Sanctions and More Sanctions: Economic

With Venezuela’s crisis reaching a potential breaking point, and multilateral institutions such as the OAS, MERCOSUR and CELAC seeming to have failed, all attention is now on sanctions. In two posts on the current situation we will look at and evaluate the measures being taken. This post will look at potential economic sanctions. The next will look at the evolution of targeted sanctions.

On July 26, the Trump administration added 13 current and former government officials to a targeted sanctions list, and suggested they are weighing some form of sanctions against the state-owned Petróleos de Venezuela (PDVSA) oil company. This had been reported to be in the works weeks ago, but took on new salience given White House statements. Senior officials in the administration have told the press that such sanctions could take two forms: sanctions against U.S. companies doing business with PDVSA and preventing U.S. banks from processing its transactions, and a ban on U.S. oil imports from Venezuela.

These statements immediately received support among sanctions supporters in Washington, with some even suggesting that economic sanctions would have a minimal impact on average Venezuelans. Marco Rubio said: “I don’t believe the Venezuelan people are enjoying the benefits of a declining oil industry. […]It’s going entirely to enrich those who are tied to it, and to pay for debt obligations.” OAS Secretary General Almagro echoed these claims in a Senate hearing dedicated to Venezuela, arguing that “[we] do not see the benefits obtained by the regime going to the people,” suggesting that Venezuelans’ everyday livelihoods would not be massively affected by economic sanctions.

It is worth noting that throughout 2014 and 2015 U.S. lawmakers made the case for targeted sanctions by arguing that they would not harm the broader population. Speaking at a Congressional hearing in 2015, Rubio framed his support for targeted sanctions by asserting that: “[t]hese sanctions are not against the people of Venezuela nor do they aim to deny the people of Venezuela anything.” Now he has extended this logic to broad economic sanctions as well.

However, he does not seem to be convincing many people beyond the Trump Administration and Secretary General Almagro.

Many Venezuelan analysts, who strongly oppose the Maduro government, argued that even though Venezuela’s oil-related income has declined in recent years, sanctions would have a devastating impact on revenues, an impact that would be felt acutely by everyday Venezuelans. Economist Francisco Monaldi highlights that oil shipments account for over 92 percent of Venezuela’s total exports. Sanctions, he maintains, would be “disastrous for PDVSA and for the country, causing a collapse of the Venezuelan oil industry that is already in a very precarious situation.”

In a separate analysis, economic analysts Alejandro Grisanti and Gorka Lalaguna compare economic sanctions against Venezuela with the case of recent sanctions on Iran, noting that such sanctions would have a devastating economic impact, reducing GDP by as much as 13 percent. This, in their words, would be the “greatest loss any country has ever suffered without an armed conflict.” And even if such sanctions could speed the resolution of the political conflict (an “uncertain” outcome, they note), oil sector sanctions would “lead to a deeply unstable equilibrium to the detriment of the economic framework, thus, further deepening the humanitarian crisis in Venezuela.”

These concerns about the humanitarian impact of economic sanctions have been echoed by some among the Venezuelan opposition, like legislator Angel Alvarado, a member of the National Assembly’s economic commission. Alvarado has warned that a U.S. ban on Venezuelan oil would be devastating, saying: “the consequences for Venezuela would be catastrophic…it would be a collapse without precedent.”

Surveys suggest one in three Venezuelans eat two meals or less each day, and that nearly three-quarters of Venezuelans have lost weight due to food shortages, with an average loss of 19 pounds.

Even the editorial board of the Washington Post, which for years has loudly demanded that the U.S. take a tougher line on Venezuela, now says the risk is that U.S. sanctions go too far.

Other analysts have pointed out that broad U.S. economic sanctions against Venezuela would be capitalized upon swiftly by Maduro, in part because of the impact that they would have on ordinary Venezuelans. After spending much of the last four years warning about an “economic war” being waged against Venezuela by the United States, U.S. economic sanctions would finally provide Maduro with actual evidence to support this narrative.

Moises Naim, for instance, has argued that an oil ban would be “political manna from heaven for Caracas,” asserting in El Pais that such a move would be a “marvelous and opportune political lifeline for Maduro.”

While it is unlikely that economic sanctions would lift Maduro’s approval ratings—currently at about 20 percent—they would certainly help rally the remaining socialist leadership and followers around him. Indeed, there is already evidence of such an effect. Venezuela’s Cronica Uno has reported that some within the PSUV were on the fence about the Constituent Assembly until the White House issued its statement. Their hesitation was swiftly replaced by nationalist indignation at what they perceived as “imperialist” aggression, and a renewed commitment to the Constituent Assembly.

In our view, economic sanctions would not only be disastrous but counterproductive. They would likely cause starvation of famine proportions and a refugee crisis. They would also likely generate solidarity and food shipments from some governments in the region (Uruguay, Ecuador, Nicaragua and others) and beyond (China and Russia), and antipathy towards the U.S. or any other coalition of countries seeking to pressure the Maduro government.

Andres Oppenheimer has argued that President Trump has outsourced his Venezuela policy to Senator Marco Rubio. It might be worse than that. There is a chance that Trump could see the Venezuela crisis as an opportunity to boost a troubled presidency.

Historically, in the U.S. and elsewhere, stoking international conflict is a time-honored way for presidents to sidestep difficulties and failures in achieving their domestic agenda. With this in mind, we are keeping a close eye on the naming of General John Kelly, former head of the US Southern Command, as Trump’s new White House Chief-of-Staff.