On oil sanctions, US-Venezuela relations may not yet unfreeze

Lately, energy companies have acted as if US sanctions against Venezuela’s oil industry will soon end. Last month, two US investment firms – Gramercy Funds Management and Atmos Global Energy – formed a joint venture with Venezuelan group Inelectra to engage in oil and gas exploration. Ownership of Citgo’s refineries in the country has been a key point of contention for several years between Venezuelan President Nicolas Maduro and his opposition, but the US oil giant’s management has nonetheless said it will accept crude exported from Venezuela if the sanctions were effectively lifted.

Their apparent belief that the sanctions will be lifted is a response to several recent moves by Washington that suggest its relationship with Caracas could be heating up. On the one hand, the US government has been more permissive towards oil exploration there. In June, he granted an informal waiver to Italy’s Eni and Spain’s Repsol to ship Venezuelan oil to Europe. Washington also granted Chevron limited permission to engage in discussions with the Maduro regime and PDVSA, Venezuela’s national oil company, about future operations.

More importantly, despite severing diplomatic ties with the country in 2019, senior US officials have visited Venezuela twice this year. While the audience for these visits focused on the release of American prisoners, several outlets suggested that conversations about lifting sanctions and increasing oil production also took place. The results of these meetings have so far been limited. Maduro freed two American prisoners and the United States lifted sanctions against Carlos Erik Malpica Flores, a PDVSA executive who is also Maduro’s nephewhis wife, Cilia Flores. There have been hints that negotiations between Maduro and his political opponents will resume, but progress is slow.

There is, however, a danger in exaggerating the potential for a thaw in US-Venezuelan relations. The conditions that prompted the sanctions in the first place continue and, in some cases, have worsened. Maduro continues to engage in corrupt and criminal operations that rob the country. It brutally suppresses its political opponents and tens of thousands of Venezuelans have been killed by security forces in recent years. The economic desperation and political repression he oversaw was enough to drive nearly 6 million refugees to flee the country – one of the world’s largest displacement crises, according to United Nations data.

Some have suggested the US may be tempted to lift sanctions on Venezuelas the oil sector, in particular, in order to increase energy flows and give the United States more flexibility to respond to Russiathe invasion of Ukraine. Europe’s reliance on Russian gas has limited Bidens options, even as high gas prices put domestic pressure on him at home. However, removing the sanctions would only give a small boost to global energy supplies. Former Venezuelan President Hugo Chavez then Maduro crushed VenezuelaIndia’s oil industry long before sanctions had any effect on it, and it would take years, at a minimum, to rebuild.

Even if regular contact resumes between the two countries and sanctions against the oil sector are lifted, the policy of the Biden administration will certainly remain in favor of some kind of political transition. In the absence of genuine democratic reforms, sanctions against those allegedly involved in drug trafficking and human rights abuses, many of whom are also sanctioned by Washington’s allies in Europe and the Canada, be lifted. The US Congress, meanwhile, is likely to be even tougher on the Maduro regime, as members of Congress from the far right to moderate Democrats are harshly critical of Maduro. Leaders of the Senate Foreign Relations Committee, the senses. Marco Rubio and Robert Menendez, are particularly outspoken opponents of the Maduro regime, suggesting that Congress is likely to criticize even the smallest moves towards normalizing relations.

Already, the sanctions regime has exposed the limits of US power and influence and, worse, encouraged sanctioned actors to cooperate around them.

Additionally, the oil industry was just one of many sectors in Venezuela targeted by individual and blanket U.S. sanctions beginning in 2019. The Trump administration also imposed sanctions on debt, gold, crypto -currencies and various industries belonging to the army. The many individual sanctions against regime officials date back to George W. Bush administration, before being expanded under former President Barack Obama, then exploding in numbers under Trump.

In 2019, there were valid arguments both for and against sanctions as a form of economic pressure. Historically, sanctions work about a third of the time to change behavior, but have a much higher failure rate when applied in regime change attempts. They tend to succeed more often when coordinated internationally and fail when imposed unilaterally. Yet given Maduro’s weakness in 2019 and the existence of a valid alternative – Juan Guaido, who was named president by the Venezuelan National Assembly and recognized by the United States and dozens of other countries -, it was possible to envision scenarios in which economic pressure might have helped create the space for political transition.

But as valid as those reasons may have been in 2019, at this point itIt is clear that sectoral sanctions have failed and that new sanctions would not be enough to remove Maduro from power. The Maduro regime is now in a stronger economic and political situation than 12 or 24 months ago, and GuaidoThe interim government failed to gain ground in the country.

The failure of these sanctions has left the United States with two bad options. It can either continue with a sanctions policy that is not working or remove sanctions against a regime that has done nothing to merit its removal.

If the sanctions continue, they become an exercise in futility. Already, the sanctions regime has exposed the limits of US power and influence and, worse, encouraged sanctioned actors to cooperate around them, so that they can continue to develop their economies anyway. . Russia, Iran and Venezuela have built a axis of the sanctioned”, in which they coordinate the financial infrastructure and provide support when needed. While the countriesinterests are not always aligned, sanctions have done more to encourage their cooperation than to divide them. Finally, the sanctions have a cost for the international community by restricting the flow of oil – a reality that is more striking than ever, given that Russia is using energy as a weapon in its efforts to change European policy towards from Ukraine.

If the sanctions are lifted, Washington will essentially admit defeat. This would reward Caracas for the duration of the sanctions and encourage other sanctioned countries and actors to engage in evasion techniques – such as sending secret oil shipments and money laundering – which should be illegal and prosecuted. . And if done without concessions from Caracas, the removal of sanctions would also give the United States less leverage to encourage better human rights and election conditions in Venezuela in the future.

One of the additional challenges of removing sanctions will be that the Maduro regime will not make it easy for the Biden administration. If they released some political prisoners and committed to free, fair, and credible elections in 2024, dropping sanctions would be much more politically palatable in the United States. Instead, Maduro is much more likely to continue his crimes, corruption and human rights abuses as he questions a US election and negotiations while publicly aligning himself with other other American antagonists, including Russia and Iran. He prefers to display the fact that his regime has survived the sanctions rather than have them abandoned.

It is difficult for the United States to admit that it has failed. It will be even harder to do so if Maduro’s antagonistic regime makes Washington pay a reputational price for admitting these failures, and even harder if an angry Congress uses policy change as a political weapon. But the alternative is to continue with a policy that just isn’t working, instead of trying something new.

James Bosworth is the founder of Hxagon, a company that performs bespoke political risk analysis and research in emerging and frontier markets. He has two decades of experience analyzing politics, economics and security in Latin America and the Caribbean.