; a result of a failing government. The decline of oil production has affected the country so much, that the population is already feeling the would-be effects of an impending embargo.