On July 16, almost eight million Venezuelans cast a symbolic vote to express their opposition to President Nicolas Maduro’s plans to rewrite the constitution, ignoring the will of the vast majority of Venezuelans.
At the same time, President Trump and his administration expressed intentions to impose economic sanctions on the Venezuelan government if it holds unfair elections next Sunday to elect members of a new super-powerful constitutional assembly that will be in charge of rewriting the constitution, potentially allowing Maduro to perpetuate himself in power forever.
The U.S. is Venezuela’s largest trading partner, and thus, imposing economic sanctions could have a strong impact on the Venezuelan economy. The continuation and strengthening of the ongoing individual sanctions to Venezuelan government and state officials (which started under President Obama) is a no-brainer. The main responsibility for the ongoing crisis lies mainly on individuals in the executive power, the military, as well as in the judiciary and the electoral powers.
One of the main reasons—presumably—that officials bestowed with power in all these different institutions keep ignoring both the constitution and the will of the majority of Venezuelans is their continuous enrichment through corruption and presumably even drug trafficking. Many of these officials are believed to own bank accounts and other assets on U.S. soil.
Freezing their assets is the right thing to do, not only on moral grounds, but also strategically, as this could encourage them to shift their support away from Maduro. So far, however, these types of sanctions have not been successful at accomplishing that (notably the sanctions on justices of the Venezuelan Supreme Court), and therefore, the Trump administration is looking into tougher options.
The toughest possible sanction that the U.S. could impose on Venezuela is an economic embargo. This would include banning imports from and business with entities linked to the Venezuelan government. Venezuelan oil is a natural target for sanctions, given that it represents over 90 percent of Venezuela’s export basket, and its rents go mainly to PDVSA, Venezuela’s state-owned oil company.
As of today, the U.S. imports somewhat less than half of Venezuela’s oil exports. Banning Venezuelan oil imports could significantly impact the already decreasing country’s cash flow, given that it would be hard to substitute the U.S. with another trade partner (Venezuela exports a lot of extra-heavy oil, which is refined on U.S. soil, and thus, exporting to other countries requires costly arrangements for refinement). While many individual U.S. companies that deal with PDVSA will potentially be affected, the U.S. as a whole could easily substitute Venezuelan oil.
What impact could these sanctions have on Venezuela? On one hand, a sharp reduction in income would put the government closer to a financial default as it is already struggling to service its unusually large external debt. It would also make it harder for Maduro and his small circle to continue cashing out on the decreasing oil rents and from buying loyalties across the military and other institutions.
All this would make it harder for Maduro to stay in power without being forced into restituting constitutional order by factions within the military that are not willing to cooperate with him and his dictatorial project.
On the other hand, certainly these sanctions would also have an adverse effect on the majority of the Venezuelan people who are already suffering from widespread scarcity of food, medicines and other basic goods. Past actions have taught us that for Maduro and his government, a reduction in cash flow will be directly absorbed by a similar cut in imports crucial for consumption in the country (which they can easily do through their exchange control system).
In fact, imports are already about 70-percent less than what they were in 2014 when oil prices dropped, and this government could cut them even more. Imposing these types of sanctions will also be used as a part of the narrative of the government to blame the “imperialism” and the “global oligarchy” for all of the country’s woes, perhaps enlarging their political base through a speech of fear and hatred. Yet, hunger is more effective than words, and most likely, discontent with the government will grow.
While potential sanctions could speed up the end of Maduro’s regime, they remain a risky initiative, as the alternative scenario in which Maduro remains in power is also quite possible. Thus, if widespread sanctions are to be imposed, they must be accompanied by a simultaneous international effort to pressure Maduro to allow humanitarian aid into the country (to be distributed through the civil society, not the through the government networks, of course).
At the same time, multilateral organizations must be instructed to start working on the details of a generous package for economic recovery to be offered to a new Venezuelan government (giving strong signals to the Venezuelan people that the international community stands by them).
The U.S. government should also increase pressure on other countries in the Western Hemisphere, notably, Caribbean nations, that by aligning themselves with Maduro, they have limited the ability of the Organization of American States to use all tools available at its disposal to pressure the Venezuelan government to give in to the will of its own people.
But make no mistake: It is Maduro and his blind obsession for unlimited power that could bring an embargo upon Venezuela. With or without sanctions, the international community must actively show they care about the well-being of the Venezuelan people and stand by them in their struggle for freedom, democracy and human rights.