Listen to a replay of our flash conference call on the Venezuela crisis and potential new US energy sanctions with Dr. Francisco Monaldi, a Fellow in the Latin American Initiative & Energy Economics at the Baker Institute at Rice University.
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The White House issued a stark warning Monday to President Maduro of Venezuela promising “strong and swift economic actions” if he holds the July 30 election of a new Constituent Assembly that would likely dissolve the current National Assembly and rewrite the constitution. While the White House statement does not mention energy, we believe the “strong and swift economic actions” may include US energy sanctions.
Here are some key points made during the call:
- The Venezuela economy is in a freefall. Maduro’s use of the Supreme Court to govern and his attempt to delegitimize the opposition-controlled National Assembly has sparked the recent 100-days of protest that culminated in 7.6 million people on the streets of Caracas on Sunday.
- Key parties, including the military, believed presidential elections in 2018 might provide a resolution of the crisis. But Maduro’s scheduled July 30 election of the Constituent Assembly that would rewrite the constitution and dissolve the National Assembly and cancel the presidential election have “dramatically increased the stakes” for all involved. Instead of a presidential election in 2018, Venezuela would have a totalitarian dictatorship.
- US energy sanctions would be a “very, very major blow to the Venezuela economy.” Venezuela’s crude production is about 1.9 million b/d. Half of the revenues go to social spending and subsidies, the other half is used to run the economy. Exports to the US represent about 760,000 b/d so there will be no revenue to run the country. Eventually Venezuela may find buyers in Asia for the crude but in the short term there will be chaos. The government will surely begin defaulting on its loans.
- Even Maduro’s allies are concerned about US energy sanctions but Dr. Monaldi’s sources tell him that Maduro and his advisors are “preparing for a bad scenario.” The Venezuela military is taking a wait-and-see approach and unclear how they will react in the coming weeks. The Defense Minister will reportedly be sanctioned personally by the US.
- He believes energy sanctions could provide an opening for Russia and Russian energy companies that may lead to consequences for US companies operating in Venezuela (if the Senate Russia sanctions bill is enacted).
