A week after Venezuelan President Nicolas Maduro was sworn in for a second term in office, the option of a complete oil embargo against Venezuela has been put back on the table, according to two unnamed sources who spoke to CNN.
The sources also said President Trump was mulling over a declaration that recognizes the President of the Venezuelan National Assembly, opposition politician Juan Guaido, as the legitimate president of the country.
While officials from the U.S. administration did not directly confirm the information, CNN quoted the spokesman of the National Security Council, Garrett Marquis, as saying “The United States is currently considering all diplomatic, political, and economic tools in its arsenal in response to the usurpation of power by the illegitimate Maduro regime.”
The last time more sanctions against Venezuela’s government were discussed actively in Washington, a source from the administration said a full oil embargo was not among the options discussed.
“The fact is that the greatest sanction on Venezuelan oil and oil production is called Nicolas Maduro, and PDVSA’s inefficiencies,” the official said, speaking to Reuters. “At the end of the day, Nicolas Maduro has taken care of really running PDVSA to the ground, and essentially more and more making it a non-factor.”
Interestingly enough, however, despite the steady decline in Venezuela’s oil production, daily exports of crude to United States refineries have remained relatively stable. According to the latest data from the Energy Information Administration, between May and October 2018, Venezuelan crude exports to the U.S. hovered around half a million barrels daily. While this is substantially lower than the export rate from the late 1990s, it’s not as low as it was a decade earlier, between 1980 and 1985. And U.S. refiners might need more.
Late last year, Alberta’s Premier Rachel Notley ordered a cut of over 300,000 bpd in local crude oil production to prop up prices. It worked so well, now some analysts are worrying there may be a shortage of heavy crude on the way as Saudi Arabia is also cutting production and when it cuts, these analysts said, it cuts mostly its heavy crude production.
However, most refineries on the Gulf Coast, where more than half of the world’s crude is processed, need heavy crude and there are but a few competitive sources they can tap if the supply of heavy crude becomes too tight for comfort, which may well happen if Trump goes ahead with an export embargo.
The idea of an oil embargo, CNN notes, has been previously rejected by the U.S. President because it would lead to a jump in prices at the pump of as much as 15 percent. This is not something Trump seems to be fine with, as evidenced by his reactions to rising prices in the spring and early summer of last year and his urging OPEC to stop cutting production and let prices go lower. Based on this, chances are the U.S. president will stop short of imposing a full oil embargo on Venezuela, especially amid a tightening heavy crude market.
By Irina Slav for Oilprice.com
