The Venezuela Oil Options

The US just laid down the hammer on Venezuelan strong man Nicolas Maduro. In a statement by Treasury Secretary Steve Mnuchinit was said that “The United States is holding accountable those responsible for Venezuela’s tragic decline and will continue to use the full suite of its diplomatic and economic tools to support Interim President Juan Guaidó, the National Assembly, and the Venezuelan people’s efforts to restore their democracy. All property and interests in property of PdVSA subject to U.S. jurisdiction are “blocked and U.S. persons are generally prohibited from engaging in transactions with them”.

Now that the US has moved to sanction Venezuelan oil, the Nicolas Maduro regime is running out of options. In a move that was anticipated after the US recognized the self-declared interim President Juan Guaido as the rightful leader of Venezuela has ratcheted up pressure on Maduro, who has refused to yield power. By cutting off the regime’s personal oil piggy bank the hope is that Maduro will soon be forced to step down. National Security Advisor Bolton And US Treasury Secretary Steve Mnuchin laid out the well thought out sanctions. John Bolton said that the sanctions will block $7 billion in Venezuelan Assets and $11 Billion in oil payments to Maduro and that Petróleos de Venezuela must transfer control to Interim President Guaido before sanctions will be lifted.

The Trump Administration reached out to Gulf Coast refiners to get a handle on how sanctions on Venezuelan oil might impact them. The Trump administration gave them heads up that the sanctions were coming allowing the refiners to buy extra supply and look for alternative sources of oil. To that point, Secretary Mnuchin told reporters that a significant amount of Venezuela oil was already in transit and can be accepted by U.S. refineries. He suggested that the sanctions should have a minimum effect on U.S. refineries. He said that the refiners that rely on Venezuelan oil is only about 10% of US refining capacity,(only 10%) and he felt that other refiners could make up the difference. While that may be true in the short run if this goes on for an extended period it will get harder and harder to replace Venezuelan heavy crude oil. The Trump Administration is always sensitive to rising oil and gas prices wanted to make sure ahead of time this action would not cause a price spike. And while they did avoid a price spike in the short term they still put in a bottom in the longer term until sanctions are at some point lifted. He also suggested that our“many of our friends in the Middle East will be happy to make up the supply as we push down Venezuela’s supply.”

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