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Takeaway: White House raises the stakes for Maduro if he goes thru with July 30 election. Big impact for Gulf refiners, oil markets & bond holders.

VENEZUELA - TRUMP'S RED LINE?

WEDNESDAY, JULY 26TH AT 1:30PM ET

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Please join us for a Blackbook-style call with Hedgeye Senior Energy Policy Analyst Joe McMonigle to discuss developments in Venezuela and potential plans of the Trump White House to impose US energy sanctions that would ban imports and exports between the US and Venezuela. 

The White House issued a stark warning on July 17 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.

Opposition groups are staging a two-day strike this week and nearly 7.6 million people have protested in the streets of Caracas against Maduro’s move to establish the Constituent Assembly and even held an unofficial vote that opposed the plan. 

The White House released the following statement from President Trump:

“The United States will not stand by as Venezuela crumbles. If the Maduro regime imposes its Constituent Assembly on July 30, the United States will take strong and swift economic actions. The United States once again calls for free and fair elections and stands with the people of Venezuela in their quest to restore their country to a full and prosperous democracy.”

While the White House statement does not mention energy, we believe the “strong and swift economic actions” may include US energy sanctions. 

US refiners, who oppose the sanctions, would see the biggest impact in the US as sacntions would force Gulf refiners to find replacements for heavier grades of Venezuelan crude. According to the Energy Information Administration (EIA), the US in 2016 imported 761,000 barrels a day (b/d) of Venezuelan crude which is nearly 40 percent of total Venezuela production. According to EIA, US refiners who are top buyers of Venezuelan crude include (in million barrels): CITGO (66.2), Valero (57.5), Phillips 66 (46.2), Chevron (33.8) and PBF (17.5).

In addition, US oil prices would likely rise, and Venezuela, starved from revenue, would probably start defaulting on loans.

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