US Secretary of State Rex Tillerson disclosed on a foreign trip through South America this week that the US was exploring energy sanctions on Venezuela as Maduro plans a new Presidential election in April.
It was not clear at the time if Tillerson’s comments were simply talking points during a visit through the region or a real change in US policy.
It now appears that it is indeed a change in US policy as we have learned about a decision made Wednesday by the White House to approve upcoming oil sanctions on Venezuela.
Tillerson’s trip now appears to have been a consultation with allies in the region about the impending US action. An announcement is likely several weeks away after other details are worked out and a strategy and implementation plan is in place that tries to mitigate impacts on US refiners, and most especially, other countries in the region that rely on Venezuelan crude imports.
On Wednesday, Tillerson alluded to a task force with Canada and Mexico to address regional concerns about oil sanctions.
Last summer, the Trump Administration had considered oil sanctions on Venezuela in response to Maduro dissolving the National Assembly and Constitution but hurricanes that hit the US gulf coast sidelined a decision. Instead, the US position had shifted under the belief that the Maduro government would collapse on its own under the weight of severe economic and political conditions by the end of 2017.
The White House and National Security Council were the big advocates for energy sanctions but Tillerson, as well as the State and Energy Departments were opposed. We are now told that Tillerson also supports sanctions believing that current conditions are untenable for the Venezuelan people and sanctions are needed to expedite the end of the Maduro government. The April Presidential election in Venezuela is now the catalyst for the US sanctions.
Venezuela exported about 500,000 barrels a day to the US gulf refiners in January but down from about 800,000 from a year ago. Sales of Venezuelan crude to US refiners provides the cash lifeline for the Maduro regime. US sanctions will likely impact those US gulf refiners that will have trouble securing replacement of similar heavy crude. In addition, it’s unlikely that Venezuela will find a replacement buyer of its crude exports to the US, and the physical disruption of this crude from the market will provide a boost to oil prices.
While the key Trump decision to green light oil sanctions has been made, we are in the early stages of this development, and therefore, many details and other information are still under consideration. We will provide furthers updates as developments warrant.
