Photo: Televisa News retrieved

“Sanction-blaming” isn’t just a Venezuelan thing: from Jorge Arreaza and Francisco Rodríguez, to Michelle Bachelet, Ilhan Omar and Roger Waters, there are voices out there who often mention the effects of “sanctions” (and U.S. policy) when talking about the Venezuelan collapse, sidelining what the measures really are and how they affect the Venezuelan economy, in favor of making cheap political points. The truth is that the sanctions’ outcome has been less serious than advertised, and only a cynic could blame the effect of years of epic economic mismanagement, political blackmail, and corruption, on U.S. foreign policy.

However, although the results of the recently enacted oil sanctions are difficult to gauge just yet, they’ll definitely be more crippling than the previous rounds we’ve seen.

Individual sanctions

Barack Obama signed Executive Order 13692 on March 8th, 2015, which included Venezuelan public officials accused of human rights violations during La Salida protests in 2014, on the List of Specially Designated Nationals and Blocked Persons (SDN List) kept by the Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury.

The inclusion of individuals on this lists forbids them from traveling to the U.S. and blocks all of their property in the U.S., but it doesn’t entail restrictions on the Venezuelan government dealings. These individual sanctions mostly keep Iris Varela away from visiting Disney World again, or Tareck El Aissami from enjoying his swanky condos in Miami.

The EU and Canada have also enacted individual sanctions against the upper echelons of chavismo, that work in a similar manner. The U.S. government has expanded this list to include most of the top brass, including Maduro himself.

They do sound good, just keep in mind how limited they are.

Credit sanctions

On August 17th, 2017, Donald Trump enacted Executive Order 13808, banning U.S. entities and individuals from providing financing with a maturity longer than 90 days for PDVSA, and 30 days for any Venezuelan government entity other than PDVSA. The Order also forbids Citgo (the U.S. oil company owned by PDVSA) from paying dividends to shareholders, and the OFAC also enacted several licences (documents establishing exceptions from the order) allowing U.S. persons to trade certain existing PDVSA and Republic bonds.

The Executive Order 13835 bans U.S. persons and individuals from purchasing debt owed to any Venezuelan government entity, the pledging of debt owed to Venezuela as collateral and the pledging of collateral of any equity (such as shares in a company) owned by the Venezuelan government.                                                                                                                                                                                                                                     There is a lot of controversy over the real effect of these sanctions, but it’s clear that they never kept Venezuela from doing business with U.S. companies, buying medicines, food or supplies for electrical facilities. Ironically, the main thing that the Executive Orders forbid is the chavista government getting into bed with Wall Street investment banks, which is something that many people who criticize the sanctions consider immoral in the first place.

And it’s not even clear if these sanctions are the real culprit behind Venezuela’s isolation from the international credit markets. The isolation started after the opposition won a majority in the National Assembly that kept the government from receiving parliamentary approval for financing, compounded by the fact that the international community began perceiving Maduro’s regime as a bloody dictatorship in 2017, and lending funds to a human rights violator is a PR hell, as evidenced by the Goldman Sachs hunger bonds debacle.

Credit agencies have long (and accurately) predicted that Venezuela would default on its bonds at some point, due to its disastrous economic policies and inability change course.

Credit agencies have long (and accurately) predicted that Venezuela would default on its bonds at some point, due to its disastrous economic policies and inability change course. That’s why financing started to dry up during 2015, long before the sanctions.

Francisco Rodríguez has argued that the sanctions prevent the government from buying spare parts from suppliers, such as GE and Siemens, and are partially to blame for the current electrical crisis. However, PDVSA and the Republic have long been stiffing their suppliers (including GE) well before 2017, and they were even forced to reconvert billions of dollars worth of overdue invoices into promissory notes.

So, the sanctions do allow short term financing that could be used for rotating credit lines to purchase equipment, the thing is that no one would risk selling anything to Venezuela other than by paying upfront in cash. And even after the sanctions chavismo has been able to procure loans from strategic partner/colonial master Russia, and keeps receiving loans from CAF, a regional development bank.

FinCEN advisory

On September 20th, 2017, the Financial Crimes Enforcement Network (FinCEN, the anti-money laundering unit of the Department of Treasury) enacted the  “Advisory on Widespread Public Corruption in Venezuela,” issuing guidelines to U.S. financial institutions on a heightened level of scrutiny for transactions involving Venezuelan government agencies and public officials, to detect and avoid money laundering activities.

In practice, this advisory results in the closing or blocking of most government accounts in the U.S. and other countries, and of people or organizations who receive financing from the government. A telling example is the closing of the French account of chavista propagandist Ignacio Ramonet, in the Banc de France, for receiving chavista payments.

However, the government continues to use accounts in Europe and, in fact, it made several payments to bondholders up until 2018, using U.S.-based banks like JP Morgan, proving that in some cases the sanctions have been used as a cover by the regime to breach its obligations.

