US reimposes oil sanctions on Venezuela after broken election promises

The US is reimposing sanctions on oil from Venezuela, saying President Nicolás Maduro’s revolutionary socialist government has “fallen short” on commitments to hold a free and fair presidential election this year.

The measure amounts to a recognition by the Biden administration that sanctions relief, granted six months ago, has so far failed to persuade Maduro to run a genuinely competitive contest.

Mindful of the risk that fresh sanctions on Venezuela might push up oil prices in a US election year, Washington will allow US major Chevron to continue a joint venture with Venezuela’s national oil company PDVSA, which has been steadily increasing output.

In October Maduro and the US-backed opposition coalition signed an election agreement in Barbados, but the ink had barely dried before his government launched a sweeping crackdown.

The main opposition candidate, María Corina Machado, was banned from running, her selected replacement candidate was not allowed to register and some of her campaign team were arrested. Polls had indicated that Machado would beat Maduro by a landslide.

“We have determined that although the Venezuelan authorities have met some key commitments, they’ve also fallen short in several areas,” a senior US administration official said, describing “a continued pattern of harassment and repression against opposition figures and civil society”.

The US administration official added that Maduro had upheld “certain aspects” of the Barbados agreement, including setting an election date, updating the electoral register and “starting a process to allow international election observation”.

In another gesture of collaboration, Washington and Caracas in December completed a prisoner exchange, in which 10 Americans — including six classified by the US as wrongfully detained — were released from a Venezuelan jail in exchange for the release of Alex Saab, a Colombian businessman and ally of Maduro whom US prosecutors accused of siphoning $350mn from Venezuela into US accounts.

Despite belligerent government statements in recent weeks, Maduro said on Monday he would “never close the door on dialogue” with the US, adding that his negotiators had met Washington’s envoys in Mexico last week. “I tell the negotiators to give President [Joe] Biden the following message: ‘If you want, I want. If you don’t want, I don’t want,’” Maduro said.

In response to the reimposition of sanctions, the president of Venezuela’s congress, Jorge Rodríguez, accused Washington of breaking a commercial agreement reached with Caracas. “We respect our word, and will never tolerate an ultimatum,” Rodríguez said. “We shall see who complied and who didn’t comply with their word and their commitments.”

The Biden administration has been juggling a wish to punish Maduro for rowing back on promises of free and fair elections with other concerns. It is worried about pushing Venezuela further into the arms of its allies Russia and China, and anxious that fresh sanctions might spur more Venezuelan migration towards the US.

Once a top global oil producer, Venezuela’s output collapsed from almost 2.9mn barrels per day in 2014 to below 400,000 b/d in 2020 as years of mismanagement combined with Trump-era “maximum pressure” sanctions intended to topple Maduro.

Helped by October’s temporary lifting of sanctions and increases in Chevron’s oil joint venture, Venezuela has boosted crude production to an average of just over 800,000 b/d in the first quarter of this year, according to Opec figures. The sanctions relief also allowed Venezuela to sell its oil directly, without having to use black market go-betweens charging large fees.

Venezuela has the world’s biggest oil reserves, as well as abundant natural gas. Energy companies have taken advantage of the sanctions relief to flock to Caracas over the past six months seeking possible deals with Maduro.

Shell and Trinidad’s national gas company signed an agreement to export Venezuelan offshore gas via the Caribbean island, while Spain’s Repsol and France’s Maurel & Prom also inked deals, according to news reports. These were covered by separate US sanctions licences. US officials declined to say whether these permits would continue, citing commercial confidentiality.

US companies investing in Venezuelan oil and gas not covered by existing licences will have until May 31 to wind down their operations. The US Treasury’s Office of Foreign Assets Control “will consider requests for specific licenses to continue activities beyond the end of the wind-down period on a case-by-case basis”, according to a US State Department statement on Wednesday.

Venezuela’s oil minister Pedro Tellechea told reporters the sanctions would not hurt the country’s economy, and that foreign companies could apply to the US Treasury for individual licenses.

Analysts said the decision to tighten sanctions on the oil sector would have a limited short-term impact on Venezuela’s current production and exports but would hurt its long-term recovery.

“There will be no significant impact on Venezuelan production as the general license revoked on Wednesday was not generating investment,” said Francisco Monaldi, a Venezuelan oil expert at Rice University’s Baker Institute. He added that Chevron, with its own ongoing licence to operate in Venezuela, was the crucial investor in the country’s oil sector. “The reimposition of sanctions will slightly impact the availability of diluents on non-Chevron projects.”

Asdrúbal Oliveros, the director of Caracas-based consultancy Ecoanalítica, calculated that the renewed sanctions could cause Venezuela losses of foreign income worth about $3bn, and a 3.6 per cent decrease in gross domestic product growth — a price Maduro is willing to pay.

“In Maduro’s cost-benefit analysis, it was important not to cede too much political space,” Oliveros said. “This may give the government an excuse to tighten the political dynamics with more repression, giving less space to the opposition in the elections.”