The Trump administration. fed up with the authoritarian government in Venezuela. could soon play its last hand and block imports of the country’s oil. a move that would upset Gulf Coast refiners and pressure energy markets.
“The likelihood of significant sanctions including an import ban is higher now than it ever has been during the Trump administration.` George David Banks. President Trump`s former international energy adviser. told the Washington Examiner.
Banks said the Trump administration has long debated restricting oil from Venezuela. whose heavy crude is used in large amounts by refiners in Texas and Louisiana such as Citgo and Valero.
The administration held off. however. realizing refiners built to process heavy oil — before the U.S. became a dominant producer of light sweet crude during the shale boom — would struggle to find replacement sources. even though they have tried.
But the stakes changed after the Trump administration on Wednesday recognized the oil-rich country`s opposition leader Juan Guaido as Venezuela’s official head of state. in a swipe at leftist authoritarian President Nicolas Maduro. whose political oppression and economic policies have created food shortages and a public health crisis.
“Before the administration made the decision to recognize the opposition. the administration had more flexibility.“ Banks said. “Now the stakes are a lot higher. It has invested a tremendous amount of political capital.“
Other Trump administration allies say it favors sanctioning oil because that would impose a crushing blow on Maduro and perhaps deprive him of support from Venezuela’s powerful military. which has so far stood by him.
Joseph McMonigle. a former chief of staff of the Energy Department in the George W. Bush administration. says 70 percent of Venezuela’s oil production goes to pay off loans from China and Russia. while the rest is exported to U.S. refiners for cash.
“We are the ATM machine for Venezuela.“ said McMonigle. who is now president of the Abraham Group. a consulting firm. “The administration is cognizant of the impacts of sanctions to oil prices and to refiners. but they feel they have tried everything else. and this is the final shove needed to get Maduro out.“
Some energy industry officials are pressuring the Trump administration to hold off.
American Energy Alliance President Tom Pyle. Trump’s former energy transition team chief. argues it’s not worth the trouble to impose an oil embargo on Venezuela.
Oil production has already crashed in Venezuela in recent years because of the political turmoil.
The U.S. is less dependent on Venezuelan oil. importing less than 500.000 barrels a day. down from more than 1 million barrels per day a decade ago. The Energy Information Administration projected Thursday that the U.S. will become a crude oil net exporter by the fourth quarter of 2020 for the first time in nearly 70 years.
“They have become such a marginal player in global oil markets that I’m not sure it would even be necessary for Trump to get involved.“ Pyle said of Venezuela. “Venezuela’s socialist government is doing more to erode their market share than U.S. sanctions could ever possibly do.`
Still. Venezuela routinely ranks among the top five exporters of oil to the U.S.. with Gulf Coast refineries dependent on Venezuelan crude for about a quarter of its imports. the EIA says.
Alternative sources of heavy crude are strained. The Canadian province of Alberta has forced producers of heavy crude to cut back because of a supply glut. Gulf Coast refiners struggle to access crude from Alberta due to pipeline constraints.
Saudi Arabia has begun reducing supply of its heavy crude as it begins implementing an OPEC pact with Russia to cut production in order to raise low oil prices.
“While Venezuela’s contribution to the market is a small amount. it will definitely create some pressure.“ McMonigle said.
Richard Nephew. a senior research scholar at at Columbia University’s Center on Global Energy Policy who directed sanctions policy at the State Department in the Obama administration. said Trump is likely reviewing his options before waiting on a catalyst to act.
“The devil really is in the details on how a embargo would go down.“ Nephew told the Washington Examiner. “If it’s a flat out. ‘no Venezuelan product should touch our lips’ approach. that would directly affect a lot of companies on the Gulf Coast. But there are other options.“
As an interim move. the Trump administration has said it wants to ensure Venezuelan oil revenue goes to the opposition and not the Maduro regime.
“What we’re focusing on today is disconnecting the illegitimate Maduro regime from the sources of his revenues.“ national security adviser John Bolton told reporters at the White House Thursday.
Brian O’Toole. a former senior adviser of the Treasury Department’s Office of Foreign Assets Control. said the U.S. government previously took a similar step in Libya during the regime of deposed Libyan dictator Muammar Gaddafi. when it tried to deprive him of oil revenues and divert them to his opposition.
O’Toole said the Trump administration could also allow Gulf Coast refiners to continue importing Venezuelan oil. but direct the proceeds from the transaction into a blocked account. preventing the Maduro regime from receiving it.
McMonigle. however. said in these scenarios. Maduro would likely not allow oil to be sold to U.S. refiners and turn to alternative buyers such as Russia and China.
“It is the same as an import ban for refiners.“ McMonigle said.
O’Toole said U.S. sanctions authority allows for more escalation.
The government could move to directly seize the funds of a foreign country if the U.S. declared itself to be engaged in “armed hostilities“ with that entity. This option. known as “vesting.“ could occur in a situation such as the Maduro regime confronting American diplomats at the U.S. embassy in Venezuela.
“The vesting option is the most dramatic.“ O’Toole. a senior fellow at the Atlantic Council. told the Washington Examiner. “You are literally seizing the money. It has only happened a handful of times in the U.S.“
The choices facing Trump are not easy. Nephew said.
“They are wrestling with [the] same old issues.“ he said. “How do you deprive the regime of money without damaging yourself? That is the age-old question when it comes to sanctions. It`s hard for a reason.“