NEW YORK (AP) — The Trump administration has imposed sanctions on Venezuela’s state-owned oil company, Petroleos de Venezuela SA, its harshest economic punishment to date against the government of President Nicolas Maduro, whom the U.S. and other countries no longer recognize as the legitimate leader of the South American country.
Here’s a look at how the measures might affect both the U.S. and Venezuela.
WHAT SANCTIONS DID THE U.S. ANNOUNCE?
The Trump administration did not directly ban imports of Venezuelan crude oil. Instead, it blocked U.S. companies from entering into financial transactions with the state-owned oil company that’s known by its acronym PDVSA. That’s for as long as PDVSA remains under control of Maduro’s government. That means that any payment for Venezuelan crude imports will go to blocked bank accounts, according to Treasury Secretary Steven Mnuchin.
The measure almost certainly means Maduro’s government will seek to redirect its U.S. exports to other countries.
HOW DEPENDENT IS THE U.S. ON VENEZUELAN OIL?
Venezuelan oil exports to the U.S. have declined sharply in recent years as its production plummeted amid an economic collapse. The U.S. imports less than 500,000 barrels a day of Venezuelan crude, down from more than 1.2 million barrels a day in 2008, according to the Energy Information Administration.
Venezuela is still among the top four suppliers of crude oil to the United States, though it now only supplies about 6 percent of imports.
Most Venezuelan exports go to refineries in the Gulf Coast, which are equipped to process the type of heavy grade crude that Venezuelan produces. Many of those companies gradually reduced Venezuelan imports over the past two years, though Gulf Coast refineries still depend on Venezuelan crude for about a quarter of their imports, according to data from the EIA.
HOW WOULD THE U.S. REPLACE VENEZUELAN OIL?
There’s no shortage of oil in the world right now, with global supplies hitting a record last summer. The International Energy Agency said in September that the global oil supply reached 100 million barrels a day for the first time ever in August, boosted by rising production in the U.S. and several OPEC nations. A report from the American Petroleum Institute last week said that the U.S. has surplus gasoline stockpiles that “could approach burdensome levels” and force gas prices down further.
But supply is tighter for heavy crude oil, which is what the U.S. imports from Venezuela. Production of heavy crude in Mexico has been declining, and although there is a strong supply in Canada, there are challenges to getting that crude to the Gulf Coast refineries. Heavy crude production the Middle East also declined with the most recent round of OPEC output cuts.
John Auers, executive vice president of the refining consultancy Turner, Mason & Company, said Gulf Coast refineries have been switching to lighter or medium grade crude amid the tight supply of heavy crude.
But the tighter market for heavy crude also means that those companies that are most reliant on Venezuelan crude will have a harder time finding alternatives. Auers said they would likely turn to the Middle East, particularly Iraq. He also said that more supply from Colombia and Mexico could be redirected to the U.S. if Venezuela redirects its own exports to Asian customers.
WHAT U.S. BUSINESSES WOULD BE MOST AFFECTED BY AN EMBARGO?
Refineries along the Gulf Coast are set up to process heavy crude and they may end up spending more money buying it elsewhere. Valero, Chevron and Citgo are among the largest importers of Venezuelan crude.
The American Fuel & Petrochemical Manufacturers, which represents 95 percent of the refining sector, has lobbied hard over the past two years against any attempts to restrict imports of Venezuelan oil, arguing it would hurt U.S. companies while Venezuela could redirect its exports to other markets.
However, the group has been less public in its opposition in recent weeks as the Trump administration hinted at looming oil sanctions. The association offered a muted response Monday, promising to work with the U.S. government “to minimize any unnecessary disruptions or negative impacts to the market and American consumers.”
Directives sent Friday to the U.S. Federal Reserve will make it very hard for Maduro to access Venezuela’s overseas assets and earnings, including those from Citgo, a major source of revenue for the bankrupt government.
The future of Citgo, a Texas company that is a subsidiary of PDVSA, hangs in the balance. It is expected that the U.S. will hand control of the company to people selected by Juan Guaido, the interim president recognized by the U.S. Maduro would then likely stop paying back loans to Russia’s Rosneft, which in turn could execute a lien giving it 49.9 percent control of company.
WOULD GAS PRICES GO UP?
Consumers probably won’t feel much pain at the pump. While a cutoff of Venezuelan imports would raise prices for refiners in the Gulf Coast, the market is competitive enough that producers are unlikely to pass along much of the cost to consumers, experts said.
HOW WOULD SANCTIONS AFFECT VENEZUELA?
With these sanctions, Venezuela stands to lose one of its most important sources of income and desperately needed foreign currency. National security adviser John Boston said he expects the sanctions will result in more than $11 billion in lost export proceeds over the next year.
Venezuela sends 41 percent of its oil exports to the U.S. Critically, U.S. refiners are among the few customers that pay cash to Venezuela for its oil. That’s because Venezuela’s oil shipments to China and Russia are usually taken as repayment for billions of dollars in debts.
The U.S. sanctions are certain to make it more difficult for Venezuela to purchase food and more imports, deepening a severe recession that has forced millions of people to flee the country.
Venezuela has already virtually stopped paying $65 billion in outstanding government and PDVSA bonds.