US Imposes More Sanctions On Venezuela - Politics, Yes, Little Economic Effect E
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« on: August 27, 2017, 04:13:17 pm »

Venezuelan President Nicolas Maduro offers a press conference at the Miraflores presidential palace in Caracas on August 22, 2017.Chile said Tuesday it has granted diplomatic asylum to five Venezuelans who took refuge in its embassy in Caracas, amid political turmoil as Maduro moves to consolidate power. The five were among a group of 33 jurists who had been named to the Venezuelan Supreme Court by the opposition-controlled National Assembly on July 31 in defiance of the government. / AFP PHOTO / Juan BARRETO (Photo credit should read JUAN BARRETO/AFP/Getty Images)

The Donald Trump administration has imposed more sanctions upon the Venezuelan economy but if we're honest about it this isn't going to have much effect beyond the simply political--the economic effect just isn't going to be that much. Fortunately, they stopped well short of real sanctions on the oil business, something which would have both crashed the Venezuelan economy entirely but also have been costly to the US itself. The point here being that the US is a major importer of that heavy Venezuelan oil and why make it more difficult to buy what you want to in order to punish someone else?

Columbia: The White House on Friday amped up pressure on Venezuela's cash-strapped government, restricting access to vital US capital markets and escalating a standoff between Washington and Caracas.

In a move aimed at leveraging America's vast financial power against Nicolas Maduro`s regime, President Donald Trump banned US trade in new bonds issued by the government or its cash-cow oil company PDVSA.

Well, banning the trade in bonds has effects, yes, but they're pretty marginal for a country in Venezuela's situation. They've not got many bonds themselves--Goldman Sachs bought most of those that the government did own in one form or another some months back. And they're certainly not issuing more at present:

Maduro, who has frequently blamed the United States for waging an “economic war” on Venezuela, said the United States was seeking to force Venezuela to default — but he said it would not succeed.

One of the real oddities of this situation is that any economic manager with any sense at all would have defaulted on that debt well back--certainly 12 months back if not more. It's not payable without constricting the Venezuelan economy more than any economy should be constricted. And we have a system to deal with that concerning sovereign bonds, simply default and reschedule. But Maduro doesn't appear to have the economic good sense of a damp hedgehog, to be exceeding polite about it, which must be why he's so determined to not default:

The new sanctions prohibit financial institutions from providing new money to the Caracas government or state oil company PDVSA. It would also restrict PDVSA's U.S. subsidiary, Citgo, from sending dividends back to Venezuela as well as ban trading in two bonds the government recently issued to circumvent its increasing isolation from western financial markets.

People just aren't going to be lending more money into that system--at least not through the public markets which the US has some control over. We might of course see lending for political reason from China or Russian interests but there just aren't going to be subscriptions to new bond issues at anything other than entirely punitive rates. At I do mean punitive, rates which someone simply wouldn't issue at like 25% or above:

To mitigate harm to the American and Venezuelan people, the Treasury Department is issuing general licenses that allow for transactions that would otherwise be prohibited by the Executive Order. These include provisions allowing for a 30-day wind-down period; financing for most commercial trade, including the export and import of petroleum; transactions only involving Citgo; dealings in select existing Venezuelan debts; and the financing for humanitarian goods to Venezuela.

That's from the press secretary's statement. Which brings us to why they've not banned the oil trade. Venezuela's oil is very heavy, thick stuff, so much so that they actually import lighter crude from the US to mix into it to get it up to a standard that refineries can take it. However, it still means that a refinery has to be adjusted to be able to take it and those along the Gulf Coast of the US are those able to do so. If the US refused to take it, outlawed it, then that would cause a shortage in the US market--why hurt yourself when you're trying to hurt someone else? Perhaps more importantly it would immediately collapse the Venezuelan economy. There's no one else who can take that oil, not without months of reforms and adjustments to their refineries, a disruption that the people of Venezuela simply couldn't handle. The point after all is to try to stop Maduro oppressing, not punish the people for being oppressed by Maduro.

The administration stopped short of prohibiting imports of Venezuelan crude oil to American refineries, which would almost certainly be a crippling step. American refiners have lobbied hard against sanctions against oil imports, arguing that they would raise fuel prices, slash profit margins and potentially cost oil company jobs along the Gulf Coast.
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