The recent swoon in the oil market may have US President Donald Trump revisiting the idea of tougher sanctions on Venezuela’s crude and refined products. Hawkish White House officials are urging Trump to hit Venezuela with sanctions that could further cripple its state-owned oil company PDVSA over human rights violations, according to sources familiar with the discussions, who say that the 30% decline in crude prices over the last two months could embolden the president. Trump had largely sworn off oil sector sanction on Venezuela, including everything from prohibitions on US diluent exports to PDVSA refineries to an all-out ban on Venezuelan crude imports, for fear of overtightening the market and causing a price spike.
But Venezuelan President Nicolas Maduro’s plans to rewrite the country’s constitution to strengthen his grip on power could prompt new US penalties, analysts say. “If the White House were to pressure Caracas to block a new constitution, we would not expect [Trump] to pull many punches,” analysts with ClearView Energy Partners said in a recent note to clients. In Vienna Tuesday, Manuel Quevedo, Venezuela’s oil minister, declined to speak with reporters. The US continues to consider listing Venezuela as a state sponsor of terrorism, a designation which would create a de facto ban on US imports of Venezuelan crude and imperil state-owned oil company PDVSA’s US assets, including three Citgo refineries in Louisiana, Texas and Illinois.
Venezuela, if labeled a state sponsor of terrorism, would be added to a list which includes Iran, North Korea, Sudan and Syria. Under such a move, imports of Venezuelan crude may not be explicitly banned and the administration could carve out exemptions for oil flows, but the risks would likely be enough for US refiners to source crude elsewhere. “The reputational risks might be significant for some buyers,” said Francisco Monaldi, the Latin American energy policy fellow at Rice University’s Baker Institute for Public Policy. The US may also alter existing sanctions on debt, complicating contracts and effectively ending crude trade between the US and Venezuela.
At the moment, the US remains hesitant to do anything that could contribute to increased oil prices, particularly due to Trump’s recent tweets comparing low oil prices to a US tax break. US refiners also appear relatively confident that crude flows are unlikely to be sanctioned. After falling to 409,000 b/d in February, the lowest point since a Venezuela general strike in 2003 severely limited exports, US imports of Venezuelan crude averaged 650,000 b/d in September, according to the US Energy Information Administration.