Venezuela has the world’s greatest oil reserves of any country. In 1998, Hugo Chávez was elected President of Venezuela by a landslide, as a Socialist. At that time, the country began to reassert sovereignty over its own oil reserves. This action challenged the comfortable position held by US economic interests for the better part of a century. In 2006, the US was Venezuela’s most important trading partner for both oil exports and general imports. In 2015, the Obama administration first announced US sanctions on Venezuela. Interestingly enough, it was also in 2015, that the inflation rate in Venezuela skyrocketed to 181%, this was the highest in the world and the highest in the country’s history at the time. The inflation rate reached 800% in 2016, over 4,000% in 2017, and 1,698,488% in 2018. Since 2017, the Trump administration has progressively imposed an oil and financial embargo on Venezuela.
Roughly 15%-20% of Venezuelans don’t have access to potable water in their homes, because the government cannot acquire new foreign-built parts to fix broken pumps and pipes (because of the US embargo).
The Bolivarian Revolution refers to a left-wing populism social movement and political process in Venezuela led by Venezuelan president Hugo Chávez, who founded the Fifth Republic Movement in 1997 and the United Socialist Party of Venezuela in 2007. The “Bolivarian Revolution” is named after Simón Bolívar, an early 19th-century Venezuelan and Latin American revolutionary leader, prominent in the Spanish American wars of independence in achieving the independence of most of northern South America from Spanish rule. According to Chávez and other supporters, the “Bolivarian Revolution” seeks to build a mass movement to implement Bolivarianism—popular democracy, economic independence, equitable distribution of revenues, and an end to political corruption—in Venezuela. They interpret Bolívar’s ideas from a populist perspective, using socialist rhetoric.
A logical person would look at these U.S. initiatives—the attempted U.S. coup in 2002 and the Free Trade Area of the Americas (FTAA)—and conclude that the U.S. government has more concern for corporate interests than for the interests of the poor. After all, what bothered the United States with Chávez was that he demanded that oil companies pay higher royalties for the oil that they sucked out of Venezuela. Such audacity has to be repaid with a coup attempt.
It is what happened in 1953 to Mohammed Mossadeq of Iran and in 1954 to Jacobo Árbenz of Guatemala and in 1971 to Salvador Allende of Chile. You cross U.S. multinational corporations, and you get overthrown.
Venezuela, under the Bolivarians, offered a stronger alternative. It has to be shut down. Humanitarian concerns? Democracy? Not so important to the United States. Far more important is to deliver the planet into the hands of the billionaires, to extend the dictatorship of the billionaires over every square inch of the planet.
Venezuela has the world’s largest proven oil reserves, but it produces relatively little oil these days.
From a high of 3.5 million barrels per day in the 1970s, the country produces only about 1.5 million barrels per day at present. Venezuela’s oil exports are responsible for about half of the Venezuelan government’s annual revenue.
The economy of Venezuela is in a state of total economic collapse since the mid-2010s. In 2014, total trade amounted to 48.1% of the country’s GDP. Exports accounted for 16.7% of GDP and petroleum products accounted for about 95% of those exports. Venezuela is the sixth largest member of OPEC by oil production. Since the 1920s, Venezuela has been a rentier state, offering oil as its main export. From the 1950s to the early 1980s, the Venezuelan economy experienced a steady growth that attracted many immigrants, with the nation enjoying the highest standard of living in Latin America. During the collapse of oil prices in the 1980s, the economy contracted, the currency commenced a progressive devaluation and inflation skyrocketed to reach peaks of 84% in 1989 and 99% in 1996 (three years prior to Hugo Chávez taking office).
Venezuela has experienced hyperinflation since 2015, far exceeding the oil price collapse of the 1990s. Interestingly enough, it was in 2015, the Obama administration first announced US sanctions on Venezuela.
The inflation rate peaked in 1989 at 84%, the year the capital city of Caracas suffered from rioting during the Caracazo following the cut of government spending and the opening of markets by President Carlos Andrés Pérez second term. After Pérez initiated such liberal economic policies, the differential exchange rate system (RECADI) was abolished and made Venezuelan markets more free, Venezuela’s GDP went from a −8.3% decline in 1989 to growing 4.4% in 1990 and 9.2% in 1991, though wages remained low and unemployment was high among Venezuelans. With regard to oil policy, Perez opened the mature oilfields to foreign investment which served as leverage to significantly increase oil production to 2.6 million barrels a day, with the potential to reach the goal of 5 million barrels a day in a few years. In 1990 PDVSA acquire the remainder fifty per cent of Citgo, creating a lucrative export chain from Venezuelan soil to American consumers, as the two largest buyers of Venezuelan petroleum are the United States and China, respectively.
By the mid-1990s, Venezuela saw annual inflation with an exceptional peak in 1996 at 100%. The percentage of people living in poverty rose from 36% in 1984 to 66% in 1995, with the country suffering a severe banking crisis (Venezuelan banking crisis of 1994).
By 1998, violating the lower OPEC quotas Venezuela’s oil production had recovered to 3.5 million BPD, nearly reaching its 1970 former high. The economic crisis had grown even worse with the per capita GDP at the same level as 1963 (after adjusting 1963 dollar to 1998 value), down a third from its 1978 peak; and the purchasing power of the average salary was a third of its 1978 level.
In this environment of economical weakness and the collapse of confidence on political parties, Hugo Chávez was elected President in December 1998.
