As the fallout from the United States’ abduction of Venezuelan President Nicolas Maduro continues to unfold, a pressing question is how his ouster will affect the Venezuelan economy.
Analysts say much will depend on the easing of U.S. sanctions against Venezuela, Maduro’s successor’s relationship with the United States, and, perhaps most importantly, what happens to revenue from Venezuela’s vast oil reserves.
Recommended stories
list of 4 itemsend of list
Since Mr. Maduro was detained on Saturday, the United States has made a series of announcements at lightning speed regarding Venezuela’s oil reserves, the world’s largest known reserves.
On Wednesday, the administration of US President Donald Trump threatened further consequences if Venezuela’s interim government did not cooperate with its demands, saying the US would control Venezuela’s oil sales “indefinitely”.
U.S. Energy Secretary Chris Wright said the U.S. has already begun selling sanctioned oil previously held under the U.S. embargo on Venezuela and plans to control all future sales.
Wright said the proceeds from these sales would be held in a U.S. Treasury account and the funds would be divided between the U.S. and Venezuela, but he did not provide further details, including what percentage of the proceeds would go to Caracas.
Wright’s comments came a day after the Trump administration announced an agreement with the Caracas government to export up to $2 billion worth of Venezuelan oil to the United States, under which Venezuela would “deliver” between 30 million and 50 million barrels of sanctioned oil.
Rachel Ziemba, a nonresident senior fellow at the Center for a New American Security, told Al Jazeera that in the long term, the Trump administration is likely to ease sanctions on Venezuelan oil imports “eventually to import equipment and capital.”
President Trump has claimed that U.S. oil companies are willing to invest billions of dollars in Venezuela’s oil sector, and will likely issue licenses to certain U.S. companies and encourage an influx of foreign investors who can provide capital, equipment and expertise, Ziemba said.
Venezuela’s current oil production is close to 1 million barrels per day (bpd), far below its peak of 3.5 million barrels per day in the 1990s.
However, none of this is expected to happen soon.
Ziemba said he expects the United States to maintain certain sanctions on Caracas, but some oil exports are likely to remain exempt from the measures, especially if the United States does not share revenues with Caracas.
US oil company profits are a ‘myth’
Cynthia Arnson, an adjunct lecturer at the Johns Hopkins School of Advanced International Studies, said that despite the Trump administration’s announcement, “great uncertainty” remains about what happens next.
“Oil companies are making very expensive investments and are usually in a difficult environment. So until it becomes clear what direction this situation is going to take and how much stability there is… the idea that U.S. oil companies will jump into Venezuela because of Mr. Maduro’s capture is also a myth,” Arnson told Al Jazeera.
Things may get worse before Venezuela’s economy gets better. Particularly because it is unclear how quickly, if at all, the U.S. government will repay Venezuela for the sanctioned oil.
According to Tim Hunter, senior economist for Latin America at Oxford Economics, 78 percent of Venezuela’s government budget is allocated to social spending.
Such fiscal pressures “could have very rapid knock-on effects in terms of social spending, which in turn carries the risk of social unrest,” Hunter told Al Jazeera.
As reported by Al Jazeera, local residents have already experienced sharp increases in the prices of some daily necessities.
Ultimately, oil revenues will be key to Venezuela’s economic revival, said Benjamin Rudd, a senior fellow at the Burkle Center for International Relations at the University of California, Los Angeles.
But getting the Latin American country’s oil market ready will require huge investments in infrastructure, so “it will be years before we see that in Venezuela,” Rudd told Al Jazeera.
President Trump has promised to “manage” Venezuela and control energy sales, but there is little clarity on what that means.
“Mr. Trump has been very vague about this whole process,” Rudd said.
A key element is the structure of Venezuela’s government, which remains largely intact, in contrast to the de-Baathization of Iraq after the 2003 US invasion.
“It is also unclear what the legitimacy status of the current Venezuelan government is and what economic measures it can take,” Rudd said.
“There are a lot of unknowns here.”
