US Looks To Reimpose Venezuela Oil Ban With Maduro Deal On Brink
President Joe Biden’s administration intends to reimpose oil sanctions on Venezuela, ending a six-month reprieve, if Nicolas Maduro’s regime does not take steps in the next two days to honor an agreement to allow a fairer vote in elections scheduled for July.
(Bloomberg) -- President Joe Biden’s administration intends to reimpose oil sanctions on Venezuela, ending a six-month reprieve, if Nicolas Maduro’s regime does not take steps in the next two days to honor an agreement to allow a fairer vote in elections scheduled for July.
The US plans to allow a Treasury Department license permitting oil and gas production to expire without renewal on Thursday, according to people familiar with the plan, who asked not to be identified without permission to speak publicly, if Venezuela fails to act.
The Biden administration has been trying to buy as much time as possible before finalizing the decision in hopes for an unlikely breakthrough that could change its plan, the people said. If the license expires, US actions would be taken to ease the impact on Americans and the US oil market.
The US granted the license in October after Maduro’s representatives traveled to Barbados to sign an agreement to take steps toward a free and fair election. But since then, Maduro has consistently tested the limits of the deal, barring Maria Corina Machado, who won an October opposition primary, and a proposed substitute from running.
Even as the US prepares to reimpose sanctions, some close followers of Venezuela have held out hope for a last-minute resolution that could help avert that outcome. Possibilities mentioned in recent days have included the government extending the deadline for registering candidates, or the opposition throwing its support behind Manuel Rosales, a governor who was allowed to register but is distrusted by some for his willingness to negotiate with Maduro.
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The Biden administration has worried that revoking the license could worsen the economic crisis in Venezuela, the second-largest source for undocumented migrants encountered at the US-Mexico border last year. Immigration is a key issue for Biden in his general-election rematch against Republican former President Donald Trump.
US Treasury and White House spokespeople as well as Venezuela’s information ministry did not immediately respond to requests for comment.
Sanctions Reprieve
Reimposing sanctions would end a brief respite that had foreign oil executives flocking to the South American nation. Renewed sanctions would set back Maduro’s efforts to restart Venezuela’s economy, which requires significant foreign investment to rebuild the country’s decaying oil infrastructure.
Sanctioning the nation’s limited production will bear little immediate impact on the global oil market. But over the medium- to long-term, the lack of investment from Chevron Corp. and other outside investors could ultimately see Venezuela’s oil output decline.
Cracking down on the oil flowing from the country also threatens to drive rising US gasoline prices even higher. That poses a threat to Biden, who has struggled to calm voter anxiety over persistently high inflation in the US in an election in which the state of the economy is taking center stage.
Maduro had welcomed international oil majors to scout for deals with state-owned Petroleos de Venezuela SA in the hopes of boosting production. The temporary license gave Maduro an additional $740 million in oil sales from October until March, according to an estimate from Eduardo Fortuny, head of Caracas-based consultancy Dinamica Venezuela.
Bond prices had been rising for the past two weeks as expectations over a resolution to the political stalemate grew. They reached a peak in January as investors increased their holdings in anticipation of Venezuela’s inclusion in the widely followed JPMorgan Chase & Co. emerging-market indexes this year. Bonds across the curve rose in January with 2027 sovereign notes touching a high of 23 cents on the dollar, according to data compiled by Bloomberg. The debt has been sliding since, and fell about 0.5 cent on Bloomberg’s report Wednesday, according to traders.
“The broader question, which could have price impact, is how will oil sanctions operate” if the US reimposes sanctions, said Guillermo Guerrero, a strategist at EMFI Group Limited. “Would a new scheme that gives flexibility to oil companies while restricting hard currency cash flows to Maduro be put in place? What degree of freedom will Chevron and other foreign companies have to continue working in the country? I think the market is expecting a softer position than the pre-October status quo.”
Maduro, a longtime critic of US policy, has brutally repressed protests against his decade-long rule, including arresting human rights leaders and opposition party officials. The brazen violations have forced allies including Brazilian President Luiz Inacio Lula da Silva and Colombia’s Gustavo Petro to take the unusual step of publicly criticizing the moves.
--With assistance from Fabiola Zerpa, Patricia Laya, Andreina Itriago Acosta and Maria Elena Vizcaino.
(Updates with additional detail, background on bond prices in paragraphs 12-13)
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