USA Foreign Policy First Look

US oil industry challenges sanctions on Venezuela

Sanctions imposed on Venezuela Wednesday have yet to materialize following complaints from US oil industry leaders, though debate swirls over whether or not the sanctions will actually have a significant impact on the US economy. 

A PDVSA gas station is seen next to building apartments in Caracas, Venezuela, July 25, 2017. Venezuela is the third-largest supplier of petroleum to the US, leading American oil companies to protest sanctions on Venezuelan officials that would affect oil imports.
Andres Martinez Casares/Reuters
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Caption
  • Joshua Goodman and Alexandra Olson
    Associated Press

The Trump administration's decision on Wednesday to slap sanctions on eight members of Venezuela's all-powerful constitutional assembly brings to 30 the number of government loyalists targeted for human rights abuses and violations of democratic norms since anti-government protests began in April.

But even as the list of targeted individuals grows longer, promised economic sanctions have yet to materialize amid an outcry by the United States oil industry that a potential ban on petroleum imports from Venezuela – the third-largest supplier to the US – would hurt US jobs and drive up gas costs.

The sanctions announced Wednesday focused on current or former Venezuelan government officials accused by the US of supporting President Nicolas Maduro's creation of a special assembly charged with rewriting Venezuela's constitution – a move the US says is an attempt by Mr. Maduro to shore up his grip on power.

Since its election last month, the 545-member assembly has declared itself superior to all other government institutions and ousted Venezuela's chief prosecutor, a vocal critic of Maduro.

The US Treasury Department took the unusual step of sanctioning Maduro himself last month, freezing any assets he may have in the US and blocking Americans from doing business with him.

The newest additions on Wednesday include Adan Chavez, the older brother of Hugo Chavez, who is credited with introducing the late president to Marxist ideology in the 1970s, and a national guard colonel lionized by the government after he physically shoved congress President Julio Borges during a heated exchange caught on video.

Former Foreign Minister Delcy Rodriguez, who is leading the assembly but has so far escaped being sanctioned, said the latest US action seeks to "spread fear" among delegates and please government opponents she described as "criminals" and "unpatriotic."

While most Venezuelan officials wear US sanctions as a badge of honor – and are frequently rewarded with promotions as a result – Maduro faces a far greater threat if President Trump follows through on economic sanctions against the OPEC nation.

For all of Maduro's anti-capitalist rhetoric, Venezuela, which sits atop the world's largest oil reserves, remains highly dependent on oil exports to the US, especially for importing food and medicine – items in short supply as crude prices have fallen and triple-digit inflation wreaks havoc on the economy.

The Trump administration warned last month that it would take "strong and swift economic actions" against Maduro if he went ahead with plans to seat the constitutional assembly.

But since the election last month, no such action has materialized, leading some of Maduro's opponents to wonder whether the US president has lost his nerve.

The prospect of an import ban has alarmed US oil companies that rely on Venezuelan crude.

Nine companies, including Chevron, Valero, Citgo and Phillips 66, currently process Venezuelan crude in more than 20 US refineries, most of them located along the Gulf Coast, according to data from the US Energy Information Administration. Many of these refineries are designed for the type of heavy crude that Venezuela exports and replacing those supplies would be disruptive and costly.

An influential industry group whose members include the nine companies has written two letters to Mr. Trump warning there is no guarantee that other key sources of US heavy crude imports – Canada, Mexico, and Colombia – could provide enough additional supply to replace the Venezuelan oil. Many refineries would likely turn to Saudi Arabia but the higher costs associated with such a shift "could significantly impact fuel costs for US consumers," according to the letter by the American Fuel & Petrochemicals Manufacturers.

"We want to make sure that we don't have the unintended consequence of doing more harm to US refineries than the Maduro regime," said Chet Thompson, the CEO of the group, which represents 95 percent of the US refining sector.

He added that he is hopeful his lobbying is gaining traction.

"We think we've come a long way from early July when these sanctions were first being kicked around.... We think folks are a lot smarter on this issue than they used to be," he said. "We certainly have not received any commitments or promises as far as what they are going to do. But we have done our job."

The oil industry is finding allies in the US Congress, particularly among lawmakers from the Gulf states.

Six Republican congressmen from three of the states that process Venezuela's heavy crude – Texas, Mississippi, and Louisiana – recently wrote a letter to Trump warning that banning Venezuelan oil imports would do more harm than good. While applauding the president for his efforts to counter "the disturbing decline of democracy" in Venezuela, the lawmakers, led by Rep. Randy Weber of Texas, said that it could jeopardize 525,000 refining-related jobs along the Gulf Coast.

"We fear that potential sanctions will harm the US economy, impair the global competitiveness of our energy business and raise costs to consumers," according to the July 28 letter, a copy of which was provided to The Associated Press by a senior Venezuelan official and whose authenticity was confirmed by one of the signatories, Rep. Clay Higgins of Louisiana.

Some Senate Republicans could soon join the chorus. Sen. Bill Cassidy, a Louisiana Republican who sits on the Senate Committee on Energy and Natural Resources, is preparing a letter to Trump raising similar concerns about the impact on the US fuel market, according to his spokesman, John Cummings, who said the senator is rounding up signatories.

Energy analysts, however, have been more circumspect about the effect on global markets and prices at the pump. A recent analysis by Wells Fargo Securities concluded that one impact would be to raise foreign heavy crude prices by about $3.50 a barrel. However, the ban would not affect demand for gasoline or reduce the overall supply of crude on the global market, as Venezuela would likely redirect its shipments to countries in Asia and elsewhere, albeit at a painful discount.

"We do not believe there would be significant impact on retail prices to US consumers given that the net availability of worldwide crude oil volumes would be unchanged," the Wells Fargo report said.

Venezuela's government, meanwhile, continued to crack down on its opponents.

The government-packed Supreme Court ordered the removal and imprisonment of another Caracas-area mayor for not obeying orders to shut down protests in his district.

David Smolansky is the fifth opposition mayor to be removed or jailed in little more than two weeks as Maduro attempts to consolidate his power by going after his enemies. He was sentenced to 15 months in jail in a ruling Wednesday night.

The whereabouts of Mr. Smolansky, the mayor of El Hatillo district, were not immediately known.

This story was reported by The Associated Press.

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