International Relations Prelims cum Mains

US sanctions and Venezuela’s exports and imports

The News

  • Impacts of sanctions imposed by the United States on Venezuela’s crude oil in January 2019

 

Background

  • The socialist leader Nicolas Maduro is the current president of Venezuela. However, the United States and many Western governments don’t recognize him as Venezuela’s rightful head of the state.
  • They wanted to replace Nicolas Madura with its opposition leader Juan Guaido as a head of state.
  • In January 2019, in a bid to force the Venezuelan president Nicolas Maduro out of power, the US imposed sanctions on Venezuela’s crude oil, which holds a great importance for Venezuelan economy.

 

 

Importance of crude oil of Venezuela

  • For Venezuela: 95 percent of Venezuela’s s export revenuecomes from its crude oil exports.
  • For the world
    • The kind of heavy crude supplied by Venezuela is constrained worldwide.
    • Sanctions on Venezuela have reduced the supply of heavy crude globally and large producers like Canada and Mexico are unable to compensate for this through their exports.
    • Moreover, smaller producers like Colombia and Ecuador do not export enough to ease the global shortfall of heavy crude.
    • The United States, India and China were Venezuela’s biggest customers prior to sanctions, with the United States the biggest cash buyer.
  • For US refiners: Venezuelan heavy crude is also important for some U.S. Gulf Coast refiners as they mix heavy crude to create high-margin distillate products.

 

Impact of US sanction on Venezuela

  • Oil exports: They have dropped by some 40 percent since January.
  • Oil imports: Venezuela has been unable to import the fuel it needs for blending with its heavy crude, as well as for domestic consumption.
  • Foreign trade: Trade between Venezuela and Turkey grew eightfold last year and also India and China are importing its oil even after the US sanctions.
  • Trade with US:S. imports of Venezuelan crude have collapsed to zero in the wake of sanctions whereas US was the biggest importer of Venezuelan oil.
  • Replacement: Some refiners have turned to producers of heavy crude in Colombia, Iraq, Saudi Arabia Canada, and even West Africa and a few refiners are using domestic blends, Canadian crude and a mix of other grades, including crude from Brazil.

 

How has Venezuela managed the impact of sanctions?

  • Exporting to other countries: India and China have accounted for most of Venezuela’s crude exports since sanctions took effect, Europe absorbed more oil and Cuba remains a notable destination.
  • Diversifying export: Venezuela has increased exports of gold to other countries, sending more than $900 million to Turkey in 2018.
  • Other imports: Proceeds from sales of gold to turkey are being used by the Venezuela to buy Turkish consumer goods.
  • Food security of Venezuela: Turkish pasta and powdered milk are now being included as staples in Maduro’s subsidized food program.

 

Concluding remarks/Way forward

  • To revamp its oil industry, it is expected that Venezuela might open its oil industry to foreign investment.
  • It may also limit the role of PDVSA, which is Venezuela’s state-run oil firm and currently controls all joint ventures in the country.

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