This note is one of a few I have planned on the state of sanctions going into the next administration. To hear more, join a webinar I’ll be speaking at on 14 January with Dow Jones Compliance.
January 10 is set to bring the re-installation of Nicolas Maduro in Venezuela, many months after the election that he repudiated, refusing to give up power. Many regional and global players have condemned him and a few have cut ties or refused to recognize the government. Still, he stays on. Should we expect major shifts in sanctions posture? Are there meaningful impacts for the energy industry?
In the immediate term, probably not. Major decisions look set to be left to the next administration. All evidence suggests that the recent limbo of non-recognition, gradual increases in energy volumes, but little scope for new investment, and local repression will continue.
While the US has continued to condemn Maduro’s regime, and have added sanctions on government officials (mostly symbolic IMO), the critical energy licenses remain in place, allowing existing players to continue joint ventures and some new projects to cautiously go ahead. Major new investment is off-limits/difficult to do.
The Biden administration, having tried to partly ease sanctions and then partly snap-back has a lot of other priorities on its plate in its last few days (Russia, China to name a few). President Biden met recently with Edmundo Gonzalez, the winner of the election, now in exile, but reportedly set to return to Caracas later this week. Biden said supportive things but there are no signs they are preparing to revoke the licenses granted last year to companies like Maurel and Prom as well as those supporting purchase agreements (Reliance). Unlike the pre-election period, there is little talk of threat of tougher sanctions. It contrasts therefore with very extensive threats/signalling we are seeing with Russia (more on that elsewhere). The uncertainty has privileged producers already operating in Venezuela and the operating conditions are undoubtedly very difficult.
The biggest change in Venezuela over the last two years was the shift in the destinations where its oil was sent (see chart below). After several years of only sending fuel to China (and small volumes to Cuba), since 2022 volumes increased to Europe and in 2023 to the US. For the last few months volumes sent to US/EU (at market price) and those to China (discounted, using the shadow fleet) have often roughly split. Cargos to India (market price) too have resumed along with occasional ones to other regional economies. Overall volumes have eased up only modestly, consistent with sanctions, need for investment and operational issues including power shortages. Still, despite sanctions, some new funds are flowing to the government.
Maduro and team have been circling the globe, pitching investment prospects both in energy and tourism, but seemingly finding few takers even among those potentially friendly. Time will tell but even risk -tolerant investors are wary of the sanctions regime and the local operating environment. Typical partners (China, Russia, Iran) either have their own issues, or are tired of Venezuelan recurrent defaults.
The Trump administration is a wild card. As others have noted, the incoming team at State and national security includes many Latam experts and many Venezuela and Cuba hawks, including Marco Rubio and many announced deputies. Congressional colleagues like Rick Scott (Florida) and the House Republican Foreign Affairs committee have used tough language and strong language of support to Gonzalez, but they have said little about how they will make it happen. Venezuela, a major source of migrants to the US in recent years, could face a new wave of outflows. In fact, it is still possible that some partial normalization for migrants deal could be considered. Alternatively, a Trump administration that wants to crack down on Maduro, could decide that the 2 year general licenses to non-US companies should be stopped. The challenge of relying on one off-licenses made public only by the recipients if they so choose, is that it allows picking and choosing. Plus of course 2 year licenses don’t give a lot of certainty to multi-year projects. Plus Venezuela could resume threats on neighbors even if it can’t carry through.
Venezuela is but one of the security issues the new administration will face in coming months and one that is linked into some of the other adversaries. It remains to be seen what sort of “dealmaking approach Trump will use in the country and how the different US interests will manifest. Overall, the risks to energy markets are probably tilted towards modest declines, with upsides limited. That means bond-holders hoping to get paid sizable sums are likely out of luck too.
Overall, Venezuela remains a case where sanctions did not “work” to remove a regime and exacerbated major humanitarian costs. The mismanagement of Venezuela’s economy, society, environment and energy sector far predates US sanctions as does its debt default, but there’s no evidence they helped. The Trump administration will need a new approach, especially given the migration risks and externalities to regional economies. For now, the limbo seems likely with symbolic sanctions most likely, but that limbo does not seem sustainable.
Ziemba Insights 