The US has slapped sweeping financial sanctions on Venezuela, barring banks from any new financial deals with the government or state-run oil giant PDVSA. The sanctions President Donald Trump signed by executive order are bound to dramatically escalate tensions between Venezuela and the Washington and exacerbate the country’s economic crisis.
The White House said the measures “are carefully calibrated to deny the Maduro dictatorship a critical source of financing to maintain its illegitimate rule, protect the United States financial system from complicity in Venezuela’s corruption and in the impoverishment of the Venezuelan people, and allow for humanitarian assistance”.
The new actions prohibit dealings in new debt and equity issued by the government of Venezuela and its state oil company. It also prohibits dealings in certain existing bonds owned by the Venezuelan public sector, as well as dividend payments to the government of Venezuela. The sanctions stop short of cutting off US imports of Venezuelan oil that are crucial to Venezuela’s economy and US oil refiners.
US vice president Mike Pence had signalled the upcoming move earlier, tweeting that the US “will not stand by as Venezuela crumbles”.b”The birthright of the Venezuelan people has always been and will always be libertad,” he wrote, using the Spanish word for freedom.
Last month the Trump administration promised to take strong economic actions if President Nicolas Maduro’s increasingly authoritarian government went ahead with plans to create a constitutional assembly comprised of government loyalists.
Since the assembly has been seated, the 545 delegates have voted by acclamation to oust the nation’s outspoken chief prosecutor, take power from the opposition-controlled congress and create a “truth commission” that many fear will be used to target opponents. Several prominent opposition mayors have been removed or ordered arrested by the pro-government supreme court.
The new economic sanctions are likely to worsen a crisis that has already seen the oil-dependent economy shrink by around 35% since 2014 – more than the US economy did during the Great Depression. Mr Maduro, who is among 30 seniors officials already barred from the US, seemed almost resigned to sanctions.
He warned this week that the Trump administration was readying a “commercial, oil and financial blockade” in the mould of the one that punished Cuba for decades. He said it would be meant to pave the way for a US military intervention.
“The economic measures the US government is preparing will worsen Venezuela’s economic situation,” he told foreign journalists on Tuesday, vowing to protect the population from the worst effects of any sanctions.
During a Latin America tour this month, Mr Pence downplayed Mr Trump’s recent talk of a “military option” for Venezuela while repeatedly raising the spectre of sanctions.
He did so again on Wednesday in a meeting in Miami with several leading opposition exiles. David Smilde, a Tulane University sociologist who has spent decades researching Venezuela, said blanket sanctions that immediately cut off the government’s cash flow and hurt the population are likely to strengthen Mr Maduro in the short term.
“It will bolster his discourse that Venezuela is the target of an economic war,” said Mr Smilde.
But with Venezuela’s streets calmer than they have been for months, and the opposition still reeling from its failure to prevent the constitutional assembly from going forward, action from an increasingly concerned international community represents the best chance of reining in Mr Maduro, he added.
The president is already struggling to combat widespread shortages and triple-digit inflation as oil production – the economy’s lifeblood – has tumbled to its lowest level in more than two decades.
Any economic sanctions, however mild, increase the risk Venezuela will default on its ballooning debt.