Treasury Secretary Steven Mnuchin explains sanctions against Venezuela at a White House briefing, Jan. 28, 2019.
Jan. 29, 2019 by David Silverberg
New sanctions imposed on Venezuelan exports of crude oil could raise oil prices in Southwest Florida and throughout the United States—although it may take time before that impact is felt at the pump.
On Monday, Jan. 28, at a White House press briefing, US sanctions were announced against Venezuela’s state oil company, PDVSA (Petroleos de Venezuela, SA), by National Security Advisor Ambassador John Bolton, Secretary of the Treasury Steven Mnuchin, and Director of the National Economic Council Larry Kudlow.
PDVSA owns the CITGO oil company, which is the main supplier of gasoline products to the 7-Eleven convenience store chain.
“PDVSA has long been a vehicle for embezzlement, for corruption for Venezuelan officials and businessmen. Today’s designation of PDVSA will help prevent further diversion of Venezuela’s assets by [Nicolas] Maduro, and will preserve these assets for the people of Venezuela where they belong,” stated Mnuchin.
Mnuchin was at pains to assure the public that the sanctions will not raise prices at the pump.
“…There’s been a big reduction in the overall price of oil and particularly since we instituted the Iran sanctions. I think you know we’ve been very careful in making sure that these costs don’t impact the American consumer,” said Mnuchin. “Gas prices are almost as low as they’ve been in a very long period of time. These refineries impact a specific part of the country. And I think, as you’ve said, we’re very comfortable that they have enough supply that we don’t expect any big impact in the short term.”
The “specific part of the country” Mnuchin mentioned is the Gulf coast of the United States. However, the main impact there is likely to be felt by refineries on the Gulf coast of Louisiana and Texas, which will have to replace Venezuelan heavy crude oil with oil from other, more expensive sources like the Middle East.
“Citgo assets in the United States will be able to continue to operate, provided that any funds that would otherwise go to PDVSA instead will go into a blocked account in the United States,” stated Mnuchin.
“Now, I’ve been in touch with many of the refineries. There is a significant amount of oil that’s at sea that’s already been paid for. That oil will continue to come to the United States. If the people in Venezuela want to continue to sell us oil, as long as that money goes into blocked accounts, we’ll continue to take it. Otherwise, we will not be buying it.
“And again, we have issued general licenses so the refineries in the United States can continue to operate. So I expect, in the short term, very modest impacts on the US refineries. We’ve been working with them closely on these issues.”
US oil imports from Venezuela have been declining in recent years and currently account for only about 5.7 percent of US oil imports.
US imports from Venezuela since 1993. (Source: US Energy Information Administration)
Background
The United States has recognized Juan Guaido, an opposition leader who assumed leadership of the National Assembly and swore himself into office, as the legitimate president of Venezuela following an election that the United States charges was fraudulent and rigged to elect Maduro. Russia and China are backing Maduro; European nations are joining the United States in recognizing Guaido.
Analysis
As with most battles of this sort, the impacts will depend on the length of the struggle. The Trump administration is trying to minimize the effect on consumers at the pump, as Mnuchin pointed out. In the short term, it’s likely to succeed in this, since the US is not heavily dependent on Venezuelan oil.
However, the longer the fight with Maduro continues the more likely some consumer impact will be felt. Should the fight escalate and possibly include military action, the likelier the effects on all oil and gas sales and the higher the possibility of impacts on the economy, already weakened by Trump’s government shutdown.
Southwest Florida will feel these impacts, like the rest of the country.
For more information on the political crisis see: How Venezuela got here: a timeline of the political crisis (Bloomberg)
For an extensive explanation of the US-Venezuelan oil relationship and the impact of the sanctions see: AP Explains: What a Venezuelan oil embargo could mean for US (Washington Post)
For a transcript of the White House press briefing see: Press Briefing by Press Secretary Sarah Sanders (White House)
For the video of the press briefing see: White House Daily Briefing (C-SPAN)