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.