In the first four years of the Chávez presidency, the economy grew at first (1999–2001), then contracted from 2001–2003 to GDP levels similar to 1997. At first, the economic decline was due to low oil prices, but it was fueled by the turmoil of the 2002 coup attempt and the 2002–2003 business strike.
The inflation rate as measured by consumer price index was 35.8% in 1998, falling to a low of 12.5% in 2001 and rising to 31.1% in 2003. Historically, the highest yearly inflation was 100% in 1996.
From 1999 until mid 2008, the price of oil rose significantly. It was explained by the rising oil demand in countries like China and India. After recession in 2003 the political situation began to stabilize, throughout the current economic expansion. Real (inflation-adjusted) GDP has grown by 76 percent.
The Venezuelan economy shrank 5.8% in the first three months of 2010 compared to the same period of 2009 and had the highest inflation rate in Latin America at 30.5%.
After Hugo Chávez was first elected President of Venezuela by a landslide in 1998, the South American country began to reassert sovereignty over its oil reserves. This action challenged the comfortable position held by US economic interests for the better part of a century. The Chávez administration overturned the privatization of the state-owned oil company PDVSA, raising royalties for foreign firms and eventually doubling the country’s GDP. Those oil revenues were used to fund social programs aimed at fostering human development in areas such as health, education, employment, housing, technology, culture, pensions, and access to safe drinking water.
In 2006, the US remained Venezuela’s most important trading partner for both oil exports and general imports – bilateral trade expanded 36% during that year. As of 2007, the US imported more than $40 billion in oil from Venezuela and the trade between the countries topped $50 billion despite the tumultuous relationship between the two.
In 2015, the Obama administration first announced US sanctions on Venezuela. Under pressure from the US, foreign companies stopped doing business with the country. Citibank closed Venezuela’s foreign accounts. Both the US and EU designated individuals associated with the sanctioned regime.
Since 2017, the Trump administration has progressively imposed an oil and financial embargo that has strongly curtailed the economy’s access to hard currency. After the latest round of oil sanctions, oil production fell by 400,000 barrels per day, leading to $8 billion in foregone export revenue. Imports have fallen by more than 50 percent from last year, according to my calculations based on trading-partner data, and now stand at less than one-tenth of their 2012 levels.
Trump intensified sanctions and confiscated Venezuela’s US subsidiary CITGO, worth $8 billion. It was a huge blow for Venezuela, which received 90% of government revenue from the oil industry.
Venezuela’s gross domestic product in 2018 was approximately $276 billion. That same year, the GDP of the state of Connecticut was about $279.7 billion.
A significant ramping up of US sanctions took place on 28 January 2019 with issue of Executive Order 13857 which extended the scope of Executive Order 13850 by designating Petroleos de Venezuela, S.A (PdVSA) as a Specially Designated National (“SDN”). This includes entities in which PdVSA owns, directly or indirectly, a 50 percent or greater interest, subject to some limited relief for PdVSA’s US subsidiaries CITGO and PDV Holdings.
The designation prohibits US persons from engaging in transactions with PdVSA or its subsidiaries unless they are able to bring themselves within the scope of a General License. Some Licenses have subsequently been amended. All PdVSA property which is subject to US jurisdiction is blocked.
The Trump administration order affects “all property and interests in property of the Government of Venezuela that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person.”
The U.S. government has also frozen $5.5 billion of Venezuelan funds in international accounts in at least 50 banks and financial institutions. Even if Venezuela could get money abroad, the US has long blocked international trade by threatening sanctions on foreign companies for doing business with the country.
According to representatives from Hidrocapital, the state water agency for the capital, Caracas, roughly 15%-20% of Venezuelans don’t have access to potable water in their homes, because the government cannot acquire new foreign-built parts to fix broken pumps and pipes.
A State Department Briefing on 29 March 2019 discloses efforts to persuade foreign oil traders not to buy Venezuelan oil with a warning that “you should not be buying oil from this regime… we have a wide broad net with sanctions… be careful not to get caught in that net by activities you may think don’t come into it but actually are caught by it“.
- The US government can impose sanctions an “any person” (apparently including non-US persons) determined to have “…materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of… any person whose property and interests in property are blocked pursuant to this order.” (EO 13850 Section 1(a)(iii)). The administration did not initially indicate that it intended this provision to apply to non-US persons and OFAC FAQ 657 could be read as implying that it did not so intend. However there remained an element of doubt and recent statements by the US administration (see above) indicate that it considers non-US persons may after all be susceptible to sanctions if they deal with PdVSA.
- Non-US companies involved in the transportation of PdVSA cargo to the US must comply with US sanctions.
- Non-US companies which make or receive PdVSA related payments in USD bring the transaction under US jurisdiction even in relation to cargo which is not carried to the US.
- Vessels carrying petroleum products originating from Venezuela to Cuba face a clear risk of being sanctioned.
- It is possible that there may be some banking delays in PdVSA related transactions even in a currency other than USD. This will depend upon how banks frame their policies in the light of the designation.
- It is possible (but not clear) that a foreign entity listed on the NYSE may be treated as US person.
- The Venezuelan cryptocurrency the “Petro” is unlikely to provide a solution and its use by US persons is likely to be a breach of sanctions.
- A non-US entity should not assist or facilitate a US person (such as a US employee) in acting in contravention of the measures applicable to US persons.