As Stratfor wrote in its Third-Quarter Forecast, “a steady intensification of U.S. sanctions and ongoing backchannel dialogue with military leaders to try and crack the rule of President Nicolas Maduro will be the White House's preferred method of managing Venezuela as the country descends further into chaos.” With the White House's latest action targeting Venezuelan assets, this assessment remains on track.
Following an executive order issued by U.S. President Donald Trump late Aug. 5, the United States has blocked the transfer of all property and interests in any property belonging to the Venezuelan government that is within the jurisdiction of the United States. The order also imposes sanctions "on persons who provide support to Nicolas Maduro and his illegitimate regime."
Why It Matters
The United States, with national security adviser John Bolton, the principal architect of the White House's strategy to force the Venezuelan president to step down, leading the charge, is doubling down on an economic coercion campaign with the intent of either compelling Maduro to accept an exit deal to pave the way for an election or improve the conditions for a coup. The biggest question moving forward is how far the U.S. Treasury Department can and will go in enforcing a more expansive sanctions strategy against Venezuela. The countries foremost on the U.S. radar for their economic involvement with Venezuela include Russia, China, Cuba, Iran, Turkey and India.
Trump's order leaves room for the White House to intensify the degree of any secondary sanctions it imposes by threatening any financial transaction with sanctioned Venezuelan entities, enabling Washington to seize assets belonging to foreign companies and host governments if they fall under U.S. jurisdiction. But as we have seen with U.S. enforcement on Iranian sanctions, the Trump administration may be reluctant to risk the more widespread economic backlash that enforcing sanctions against foreign state-owned entities with a more sizable global presence could trigger. This is particularly true of Chinese, Russian, Indian and Turkish entities at a time when each of their governments faces U.S. tariffs, sanctions or both.
The threat of U.S. secondary sanctions is designed to deter China and Russia from expanding their economic presence in Venezuela.
On July 26, the U.S. Treasury Department renewed special licenses allowing U.S.-based oil and gas services and production companies Chevron, Halliburton, Schlumberger, Baker Hughes and Weatherford to continue their work in Venezuela for the next 90 days — halving the length of the sanctions waiver issued in January. The White House is likely signaling to these companies that they need to accelerate preparations to extricate themselves from Venezuela. The waivers will likely still insulate them from sanctions imposed under the Aug. 5 executive order, but if the White House does not renew their waivers, there is strong potential for the Maduro government to expropriate their assets and transfer them to allied economic partners like China and Russia. The threat of U.S. secondary sanctions is designed to deter China and Russia from expanding their economic presence in Venezuela, or at least financially punish their firms if they do so. An escalation of secondary sanctions would accelerate an already steady decline in Venezuelan oil production, which has been hovering around 750,000 barrels per day.
In an apparent win for Venezuelan National Assembly leader Juan Guaido and his parallel opposition government, the U.S. order prevents the sale or transfer of Citgo assets. Guaido has been appealing for formal protection for the U.S. refining and retail arm of Venezuelan state-owned Petroleos de Venezuela following a July 29 U.S. appeals court decision that would have enabled Canadian mining company Crystallex to pursue its assets to settle a $1.4 billion debt claim.
As Venezuela's economy has continued to spiral downward, the Maduro government has pursued a dual strategy of engaging in negotiations with the opposition to stall for time as powerful government and military figures further entrench themselves in state industries. Guaido, recognized by more than 50 Western governments as the country's interim president, has so far failed to persuade key military figures to support an overthrow of the Maduro government. Washington has offered amnesty to high-level government, military and intelligence figures in exchange for their support for a Guaido government, but many do not trust the White House to uphold its end of the bargain. The Trump administration has indicated that Venezuelan officials suspected of involvement in drug trafficking, for example, would not be considered for amnesty. This covers a wide swath of regime figures, including National Constituent Assembly President Diosdado Cabello, who recently has been increasing his clout at the expense of Maduro.