President Trump moved Friday to restrict the Venezuelan government’s access to the U.S. financial system and squeeze the oil-based economy that sustains President Nicolas Maduro, but stopped short of imposing a full oil embargo.
Tough new sanctions dealing with Venezuela’s access to credit were effective immediately, officials said. Trump signed an executive order barring dealings in new bonds and stocks issued by the government and the state oil company, Petroleos de Venezuela (PDVSA), the parent of Citgo. Banks also cannot engage in new lending with the government or the oil giant.
“These measures are carefully calibrated to deny the Maduro dictatorship a critical source of financing to maintain its illegitimate rule,” a statement issued by the White House said.
The action followed Maduro’s decision to convene a special assembly to rewrite the constitution of the oil-rich nation and assume many government powers. U.S. and Latin American leaders say Maduro’s government is veering toward dictatorship.
“The president is making sure that the U.S. financial system will not be complicit in any future further placement of debt that would allow the Venezuelan government to finance this abhorrent behavior,” a senior Trump administration official told reporters in a phone briefing.
“The president is taking steps to inhibit the Maduro regime’s ability to continue to finance its unconstitutional, undemocratic behavior,” said the administration official, speaking on a condition of anonymity set by the White House.
The new economic sanctions are likely to deepen a financial crisis in Venezuela, where the oil-based economy has shrunk by about 35 percent since 2014.
[In Venezuela, the economy may yet do what the opposition couldn’t]
The Trump’s administration’s goal is a return to full democracy, including free elections, adherence to the country’s constitution and reestablishing the authority of the elected assembly, U.S. officials said.
This is the fourth round of U.S. sanctions and the first to directly target Maduro’s access to prime sources of funding.
U.S. officials called the new financial penalties calibrated and acknowledged that they are less severe than some of Maduro’s critics had requested. Venezuela can still export oil to the United States and import it as well. Venezuelan heavy crude oil is crucial to some U.S. refiners, which are geared to handle that specific type. Venezuela imports lighter crude, including from the United States.
The sanctions would prevent, for instance, a repeat of a $2.8 billion bond deal with Goldman Sachs reached earlier this year that gave the cash-strapped Venezuelan government an important lifeline. Yet Venezuela’s growing international isolation due to Maduro’s power grab, coupled with its fast eroding financial stability, has already effectively shut it out of debt markets as investors see it as too great a risk.
It does, however, make its inability to access traditional debt markets official, and it will be ever harder for the government there to climb out of its financial hole.
And while the sanctions stop far short of an oil embargo, the move does suggests a willingness by the Trump administration to gradually turn up the heat on Maduro in new ways.
“It won’t have any important impact in terms of financial flows to Venezuela because there aren’t any to speak of right now,” said Siobhan Morden, managing director and Latin America expert at Nomura Holdings. “But it confirms what we know. That they now definitely do not have access to external capital.”
Vice President Pence had signaled the upcoming move, writing on Twitter that the United States “will not stand by as Venezuela crumbles.
Pence and other U.S. officials have been threatening further sanctions for weeks, since Maduro moved to go around the national constitutional assembly where opposition to his rule is strong.
Trump has also said he would not rule out military action.
Venezuelan officials responded defiantly.
“There it is, more and more sanctions against Venezuela,” Delcy Rodriguez, the Maduro ally who heads the new Constituent Assembly, said Friday on national television. “They think that with economic sanctions they’ll be able to suffocate the Venezuelan people. But we’ve pledged and will keep pledging to defend Venezuela no matter the type of imperial threat.”
Venezuela’s national reserves have already hit 15-year lows of about $10 billion, most in gold bars, not cash. As Venezuela is boxed in financially, it will be harder and harder, experts say, for the country to avoid a potentially devastating debt default. A key test will come in the fourth quarter of this year, when $3.8 billion in bonds come due.
Failure to pay could spark a cascading effort by foreign investors to attach Venezuela’s global assets, potentially slamming its all important oil industry. As the economic crisis gripping the country deepens, it could also create conditions so harsh that some analysts feel Maduro’s grip on power could ultimately be challenged by the country’s military.
“The idea is that a default would be devastating in terms of economic impact, and that would force a political transition,” Morden said.
It will also test the will of Maduro’s two main foreign benefactors — China and Russia – to continue propping him up. Maduro has accelerated his public courting of Moscow in recent days, boasting of stronger ties. In a press conference with the international media on Wednesday, he remarked on Venezuela’s “profound alliance” with Russia and praised its president, Vladimir Putin, as the “main leader of the world.” He heralded a deal struck in June to bring 60,000 tons of Russian wheat a month to Venezuela, with the first shipments arriving this week.
“Venezuela has the support of Russia, total and absolute,” Maduro said, adding he would soon make a trip to Moscow to advance “our joint energetic projects, our works towards the stabilization of prices, oil and gas investments, and our commercial relationship.
Possibly anticipating new hurdles in financing its oil sector, Maduro also reshuffled the nation’s top energy jobs — naming his oil minister Nelson Martinez as chief of the state oil company and designating Eulogio del Pino, president of PDVSA, as oil minister.
Maduro said Del Pino had been the architect of agreements between OPEC and non-OPEC countries to raise oil prices. And he said that Martinez would now work to increase the participation of Chinese and Russian investors in Venezuela’s oil sector.
“Despite many sanctions that the Trump-Pence duo approves, we can achieve more than them,” Maduro said. “If they come through here, we’ll go through there, and we’ll overcome them no matter what.”
Faiola reported from Miami. Rachelle Krygier in Caracas, Venezuela contributed to this report.
