Misión Verdad
Increasingly, the sanctions on the Venezuelan government are producing a ripple effect that affects U.S. interests and foreign policy, despite reassuring projections that the U.S. Energy Information Administration (EIA) has provided to lessen concerns about the global impact of the freezing of Venezuelan assets on U.S. soil by the Treasury Department.
On Monday, January 28, Treasury Secretary Steven Mnuchin announced coercive measures against essential Venezuelan companies operating in the United States, under the premise of “helping to prevent Maduro from further diverting Venezuelan assets and preserving these assets for the Venezuelan people”.
The Executive Order places institutions of the entity, including the Central Bank of Venezuela (BCV) and PDVSA, as targets of the sanctions. In addition to blocking assets valued at $7 billion, prohibiting U.S. and allied companies from negotiating with PDVSA would result in an additional loss of $11 billion, based solely on exports.
While the arbitrage of Venezuelan assets is used as an instrument of pressure on the government of President Nicolas Maduro, while financing a parallel power structure to replace him, the United States is manoeuvring with the collateral damage reflected in its energy industry and national economy.
Damage to the Gulf Coast Oil Industry
In An Analysis published by the EIA, denies that the sanctions against the state-owned PDVSA have significant consequences on the operation of U.S. refineries. Apparently, the oil companies that supplied themselves with Venezuelan oil were reducing their imports in anticipation of this scenario.
However, experts in the area say that in the coming weeks it will be possible to observe how it will affect the performance of the Gulf Coast industries.
Antoine Halff, senior researcher at Columbia University’s Center for Global Energy Policy, explained that “Venezuelan crude is of a unique quality that is ideally suited to U.S. refineries on the Gulf Coast,” and finding an immediate alternative is a challenging task due to a number of factors.
Located in Louisiana and Texas, these refineries must receive about 30 percent of their energy from heavy oil in order to operate. Although their production costs are more expensive, they can compete in the market for the low price of oil, which was imported largely from Venezuela.
According to information from the Department of Energy, in 2018 the United States imported an average of 500,000 barrels of Venezuelan crude a day.
The director of the Energy Institute of the United Kingdom, Eric Smith, explains that the imported resource represented 2.8% of the 20 million barrels consumed by the United States, but in relation to heavy oil, the figure increases to 17%. The fall to zero leaves a gap of 3.5 million that cannot be so easily filled.
Options to replace the resource are offered mainly by Mexico, Canada, Russia, Saudi Arabia and Iran.
Mexico and Canada, which are the preferred because of their proximity to the border, present specific challenges. Canada does not have a pipeline system that lowers the import price from the north to the Gulf Coast. The train, which is currently used to transport oil, is twice as expensive as other forms of transportation.
The Mexican government is currently facing a considerable reduction in oil production due to the abandonment of the energy sector and the theft of its pipelines. The work to rebuild the national industry and raise production will take at least three years.
On the other hand, Russia and Saudi Arabia are among the OPEC and non-OPEC countries that have agreed to produce less crude, in order to influence global market prices and sustain barrel prices. Iran, on the other hand, is circumventing the trade embargo imposed by the United States in November 2018.
Therefore, there is no effective contingency plan to adjust to a new supply flow that would reverse the disadvantageous position in which U.S. refineries will find themselves.
Consequences for the American Population
Every economic measure taken in the energy sector has consequences that extend down the chain to the most vulnerable populations, and the United States is no exception. The unilateral decisions taken by the Trump Administration against Venezuela illustrate how the domino effect can reach its own citizens.
The rise of oil in the global market, a possible projection if OPEC’s efforts to reduce production are consolidated, is directly related to the increase in gasoline.
If the course of sanctions against Venezuela continues, it could contribute to this effect, as happened last year with the blockade against Iran. The American Automobile Association, which has been monitoring the potential impact of the sanctions, stressed that the measures taken in November against the Persian nation had a rebound in gasoline prices being “significantly more expensive than in 2017”.
The volatility of unilateral measures are being paid for by low-income citizens, who have to devote a significant part of their budget to things like gasoline.
Also the production of diesel, an input derived from oil used for heating, is at risk as it limits crude oil revenues to U.S. refineries. If we do not have an option that replaces the shortage and is not expensive, the price of domestic supplies will increase, affecting low-income families.
Added to this are the distribution systems that use diesel fuel (trucks, boats and railroads) that travel throughout the United States. The increase in transportation would have an impact on all consumer goods.
On this point, we must mention the community work done by the Venezuelan government through its subsidiary CITGO, a company that was seized de facto, after the announced embargo made by the director of the National Security Council, John Bolton.
In Bronx County, New York, the Social Heating Program for low-income people has been operating since 2005. The Venezuelan refinery provides this resource to more than 40,000 families who have no way to pay for private service.
Fuel is provided to 25 other states, reaching 1 million people with an investment of up to $500 million. In contrast, the Trump Administration is engaged in stealing the assets of nations that are tasked with developing social programs to protect the population.
The Caribbean: Concerns of countries allied to the United States
The US maneuver is transferred to third parties that are affected by the oil embargo. Thanks to Petrocaribe’s strategic route, charted by Venezuelan foreign policy, the national oil industry has joint ventures and refineries in Caribbean and Central American countries.
This region has been fundamental in reversing diplomatic aggressions in the spaces of the OAS and the UN, where U.S. officials have failed to reach an international consensus to violate the sovereignty of the Venezuelan state.
United States member nations, such as Belize, the Dominican Republic and Jamaica, resent the measures against the Venezuelan country. Their companies will have to look for alternative sources of oil with transnational companies that do not offer cooperative agreements under the same conditions of equality that PDVSA facilitated.
An article published in the Heritage Foundation, analyst Ana Quintana showed how energy companies with running transactions had difficulty obtaining their cargo. The tankers filled on the day the sanctions were announced remain parked at the ports of shipment.
For Quintana, the U.S. government should “try to reasonably address the concerns of the partners without weakening the effectiveness of the sanctions,” and also bind them diplomatically to recognize the parastate headed by Juan Guaidó.
The precarious relationship between Washington and the Caribbean countries, which must now endure the economic shock, creates another undesirable scenario for the White House: that of a greater rejection en bloc by the governments of the region of interventionist actions against Venezuela.
Do energy sanctions have an expiry date?
The time to exert pressure and force regime change is short as the boomerang effect of the sanctions is hitting the White House financially and politically. Threatening an element as sensitive as oil, an energy resource that is the backbone of the global economy, puts at risk the country that currently opposes the rest of the world in a position of beligerant power.
Venezuela is not limited to the role of victim, even though the intensity of the aggressions is so high that corporate media such as The New York Times recognize that they will aggravate the lives of millions of Venezuelans. Instead, the state demonstrates that it can overcome and expand relations with the Eurasian market, coordinating the sale of oil with China, India and Turkey.
From the first D-Day and Guaidó’s self-juramentation, to the announcement of the entry of “humanitarian aid” across the border with Colombia, a month has passed in which the U.S. economy has absorbed the first consequences of isolating itself from the world’s leading market in oil reserves, under the promise of being able to take full control of territory and resources.
Coercive foreign policies weigh on them, and although at the moment they are dealing a hard blow to the Venezuelan economy, in the medium term they are reversing the objectives to sabotage the multipolar reconfiguration of the global geopolitical map, since the Venezuelan government will not lose political authority in that nation.
Translation by Internationalist 360°
