Maria Corghi – As Venezuela is visibly deviating from a democratic path and is teetering on collapse due to the corruption and gross mismanagement at the hand of its government, President Donald Trump imposed financial sanctions on the country with the promise to inflict economic pain. President Trump signed an executive order on August 25 to restrict Venezuelan President Nicolas Maduro’s access to the U.S. economy.[1] National Security Adviser H.R. McMaster described President Trump’s actions as a promise to strongly punish Maduro’s “illegitimate dictatorship.”[2]
Treasury Secretary Steven Mnunchin explained that “Maduro may no longer take advantage of the American financial system to facilitate the wholesale looting of the Venezuelan economy at the expense of the Venezuelan people.”[3] However, President Trump’s “financial” sanctions on Venezuela are, at most, facially diplomatic because they lack any meaningful financial effect on the American-Venezuelan economic ties.
President Trump’s executive order bars dealings in new bonds and stocks issued by the government and the state oil company, Petroleos de Venezuela.[4] Although the sanctions restrict trading of Venezuelan bonds sold by the government in the American financial markets to raise money, the Trump administration stopped short of prohibiting important imports of Venezuelan oil to American refineries.[5] Furthermore, the sanctions have wide loopholes, allowing for the financing of most commercial trade, including the export of American oil to Venezuela.[6]
Although banning the trade bonds will have some effects, these would be marginal for a country in Venezuela’s situation. Venezuela does not have many bonds left after Goldman Sachs recently purchased most of them.[7] With the current economic crisis in Venezuela, it follows that no new bonds will be issued either.[8] Simply, people are not going to lend money into a system that has such high risk of default. The most meaningful tool that the United States has, if it wants to have any meaningful effect on Maduro’s regime, is an embargo of the oil trade.
White House Press Secretary, Sarah Huckabee Sanders, said that “[t]hese [sanctions] are carefully calibrated to deny the Maduro dictatorship a critical source of financing to maintain its illegitimate rule, protect the United States financial system from complicity in Venezuela’s corruption and in the impoverishment of the Venezuelan people, and allow for humanitarian assistance.”[9] However, it is difficult to see a meaningful economic effect on Maduro’s authoritarian regime meanwhile the U.S. remains Venezuela’s largest oil importer.[10] According to the Energy Information Administration, the United States bought 780,000 barrels per day of Venezuelan crude and refined products in 2017. [11] Although this amounts to roughly 8 percent of total imports by the United States, it amounts to at least half of Venezuela’s exports.[12]
Presumably, there are legitimate reasons for the Trump administration’s caution in regards to imposing sanctions in a country like Venezuela. Sanctions of this kind are a double-edged sword because the diplomatic success they bring comes at a price, and thus must be carefully calibrated. The two countries’ economies are tightly intertwined through the oil that Venezuela sells to the U.S, which accounts for roughly ten percent of the oil America imports.[13] Potentially, the U.S. may suffer collateral damage if it imposes a complete prohibition on American oil. A trade embargo could raise fuel prices, cost jobs in the oil industry and dampen profits for several major refiners.[14]
However, the Trump Administration vouched to avoid any complicity with an authoritarian regime, but the sanctions against Maduro and Venezuela are not a deathblow. They don’t particularly affect the most significant economic ties between the two countries given Venezuela’s already existing inability to borrow. If the Trump Administration seeks to meaningfully challenge an illegitimate and corrupt regime, it must be willing to cut all ties with it. The United States must weigh the potential collateral damage—which is naturally financial—that may be suffered domestically against the financing of human rights violations at the hands of a narco-dictatorship abroad.
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[1] Anne Gearan & Anthony Faiola, Trump Tightens Venezuela’s Access to U.S. Financial System, Wash. Post (Aug. 25, 2017), https://www.washingtonpost.com/world/national-security/trump-administration-moves-to-restrict-venezuelan-access-to-us-financial-system/2017/08/25/18b22a5e-89ad-11e7-a50f-e0d4e6ec070a_story.html?utm_term=.8ee19505a1b8.
[2] Id.
[3] Id.
[4] Id.
[5] Clifford Krauss, White House Raises Pressure on Venezuela With New Financial Sanctions, N.Y. Times (Aug. 25, 2017), https://www.nytimes.com/2017/08/25/world/americas/venezuela-sanctions-maduro-trump.html.
[6] Id.
[7] Tim Worstall, U.S. Imposes More Sanctions on Venezuela – Politics, Yes, Little Economic Effect Expected, Forbes (Aug. 26, 2017, 11:57 AM), https://www.forbes.com/sites/timworstall/2017/08/26/us-imposes-more-sanctions-on-venezuela-politics-yes-little-economic-effect-expected/#108af49d7074.
[8] Id.
[9] Krauss, supra note 5.
[10] Id.
[11] Marianna Parraga & Matt Spetalnick, Exclusive: U.S. Weighs Financial Sanctions to Hit Venezuela’s Oil Revenue – Sources, Reuters (July 21, 2017, 8:36 PM), https://www.reuters.com/article/us-venezuela-sanctions/exclusive-u-s-weighs-financial-sanctions-to-hit-venezuelas-oil-revenue-sources-idUSKBN1A7013.
[12] Id.; Krauss, supra note 5.
[13] Clifford Krauss, Wider U.S. Sanctions on Venezuela Risk Biting Both Countries, N.Y. Times, July 27, 2017, https://www.nytimes.com/2017/07/27/business/venezuela-sanctions-oil-maduro-vote.html.
[14] Id.
