Economy

Yes, More PDVSA Sanctions—This Is What They Mean

Guaidó announced he’ll start managing the nation’s cashflow almost at the same time the U.S. announced new sanctions against PDVSA. Money is one of the reasons part of the Armed Forces are still behind Maduro. What happens when Maduro runs out of petrodollars to give them?

James Bosworth
Photo: Politico, retrieved.

Right around 3:30 p.m. EST this afternoon, Juan Guaidó tweeted:

The President, via the power granted by the National Assembly is announcing that his government has a right to the money collected abroad by CITGO and PDVSA contracts. He’s going to create a transparent process for spending that money and begin naming a new board of directors for CITGO.

You may have missed Guaidó’s announcement because at the same time he posted that, the Trump administration announced sanctions against PDVSA.

The sanctions will freeze PDVSA bank accounts in the U.S. and, combined with a new executive order issued this afternoon, allow the U.S. to direct money to the Guaidó government. While Maduro can hypothetically continue to sell oil to the U.S., his regime will get no money from those sales. The sanctions will also prevent U.S. businesses from working with PDVSA without special exception licenses granted by the U.S. Department of Treasury.

What questions remain?

Will other countries follow and transfer bank accounts to Guaidó? While no country is as large as the U.S., a coordinated international effort would both isolate Maduro symbolically and make it much harder for him to divert money around U.S. sanctions.

The sanctions will freeze PDVSA bank accounts in the U.S. and, combined with a new executive order issued this afternoon, allow the U.S. to direct money to the Guaidó government.

Will Guaidó use that Citgo as leverage to nudge Russia’s position on Venezuela? Nearly half of Citgo is leveraged against a $1.5 billion loan from Russia’s Rosneft. Russia’s ideological commitment to Maduro is going to be tested against real money.

How quickly can Maduro find new buyers? Oil is a global commodity, but the Citgo refineries in the U.S. are among the few that can process Venezuela’s heavy crude. While some have speculated that buyers in Asia will pick up the slack, no country in that region can easily refine the oil and there will be hesitation about violating U.S. sanctions.

How will the security forces react? At both the top and the bottom levels of military leadership, loyalty to Maduro extends only as far as the money keeps flowing. Generals at the top will no longer be able to line their pockets with PDVSA funds. Soldiers at the bottom can’t feed their families with the ever depreciating bolivar if the country has no real cash to import food.

Boz writes the Latin America Risk Report newsletter, which you can sign up for here.

PDVSA Sanctions

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