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Venezuela crisis: Why US sanctions will hurt



 A man wearing a mask caricaturing US President Donald Trump poses for a selfie during a rally against Venezuelan President Nicolas Maduro's government in Caracas, February 2, 2019 Image copyright
Reuters

The United States announced sanctions this week that are intended to produce the most damage possible to the government of President Nicolás Maduro: the oil sector and its state company, PDVSA. . Now new sanctions will finally hurt the one sector that is responsible for more than 90% of the government's revenues.

From April sanctions are expected to kick in.

A new phase in the Venezuela crisis started last month when Washington recognized opposition leader Juan Guaidó ̵

1; who is the leader of the National Assembly – as the rightful head of state.

Venezuela's Congress, which has been stripped of most of its powers by the government, says Mr Maduro is a "usurper". Washington White has an open campaign with Mr Guaidó to Mr Maduro.

What is Washington trying to do?

The White House is trying to make a difficult thing: to make oil revenues directly reach ordinary Venezuelans and bypass the Government of Mr Maduro, who owns most of the oil industry through PDVSA.

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] The opposition led by Juan Guaidó is trying to set up a parallel government
                

John Bolton's US National Security Adviser says the US wants revenue to reach Mr. Guaidó, giving his National Assembly some economic power to combat Mr Maduro.

One of the ways of doing so is through PDVSA-owned refineries based in Texas, through a subsidiary called Citgo. Mr. Bolton has already been with Citgo executives and there is an effort to change its management with executives appointed by Mr Guaido's National Assembly.

In effect the opposition is trying to set up a parallel government to Mr Maduro's with its own cabinet. [19659019] Who is Juan Guaidó?

  • Maduro: Dictator or defender of socialism?
  • Will these sanctions hurt Maduro?

    Mr Bolton said the sanctions would block $ 7bn (£ 5.4bn) in PDVSA's assets and more than $ 11 bn in lost export proceeds over the next year.

    At this stage, with Venezuela's oil output on a downward spiral and the country facing severe shortages, the power has to be "calamitous for Venezuelan finances", says Helima Croft from RBS Capital Markets

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    AFP

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    President Nicolás Maduro still has significant support
                    

    But some analysts believe Mr Maduro still has a few options.

    "The oil that Venezuela currently exports to the US will be diverted to other countries and sold at lower prices. akin to black monday will be able to pick up these oil volumes at great discounts, "writes Venezuelan-born analyst Paola Rodriguez-Masiu, from Rystad Energy.

    She adds that the impact of sanctions will be substantially lower than the ones predicted by Washington

    Venezuela exports to the US about 450,000 barrels of oil per day, a little under half of its total output. This is the amount of new oil that will flood the markets. Venezuela's market share in the US will be up for grabs, favorite Saudi, Mexican and Iraqi oil companies

    Mrs Rodriguez-Masiu says that so far, investors have been pricing in Venezuela's crisis

    China and Turkey are some of the government's main allies but Russia is today the key player.

    Moscow has repeatedly provided financial lifelines to Caracas at times when the country was about to face serious defaults

    But it has not acted purely out of friendship alone

    Russia's oil company Rosneft (which itself has been subject to US sanctions since 2014 because of the Ukraine crisis) already has a 49% stake in Citgo. It also has some collateral on Citgo, which means it could control the refineries in Texas were Venezuela's government to run into trouble.

    Washington has its own grievances with Russia and it is not happy about the prospects of Rosneft gaining and foothold in refineries in Texas

    Will these sanctions hurt Venezuelans?

    It is unclear whether the US can successfully redivert resources from Mr Maduro to Mr Guaidó.

    Idriss Jazairy, a special UN reporter who reports to the Human Rights Council, says the people of Venezuela are the ones who will ultimately bear the brunt of sanctions.

    "Sanctions which can lead to starvation and medical shortages are not the answer to the crisis in Venezuela," he said.

    " Precipitating an economic and humanitarian crisis is not a foundation for the peaceful settlement of disputes. "

    Mr. Bolton said on Friday that the US would send humanitarian aid, medicine, surgical supplies and nutritional supplements for the people of Venezuela. But it is unclear whether it can successfully circumvent the Maduro government.

    How long will these sanctions last?

    These sanctions could last for quite a while, and they depend largely on a political solution to the stand-off between the opposition and Mr. Maduro

    In the past, the US had been hesitant about imposing sanctions on Venezuela's oil industry because it knows this has the potential to seriously affect living standards of ordinary people, which are already low.

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    Media caption Desperate Venezuelan women are selling their hair at the border

    Now Washington is an uncharted territory, because it still has to work out in detail how to make oil revenues and humanitarian aid reach Mr Guaidó and the National Assembly

    The end goal is to force Mr Maduro out of power either through a negotiated solution or by giving incentives for a military coup.

    The top with charge in protest in Venezuela and a wide range of international support – which includes the European Union and regional players like Brazil, Argentina and Colombia – Washington hopes it won't be long before it achieves its goals.

    But these sanctions

    In the past, US action in Venezuela helped Mr Maduro – and President Hugo Chavez before him – to rally Venezuelans behind a common enemy, giving them a temporary boost in popularity. That could be the case now.

    Also, the wording of living standards now would be directly blamed by Mr Maduro on the US. Furthermore, these actions serve the argument that Mr Maduro has been making: that Mr Guaidó is a more puppet of the Americans.


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