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Washington — The Trump administration is highly unlikely to impose sanctions on crude flows in response to Venezuela's presidential election on Sunday, but new limits on US diluent exports to Venezuela are still being considered, according to analysts.

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Officials within the White House, US State and Energy departments have been studying the potential impacts of sanctions on Venezuela's oil sector for months, including the likely outcomes of full and partial embargoes on US imports of Venezuelan crude, according to multiple sources. Many analysts had expected that Sunday's election, which has already been condemned by world leaders as illegitimate, would trigger oil-focused sanctions from the US.

But a combination of factors, including relatively high gasoline prices ahead of the US summer driving season, the ongoing decline of Venezuelan oil production and President Donald Trump's decision last week to withdraw the US from the Iran nuclear deal, have chilled a broad US sanctions push.

"Venezuela is declining so fast that [Trump administration officials] don't want to take responsibility for pushing it over the edge," said David Goldwyn, president of Goldwyn Global Strategies and a special envoy and coordinator for international energy affairs at the Department of State during the Obama administration.


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A ban on Venezuelan crude imports is "off the table now," said Francisco Monaldi, the Latin American energy policy fellow at Rice University's Baker Institute for Public Policy.

"Partly because the collapse of the Venezuelan oil sector makes it almost unnecessary, partly because with the price of oil going up and elections in the US they do not want the domestic backlash, partly because the Iran sanctions make it less timely," Monaldi said.

Venezuela's inability to pay service contractors, ongoing safety concerns and a lingering currency crisis are accelerating a decline in the country's oil output so quickly that it is unclear what oil trade-focused sanctions would even accomplish, Goldwyn said.

The Trump administration doesn't "want to break it and have to own it," he said.

Venezuela oil production fell to 1.42 million b/d in April, down 50,000 b/d from March and down 560,000 b/d from a year earlier, the International Energy Agency said Wednesday. Since December 2015, Venezuelan output has fallen by roughly 1 million b/d, to its lowest levels since January 2003 when a strike dropped output to 620,000 b/d.

A corresponding decline has taken place in US imports of Venezuelan crude, which averaged less than 409,500 b/d in February, down more than 28,700 b/d from January and 269,250 b/d from February 2017, according to the latest US Energy Information Administration import data. US imports of Venezuelan crude have declined nearly 46% in two years, according to the EIA.

Elizabeth Rosenberg, director of the energy program at the Center for a New American Security and a former senior sanctions adviser at the Department of the Treasury, said the Trump administration is considering different measures ahead of Sunday's election, including actions to target financial transactions.

The Trump administration has imposed a series of financial penalties on the Venezuelan government, including a prohibition on the government's cryptocurrency and sanctioning of several individuals, including President Nicolas Maduro.

While analysts expect additional financial and individual sanctions from the US following Sunday's election, Rosenberg said oil-related sanctions were still possible in the future, including sanctions on shipping and insurance for seaborne trade.

"The administration hasn't committed to specific measures or a timeline, but they appear prepared to take strong action that may presumably impact more barrels this year than the Iran sanctions that will layer on over the next six months," Rosenberg said.

REFINERY EXEMPTIONS


Even if sanctions are imposed on imports, US refiners would likely be granted exemptions and time to find replacement barrels, analysts said.

"Refiners would definitely be looking at waivers or a long transition period," said Joe McMonigle, an analyst with Hedgeye Risk Management and former Department of Energy chief of staff.

In February, five Gulf Coast refineries imported 86% of all Venezuelan crude sent to the US: Valero's Port Arthur and St. Charles refineries, Citgo's Lake Charles and Corpus Christi refineries, and Chevron's Pascagoula refinery.

Analysts said US sanctions on exports of diluents, including heavy naphtha to Venezuela, may still be possible in the near term. These naphtha imports are used to reduce the viscosity of heavy oil so it can more easily be moved by pipeline. The US exported 136,000 b/d of total products to Venezuela in February, its highest level since November 2016 when 154,000 b/d of products were exported. The US exported a total of nearly 5.24 million b/d of products in February worldwide.

"This will do some damage to Venezuela, furthering the oil production decline and the tough cash situation," Monaldi said.

Goldwyn said a diluent export ban may be "symbolically important, but could probably be replaced at a not very material cost."

--Brian Scheid, brian.scheid@spglobal.com

--Edited by Keiron Greenhalgh, newsdesk@spglobal.com