As Venezuela remains perched on the brink of dissolution and Venezuelan President Nicolas Maduro continues stripping away the last remnants of democracy in the once vibrant land’s government, the United States has decided to begin hitting Maduro where it hurts. On Friday, it was announced that President Trump has signed an executive order imposing new sanctions on Venezuela. These will focus on Venezuela’s outstanding debt which has been a major economic vulnerability for the country. Venezuela, and its state-owned oil company PDVSA, owe international investors upwards of $100 billion. Sixty percent of the debts were issued in the US and are subject to US law. The new sanctions will stop Venezuela from borrowing money from international capital markets. They will also Maduro’s government from refinancing existing debts that are coming due later in 2017, likely setting up a financial crisis for Maduro to contend with in the fall.
The nuclear option for the United States has always been to prevent Venezuela from exporting oil. The chaos such a move could unleash on international energy markets makes it unpalatable to say the least. The sanctions ordered on Friday are a workable alternative to the nuclear option. For example, Citgo, which is PDVSA’s US energy company, can continue to sell gas in the US. However, it cannot send its profits back to Venezuela where it could finance PDVSA, and the Maduro government.
The next move for the Trump administration will be centered around diplomacy. The US has to make certain that nations like China, and Russia do not step in to fill the financing void that US sanctions will create. More importantly, Maduro needs to be informed that fiscal collapse can be headed off by restoring Venezuela’s democratic institutions. Washington has hinted at this possible scenario, but so far Maduro has not reacted to it. For his part, Maduro has launched a counterattack against US sanctions, and it is aimed at a domestic audience. “All they’re trying to do to attack Venezuela is crazy,” he said on Friday. “With the efforts of our people, it will fail and Venezuela will be stronger, more free, and more independent.”
In essence, Maduro has brought a knife to a gunfight. He is fighting an economic battle with nothing more than stale socialist rhetoric. Behind the scenes, he is likely hoping for intervention by China or Russia to keep his socialist paradise from going down the tubes completely. If that doesn’t come about, Maduro and Venezuela will be dangerously short on options and time.