Trump administration officials are still considering secondary sanctions to push the Maduro regime out of power in Venezuela, though analysts said Monday that there may be little reason to impose them.
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"I think for the most part we are already seeing the impact that secondary sanctions would have," said Lisa Viscidi, director of energy, climate change and extractive industries at Inter-American Dialogue. "I think official secondary sanctions would close some loopholes Venezuela is still able to exploit, but Venezuela is already very dependent on exporting to countries that refuse to get in line with US sanctions policy."
The Trump administration has blocked imports of Venezuelan crude and condensate into the US, prohibited US dollar transactions with state-run PDVSA and threatened sanctions on essentially all diluent trade with the company. But the US has yet to impose secondary sanctions on Venezuelan oil flows, similar to those fully re-imposed on Iranian crude last month, subjecting essentially all petroleum trade with a targeted country to US sanctions.
India, for example, has agreed to stop exporting gasoline to Venezuela and has reduced its Venezuelan crude imports in response to pressure from the US, Viscidi said. But Russia, Venezuela's most significant remaining crude and refined product trading partner, may not halt purchases even if secondary sanctions are imposed, she said.
"Russia is not going to stop trading oil with Venezuela as a result of official secondary sanctions, especially since Russia itself is being sanctioned by the US," she said.
State-run Russian companies may be unlikely to comply with US sanctions, keeping at least some Venezuelan petroleum flows viable even if secondary sanctions are imposed, according to Paul Sheldon, chief geopolitical advisor with S&P Global Platts Analytics.
"Among other factors, assisting a US adversary in the Americas carries geopolitical benefits for the Kremlin," Sheldon said in a note.
PDVSA exported an average of 720,000 b/d of crude and fuel oil in May, up about 150,000 b/d from April, but well below the nearly 1.29 million b/d exported out of Venezuela a year earlier, according to a PDVSA document seen by Platts.
In May, PDVSA sold 8.8 million barrels of crude to Russia's Rosneft, including diluted crude oil and Merey 16, roughly 40% of all crude and fuel oil it sold in May, according to the PDVSA document.
Venezuelan oil production fell to 720,000 b/d in May, down 60,000 b/d from April and less than half the 1.5 million b/d the country produced in May 2018, according to a Platts OPEC survey released Monday.
For months, the Trump administration has been considering secondary sanctions, but has avoided imposing them due partly to the impact on oil and gasoline prices amid other sanctions and trade disputes.
But the risk of secondary sanctions has caused a steep decline in trade with PDVSA, according to Joe McMonigle, an analyst with Hedgeye Risk Management.
"The threat of sanctions is definitely having an impact," McMonigle said. "Companies don't want to risk that kind of exposure."
But while Russia and China have continued to trade petroleum with Venezuela, secondary sanctions could amplify that risk, according to Francisco Monaldi, Latin American energy policy fellow at Rice University's Baker Institute for Public Policy.
"It is hard to know how far they will be willing to go to help [President Nicolas] Maduro, under a tougher sanctions environment," Monaldi said. "Would Russia consume Venezuelan oil in their domestic market? Would China pay cash for Venezuelan oil? Would they be willing to invest in the Venezuelan oil industry?"
In January, the US unveiled sanctions on PDVSA, Venezuela's state-owned oil company, which have served as a de facto ban on US imports of Venezuelan crude and an immediate ban on US exports of diluent to Venezuela. On April 28, the US prohibited transactions between non-US firms and PDVSA involving the US financial system, essentially banning the use of US dollars in all transactions with PDVSA.
Last week, the US announced further prohibitions on essentially all diluent trade with PDVSA, which PDVSA uses in the production and marketing of its heavy crudes, in an attempt to accelerate declines in Venezuela's oil sector.
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