US policy on Venezuela sanctions could leave room for trade, political change

The US decision to snap back broad oil and natural gas sanctions in Venezuela while explicitly keeping the door open for company-specific licenses is a unique approach that could minimize market disruption in a US election year while allowing for more gradual political progress in Venezuela, experts say.

Shifting the focus to company-specific licenses rather than a general license could also provide some stability going forward, both for the companies wanting to operate in the country and for the political opposition that hopes to gain footing even beyond the July presidential election, experts say.

Negotiating a specific license can be a long process, but "it might be more predictable for the companies ... especially if they are US/allied companies," said Rachel Ziemba, a senior adviser at political risk consultancy Horizon Engage.

The strategy provides a "bureaucratically cumbersome, but clear, path for companies to request the ability to swap Venezuelan crude for debt they are owed, for diluent or other products to relieve humanitarian distress in Venezuela," David Goldwyn, chairman of the Atlantic Council Global Energy Center's Energy Advisory Group said in an April 18 article on the Atlantic Council website.

This strategy could also provide stability beyond the Venezuelan presidential election, scheduled for July, and give the political opposition a chance to gain ground in parliamentary, local, and regional elections. This longer-term political strategy is seen by some as a window of opportunity for Venezuela to take steps toward democracy.

Market impacts

The impact on the global oil market remains to seen, Goldwyn said. It will depend on how many companies apply for licenses and how quickly Treasury can respond to them, he said in the article.

"But with this one move, the United States has avoided blame for interference in the Venezuelan elections, preserved diplomatic capital for a future day, and this time managed to punish the aggressor more than the victims," Goldwyn said.

The wind-down of the general license is expected to have little impact on Venezuela's supply outlook, said Nick Blanco, an analyst with S&P Global Commodity Insights.

"Nothing has changed for Chevron, who was and is the main source for output growth. They started drilling at PetroIndependencia, and this will continue," Blanco said.

State-owned PDVSA and its partners produced an average of 870,000 b/d of crude oil in March, up from 760,000 b/d in October, according to estimated data included in the PDVSA production report, which S&P Global Commodity Insights has reviewed.

Policy shift

The US announced April 17 it would not be renewing General License 44, which authorized transactions related to oil and gas for six months, after finding that Venezuelan President Nicolás Maduro failed to meet his commitment to make progress toward a free and fair election in July.

The move did not impact Chevron's General License 41, however, and it leaves open the door for other companies to apply for similar individual licenses.

"With the wind down today of the public general license individual companies may now apply for specific licenses related to activities in Venezuela's oil and gas sector, which will then be evaluated on a case-by-case basis," a senior administration official said during an April 17 background press briefing.

While the US Treasury Department has always allowed companies to apply for specific sanctions licenses, it is unusual to highlight that option in a notice winding down a general license. "It's rare, but then this whole case is rare," Ziemba said.

Treasury used to rely more heavily on specific licenses, but had recently moved toward general licenses for transparency, since specific licenses do not have to be made public, Ziemba said.