A Pocket Guide to the Unrest in Venezuela and What It Means for US Oil and Gas

On July 31, the Trump administration responded to growing political turmoil in the South American country of Venezuela by initiating a series of sanctions against President Nicolás Maduro. Once a cherished trading partner for the United States, Venezuela is now looking at a period of political and economic strife for the foreseeable future.

But what exactly is going on in Venezuela? And what does the chaos mean for the United States oil and gas industry?

The Basics of the Civil Issues in Venezuela

The situation brewing in Venezuela is extremely complex and nuanced, but here are the Cliff’s Notes:

For around 18 years, the United Socialist Party (PSUV) has maintained control of Venezuela’s presidency, first under the rule of Hugo Chavez and then under the thumb of his successor, current President Nicolás Maduro. Over the course of their nearly two decades in power, the PSUV has won majority support by using the country’s oil proceeds to enact a series of social programs aimed at lifting the country’s poor out of poverty.

In recent years, the falling price of oil has forced the government to cut off funding for those programs. As a result, a growing number of people aren’t too happy with the Venezuelan president and his socialist government. In March, Maduro made the extremely unwise decision to have Venezuela’s Supreme Court assume control of the country’s National Assembly. While that decision was quickly reversed, it has ignited a series of protests over the last few months. In these often violent clashes, several Venezuelan people have died.

The United States Response

It’s safe to say that the business relationship between the United States and Venezuela is somewhat precarious. In response to Maduro’s regime, Trump and the White House have frozen his assets in the United States, a clear cut sign that the administration has no desire to side with a man so reviled by his own people.

In response, Maduro has taken to calling the US President “Emperor Donald Trump” while brushing off the sanctions as a minor nuissance. At home, he has moved to consolidate his power to authoritarian levels. He accomplished this feat by holding an election, the highly-protested results of which allowed Maduro a broad range of powers, including the ability to rewrite the Venezuelan constitution and flat-out arrest his opponents.

The Oil and Gas Implications of the Venezuela Situation

At the moment, the White House has stopped its sanctions at disallowing Maduro and his cohorts from doing business in the United States. We’re still importing Venezuelan oil, because not doing so would utterly destabilize their country and hurt tens of thousands of innocent people in the process. It would also raise the price of oil by as much as $10 a barrel.

If the United States continues to up its sanctions and refuses to import Venezuelan oil, the South American country’s economy would take a big hit and Maduro’s regime would almost certainly fall. Before the US can take that step, however, refineries need to find new customers to pick up the slack left by Nicolás Maduro.

Posted in Oil and Gas Politics.