Venezuelan oily chess

There is an opportunity to revise a dead-end sanctions policy on Venezuela that would serve both US geostrategic interests and the goal of democratic transition.

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Three days before President Joe Biden announced that the US was imposing a ban on Russian oil and gas, Justin Bieber’s  private jet set off from Washington, DC to Caracas, Venezuela with high-level Biden administration officials on a quiet diplomatic mission to meet with Venezuelan president Nicolas Maduro.

The rumoured purpose of the trip was to offer relief to global oil markets and rising gasoline prices in the US – although later after a political backlash against a seeming oil for human rights trade, White House press secretary Jen Psaki denied it. 

The truth was more complicated. Nevertheless, as the original logic went and continues, by lifting US restrictions on investment in and export of Venezuelan crude can help resolve energy price spikes and peel Maduro away from his government’s alliance with an increasingly scorned and isolated Vladimir Putin.

None of those is true, but that doesn’t mean there isn’t an important moment for much-needed shift in policy direction internationally regarding Venezuela.   

Breaking up the club of global pariahs

Credible denials aside, even if the US were to waive its sanctions restricting Venezuela’s ability to export oil legally, it would take years before it would make any difference on US prices at the gas pumps and the soaring price of oil globally.

It’s also unclear whether making such an unrealistic, unilateral concession to Maduro would be sufficient to force a reconsideration of the Putin-Maduro axis that has developed since Maduro’s mentor, the former president Hugo Chavez, was in power from 1999-2013.

Even if the US were to waive its sanctions restricting Venezuela’s ability to export oil legally, it would take years before it would make any difference on US prices at the gas pumps.

While the Maduro government is suffering under the SWIFT bank sanctions imposed by the US with a significant portion of its reserves locked in Russian bank accounts, Putin and Russian state oil company Rosneft are not about to break up the club of global pariah states.

Maduro’s deadlock with the opposition

Where the policy shift will make the greatest difference is in incentivizing the Maduro government to return to negotiations in earnest to break the political deadlock with the democratic opposition which it suspended in 2021. But it won’t be easy. 

With oil prices on the uptick, even Venezuela’s measly 700,000 barrels per day (b/d) – down from three million b/d at the peak in 2000 – that it sells on the black market to avoid US law, Maduro is looking at a significant windfall for its cash-strapped government. 

Domestically, the administration is also facing pressure to maintain the sanctions, especially from Florida-based elected officials where a large Venezuelan diaspora currently resides (in addition to the fiercely anti-communist – and therefore anti-Maduro/Cuba axis – Cuban-American community) and to not abandon Venezuela’s democratic opposition for the (myth of) free flowing, unlimited oil.

But there is a way to thread the needle in a way that could serve both US broader geostrategic interests (though not its energy expectations) and its (and the EU, UK and Canada’s) longstanding goal of a peaceful, negotiated democratic transition in Venezuela.

Here’s how.

The search for an exit on sanctions

Since the inauguration of President Joe Biden, a growing chorus has called for revising the US sanctions placed on trade and investment with Venezuela’s oil industry. 

The rain of sanctions against the Maduro government began with targeted measures by former US president Barack Obama against public officials and individuals associated with the government for human rights abuses, corruption, narcotics trafficking and ties to terrorism; by 2017 more than 160 individuals were sanctioned

To those were added financial restrictions on the state oil company, PDVSA’s ability to raise capital and roll over old debt in US capital markets. Then in 2019, after the opposition majority  in the democratic National Assembly elected a new president, Juan Guaido, and declared him the constitutional interim president after Maduro’s 2018 re-election was declared fraudulent, the then-Trump administration went full Maduro on sanctions.

In the hopes of sparking defections within Maduro’s inner circle the Trump administration imposed trade and investment sanctions on PDVSA and associated entities and restrictions on Venezuela’s export of oil. 

The Maduro government has not only failed to collapse, it has consolidated its hold on the state and found ways to export its oil through third parties, often to China.

Three years later, though, and the Maduro government has not only failed to collapse, it has consolidated its hold on the state and found ways to export its oil through third parties, often to China.  While the Maduro government chaffed at the sanctions, it never made any moves toward permitting greater freedom within the country or serious efforts to participate in the negotiations that had re-started in Mexico with the support of the government of Norway. 

Privately Biden officials have acknowledged the failure of the sanctions to accomplish even minimal gains in Venezuela’s abysmal human rights situation. Quietly officials within the White House and the State Department started to draw up a detailed plan of graduated, carrot-and-stick sanctions relief intended to woo the Maduro government back to the negotiating table.

But the concern over a failed policy took a backseat to other items, domestic and international, on the Biden agenda. There was also the threat of political opposition from the Cuban-American/Florida delegation in Congress, many of whom had gone all in on the sanctions, as they have with the US embargo on Cuba (and haven’t looked back despite their 60 plus years of failure).

A sudden rapprochement with Venezuela

Then came Russia’s invasion of Ukraine. Suddenly a rapprochement with Venezuela got the attention of higher ups within the White House and the State Department and provided a new rationale.

A not insignificant portion of that justification was political theatre and the possibility of the release of American hostages being held by the Maduro government.   

With the planned announcement of the US ban on Russian oil and gas, Biden needed to show that he was doing something to address voters’ concerns about the cost of heating oil and gasoline at the pump.

In reality though, even if successful, Venezuela’s daily oil production is so low that it would not make even a dent on global energy prices. Like any cartel-driven and volatile market, global oil markets are fuelled more by fear and speculation than actual market forces of supply and demand.

Even if successful, Venezuela’s daily oil production is so low that it would not make even a dent on global energy prices.

Moreover, ramping up Venezuela’s oil production to a level where it could make a difference, such as the three million barrels per day, according to a 2021 Chatham House report may take more up to eight years and require between $78 and $120 billion.

How to leverage the sanctions

This is where a fresh, objective look at US and international sanctions is important. US companies such as Chevron are clamouring to gain a US license that would allow them to operate their existing investments in Venezuela. That would have the double benefit of squeezing Rosneft from its extensive investments in oil and increasing oil production (though not to the levels dreamed of).

But it would – to echo Senator Bob Menendez in a statement after the Caracas trip to meet with Maduro – risk trading oil for human rights, undermining the long-standing, strategic intent of US and international policy toward Venezuela: human rights, democracy and cleaning up the mess of more than two decades of state collapse and Chavista-government-coordinated transnational corruption.

Within the welter of – mostly US – international sanctions on Venezuela there is room for constructive maneuver.

In unpicking, understanding and seeking to leverage the sanctions, the goal should be threefold:

  1. Identifying specific changes that the Maduro government wants and needs but that do not directly enrich the inner circle and that permit for international accountability and transparency;
  2. Making clear the stated links between liberalization of sanctions and movement toward human rights and democratic conditions. Among those should be meeting the conditions for free and fair elections laid out in the EU’s electoral observation mission’s conclusions from the 2021 regional elections;
  3. Focusing on sanctions that can be easily (and painfully) reversed if the conditions mentioned above are not met.

Such a clearly articulated cont.

Such a clearly articulated set of goals, rewards and punishment will have the benefit of accomplishing the main goals of US and international policy to Venezuela while leveraging those to broader, newer geopolitical objectives.  

Trading oil for human rights was never on the agenda – despite the moralistic outrage of some US senators – nor was it practical. But using the current opportunity to review and revise a dead-end sanctions policy is long overdue, if done correctly.