Why US Sanctions Could Hit Venezuela

The Venezuelan oil sector and its state owned oil giant PDVSA were the target of the sanctions by the United States announced earlier this week. the main aim was however to put as much of economic pressure as possible on the government of President Nicolás Maduro which has been derecognised by the US as the legitimate government of the country and instead declared opposition leader Juan Guaidó to be the rightful head of state of the country.

The oil sector accounts for about 90 per cent of the revenues of the Venezuelan government.

The ultimate aim of the US is to ensure that the revenues generated from Venezuelan oil exports reaches directly to its citizens and not through the government of Maduro by ousting him and forcing new fresh elections.

The US wants the revenues from oil to reach Mr Guaidó so that some economic power is achieved by his National Assembly to counter Maduro, said US National Security Adviser John Bolton. According to Bolton, the sanctions would result in PDSVA’s assets worth about $7bn would be frozen and result in losses of over $11bn in lost export proceeds by the next year.

However there are some analysts who tend to believe that Maduro still has some point in his favour.

“The oil that Venezuela currently exports to the US will be diverted to other countries and sold at lower prices. For countries like China and India, the news was akin to Black Monday. They will be able to pick up these oil volumes at great discounts,” writes Venezuelan-born analyst Paola Rodriguez-Masiu, from Rystad Energy. She added that the sanctions would have lesser impact than what Washington is hoping for.

While the Maduro government is being supported by China and Turkey, currently, Russia is viewed to be the key player. Financial help have often been handed over to Maduro government by Russia – and the most important one was when the country was about to default on a major debt.

But analysts see some beneficial goals for Russia behinds its actions in favour of the current Venezuelan government.

But the question is whether Venezuela be hurt by these sanctions.

Whether the sanctions would be able to divert finances from Maduro to Guaidó is unclear.

The brunt of the sanctions would ultimately be borne by the people of Venezuela, believes Idriss Jazairy, a special UN rapporteur who reports to the Human Rights Council. “Sanctions which can lead to starvation and medical shortages are not the answer to the crisis in Venezuela,” he said. “Precipitating an economic and humanitarian crisis is not a foundation for the peaceful settlement of disputes.”

Another question that is cropping up is about the duration of these sanctions.

While the duration of the sanctions is dependent on the finding of the political solution in the fight between the opposition and Maduro, many believe that it would take quite some time and hence the sanctions are also likely to remain for quite some time.

While earlier, there has been some hesitation in Washington about imposing sanctions on Venezuelan oil, this time around, US is treading in uncharted territory because the details about how revenues from oil and humanitarian aid would reach the common Venezuelans through Guaidó and the National Assembly are yet to be worked out.

The sanctions could even backfire on the ultimate aim of Washington – ousting Maduro. On earlier occasions, hostile action by the US has helped Maduro and President Hugo Chávez before him to get Venezuelans together against a so called common enemy – the US , which had also boosted their popularity temporarily.  That could be the case now.

Further Maduro can now put the blame on the US for the worsening of living standards in the country. additionally, Maduro would also have the chance of claiming that Mr Guaidó is a mere puppet of the Americans.

(Adapted from BBC.com)

Categories: Economy & Finance, Geopolitics, Strategy, Uncategorized

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