According to one oil analyst, the potential but unlikely winners that could emerge from the U.S. sanctions on Venezuela’s vital oil sector could be the countries of China and India.
Following Venezuela’s controversial election for a new Constituent Assembly on Sunday, President Donald Trump along with the Treasury Department of the U.S. has taken “strong and swift economic” action – in the words of Trump. While the opposition party – and several of the crisis-stricken nation’s neighbors – refused to recognize the result, Venezuela’s President Nicolas Maduro won the contentious vote.
The ramifications of sanctions imposed on Venezuela’s oil sector could be far reaching, said Stephen Brennock, oil analyst at PVM Oil Associates.
“Venezuela would lose out on much needed oil revenues, U.S. refiners would be negatively impacted by a drop in refining margins and U.S. motorists by an increases in gasoline prices.
“However, there is one potential silver lining… Other major crude-importing nations such as India and China may stand to gain if they are offered Venezuelan crude at steep discounts,” Brennock explained via email.
Oil accounts for 95 percent of Venezuela’s exports and the country’s economy is almost entirely dependent on its oil industry. but it has been made less and less profitable and productive due to a lack of investment in the sector.
Suggesting that the U.S. sanctions may even embolden his cause, a prediction that Maduro would most likely “survive” potentially forthcoming oil sanctions from the U.S., was made by Alastair Newton, director at Alavan Business Advisory, in a TV interview.
“The big problem with sanctions is the more sanctions the Americans impose, the more Maduro is going to be able to claim – with some degree of credibility – that he is actually fighting an American attempt at regime change,” he argued.
If Maduro decided to move ahead and form a new legislative body, Venezuela could become the first sovereign oil producer to “fully fail”, a top commodities strategist was however quoted in the media last week as saying.
If the Trump administration decided to target the country’s oil sector, Venezuela would suffer “extreme economic duress”, said Helima Croft, global head of strategy at RBC Capital Markets.
The Venezuelan economy into a tailspin due to a crash in oil prices that started in late 2014. Venezuela’s inflation rate is expected to rise by a crippling 720 percent this year by the International Monetary Fund currently.
“With the country’s foreign reserves recently having fallen below $10 [billion], (state oil company) PDVSA will be extremely hard pressed to avoid a disorderly default in the autumn or continue any semblance of regular salary payments,” Croft said.
(Adapted from CNBC)