US sanctions are likely against Venezuela following President Nicolás Maduro's efforts to be re-elected in a process not recognized by the opposition and by the European Union, the United States, and regional countries amid strong allegations of electoral fraud. Risks of destabilizing protests are likely to be mitigated by the mass migration of discontented Venezuelans and strong military and police repression in low-income areas.

• Venezuelan President Nicolás Maduro has been re-elected for six more years.
• The electoral results are not being recognized by the opposition, nor by the European Union, the United States, and regional countries, but Maduro will attempt to secure his mandate taking advantage of the control his government has over the top military ranks.
• US sanctions against Venezuela's oil sector are likely in the one-year outlook, increasing non-payments risks and leading to more protests driven by severe shortages of food and basic goods. Social protests are likely to be mitigated by the mass migration of discontented Venezuelans and by the support the government has over top military ranks, which will likely guarantee strong repression in low-income areas.

The National Electoral Authority (Consejo Nacional Electoral: CNE) announced that incumbent President Nicolás Maduro was re-elected on 20 May with 5.8 million votes over opposition candidate Henri Falcon who received 1.8 million votes. Falcon is not recognizing the results arguing there were at least 142,000 complaints over electoral irregularities, including strong evidence of the government buying votes. Our sources and exit polls claim that turnout was less than 20% despite the CNE claiming it was 48%. The US Department of State issued a statement on 20 May saying it would not recognize the results and claiming that while the imposition of sanctions on the oil sector would mark "a very significant step … they are under active review". The election has not been recognized by the international community including Canada, the European Union, the United States, and most Latin American countries including Argentina, Brazil, Chile, Colombia, Panama, and Peru. These had been calling for its postponement and for the appointment of a new CNE and reform of the electoral system.

The fact that Falcon is calling for a new election to take place this year aligns his stance with that of other leaders of the most representative opposition parties - including not only the Democratic Unity Roundtable (Mesa de la Unidad Democrática: MUD) but also the more radical Come Venezuela (Vente Venezuela) opposition coalition - which had been boycotting the process since March and calling for "real" free and fair elections. This is crucial as Falcon had been expelled previously from the MUD for participating in the process. Most polls had shown Falcon leading by over 10 percentage points but the international community and the MUD has warned that minimum conditions for a free and fair election were unlikely to be met. No significant events of violence were reported during the election.

Outlook and implications
Maduro, in power since 2013, will try to extend his rule for six more years. The US is likely to immediately respond with individual sanctions against top government and military officers involved in the electoral fraud and in events of corruption and human rights violations. The US is also increasingly likely to impose sanctions targeting Venezuela's oil sector. The timing for these is still unclear but we assess these are likely in the one-year outlook. This could involve bans on Venezuelan oil imports to the US, exports of US diluent to Venezuela, or transactions in US dollars involving national oil company PDVSA. This is critical as Venezuela's main source of revenue is the oil sector, representing 25% of GDP, 50% of fiscal revenues, and 97% of foreign exchange. One factor that would decrease the odds of immediate sanctions on the oil sector would be the potential of increasing fuel prices prior to the US November mid-term congressional elections.

The most likely scenario is one of gradual further economic deterioration in Venezuela driven by economic mismanagement and US sanctions on the oil sector. These increase non-payment risks of sovereign and PDVSA debt, forcing the country closer to a formal default and undermining the capacity of the Venezuelan government to pay suppliers and contractors to import food and basic goods and to upgrade and maintain critical infrastructure. In recent weeks, several creditors have files suits against Venezuela, including ConocoPhillips, which seized Venezuelan assets in the Kingdom of the Netherlands' islands of Aruba and Curaçao. Oil production is likely to continue declining due to sanctions and operational disruption affecting exports due increasing legal actions to seize Venezuela and PDVSA assets, including refineries, bank accounts, and oil cargos filed by holders of arbitration rulings and bond holders. This is important as oil production has fallen significantly since 2015 (when it stood at 2.4 million barrels per day) and currently stands at 1.4 million barrels per day, according to the Organization of the Petroleum Exporting Countries.

The combination of international sanctions and lower oil production is likely to intensify shortages of food and basic goods, as well as further undermine the country's already crumbling energy and utility infrastructure. This will increase the risks of protests and riots in the form of roadblocks and looting of retail stores in the one-year outlook. Maduro will attempt to secure his mandate, taking advantage of the control his government has over top military ranks. Senior military officials, represented in the High Military Command, will continue controlling the formal economy such as the oil sector, ports, and airports, and imports of food and basic goods (which most leading military commanders arrange through intermediaries and shell companies). They are also widely claimed to be involved with informal market channels linked to drug trafficking, illegal mining, and fuel smuggling. Their privileged position reduces the risk of the military staging a coup and guarantees strong repression of social protests in low-income areas. Security forces have shown themselves still capable of containing protests, including looting, prior to protests becoming widespread or threatening government stability. The potential for protests to destabilize the government will also be mitigated by the mass migration of discontented Venezuelans to Colombia and elsewhere in the region. Colombian authorities estimate that more than a million Venezuelans have already relocated to Colombia.

Key indicators to watch in terms of government instability and increased international pressure are any statements from US authorities signaling what form oil sanctions will take or when these will be imposed (and specially defining if they will be imposed before or after the November US mid-term elections, if at all). This will indicate the potential effect that these will have for the economy and Maduro's capacity to keep up public spending. Second, any indications of the military withdrawing support for Maduro over increasing destabilizing protests, the imminence of US sanctions on the oil sector or formal complaints from the US and Colombia over Maduro's government support to Hezbollah or Colombia's Ejército de Liberación Nacional, respectively.