Crypto sanctions

Executive Order 13827 bans any dealings with cryptocurrencies issued by the Venezuelan government, as no sane person is willing to exchange U.S. dollars for the scammy and virtually non-existent petro.

Since the petro is crypto fanfiction, this Executive Order has never had any kind of impact on the Venezuelan economy.

Gold sanctions

Executive Order 13850 establishes that any property or interest within the U.S. derived from gold operations in Venezuela must be blocked and cannot be disposed of, or transferred. On March 20th, 2019, the OFAC included state-owned mining company Minerven and its CEO on the SDN list, since the regime is using Minerven to buy and process gold obtained from illegal mining, to be sold in Turkey in exchange for cash and food in an incredibly shady scheme. However, since the U.S. has no dealings in Venezuelan gold, the impact of these sanctions has been limited.

Banking Sanctions                                                        

On March 12th, the OFAC included Moscow-based bank Evrofinance Mosnarbank on the SDN list. The bank is jointly owned by Russian bank Gazprombank and the Venezuelan Fund for National Development (FONDEN), the controversial and obscure government entity that directly handled billions of dollars of oil revenue with little accountability.

These sanctions, once again, will probably create more troubles for the regime to process and receive payments abroad.

On March 22nd, 2019, the OFAC also included Banco de Desarrollo Económico y Social de Venezuela (BANDES), a Venezuelan state-owned bank and its subsidiaries, Banco Bicentenario del Pueblo, de la Clase Obrera, Mujer y Comunas, Banco Universal C.A. and Banco de Venezuela S.A. Banco Universal on the SDN list. These are all state-owned banks that control a significant market share of banking activity in Venezuela, so inclusion came from how the Maduro regime relies on BANDES’ chartered Uruguayan branch and Evrofinance Mosnarbank to carry out many of its transactions, due to the limitations created by the FinCEN Advisory. These sanctions, once again, will probably create more troubles for the regime to process and receive payments abroad.

The OFAC, by the way, issued a one-year license for card operators Visa and Mastercard until March 2020. After this, the card giants will not be able to have any dealings with state-owned Venezuelan banks.

Oil sanctions

Instead of enacting an outright oil embargo, the U.S. issued Executive Order 13857, including PDVSA and all of its affiliates in the SDN list. As a consequence, all of its property (including bank accounts) in the U.S. is blocked and frozen. Technically, U.S. persons are not forbidden from buying oil from PDVSA or any of its affiliates, but the buyers and U.S. banks are obligated to block any payment corresponding to those sales and transfer them to a trust account that is not controlled by the Maduro regime. As many U.S. companies, such as Chevron and Halliburton, have considerable investments in Venezuela, the OFAC issued several licenses that allow them to operate in the country until July 2019. More recently, the OFAC sanctioned several vessels used by PDVSA to ship oil and fuel to Cuba through the Petrocaribe agreements.

The impact of this particular set of sanctions is undeniable, especially because they forbid PDVSA from importing much needed diluents and nafta from the heavy crude of the Orinoco belt, and forces the company to sell its oil at a discount to less natural and farer away clients than the U.S. This will probably result in billions of dollars of lost revenue for PDVSA, with a significant GDP drop.

So, how bad is it?

The history of U.S. sanctions in Venezuela is a complex one that doesn’t fit into a tidy narrative of financial blockade and imperialism.

Up until 2017, the U.S. only enacted individual sanctions that didn’t affect the Venezuelan economy, which by then was already ill with crippling shortages, a severe humanitarian crisis, a continued drop in oil production and a destroyed infrastructure, with a broken electric grid. All of this caused by mismanagement and corruption.

The 2017 credit sanctions, and especially the FinCEN advisory, arguably made it difficult for the government to honor its bond payments and other commitments, causing a loss of millions in revenue. However, you can argue that keeping the Maduro administration from getting into shady financial dealings at credit card rates is a positive development. Venezuela should have long ago stopped the irresponsible debt craziness from the oil boom years.

The history of U.S. sanctions in Venezuela is a complex one that doesn’t fit into a tidy narrative of financial blockade and imperialism.

However, the oil sanctions pose a different dilemma: if the U.S. continues slapping sanctions on the Maduro regime without a Plan B, and the sanctions don’t succeed in toppling Maduro himself, the economy will continue in free fall, exacerbating the migrant crisis.

Sanctions are a good deterrent to pressure for a transition, but under this context (and historically) have never been enough.

If the U.S. keeps enacting them as a trial and error for regime change without coming up with a back-up plan, President Juan Guaido’s regional allies will probably withdraw their support for a new government in favor of another already failed dialogue process. Without a wild card besides the sanctions, the international community will move from a pro-transition policy to an accommodation one.

And a new Cuba will be born.

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