US likely to slap tough oil sanctions on Venezuela — and that’s a ‘game changer’ for Maduro

CNBC

  • Venezuelan President Nicolas Maduro won re-election to another six-year term on Sunday, despite widespread anger over the South American country’s crushing economic and social crises.
  • “The next step is sanctions against the oil sector,” Diego Moya-Ocampos, principal political analyst for Latin America at IHS Markit, told CNBC’s “Squawk Box Europe” on Monday.
  • Maduro’s leftist administration is almost entirely dependent on crude sales in order to try to decelerate its spiraling crises.

Nicolas Maduro re-elected president for fresh 6-year term  

The U.S. is almost certainly preparing to impose targeted crude sanctions against Venezuela, analysts told CNBC on Monday, in a move likely to constitute a “devastating” blow for the oil-dependent state.

Venezuelan President Nicolas Maduro won re-election to another six-year term on Sunday, despite widespread anger over the South American country’s crushing economic and social crises. The vote was marred by low voter turnout, allegations of vote-rigging and an opposition boycott.

“The next step is sanctions against the oil sector,” Diego Moya-Ocampos, principal political analyst for Latin America at IHS Markit, told CNBC’s “Squawk Box Europe” on Monday.

“This is crucial because (Venezuela’s) oil sector represents 25 percent of GDP (gross domestic product), 50 percent of fiscal revenues and 97 percent of revenue from foreign exchange… So, obviously, sanctions on the oil sector in Venezuela will be a game changer.”

Oil sanctions would be ‘devastating’

Amid widespread food shortages, the collapse of the country’s traditional currency and relentless hyperinflation, Maduro was widely expected to emerge victorious on Sunday. The socialist leader is now set to serve as Venezuela’s premier until at least 2024.

Officials from the United Nations, the U.S., the European Union and Venezuela’s regional neighbors have all denounced the presidential election as a sham.

Venezuelan President and presidential candidate Nicolas Maduro attends the closing rally of his campaign ahead of the weekend's presidential election, in Caracas, on May 17, 2018.

JUAN BARRETO | AFP | Getty Images
Venezuelan President and presidential candidate Nicolas Maduro attends the closing rally of his campaign ahead of the weekend’s presidential election, in Caracas, on May 17, 2018.

Meanwhile, in the aftermath of Maduro’s disputed success, all eyes have turned to see whether President Donald Trump‘s administration will impose sanctions on the country’s all-important oil sector — as it has repeatedly threatened to do.

Alongside the EU, surrounding Latin American countries have also warned Caracas they would be prepared to take additional measures against Maduro’s government if it went ahead with the election.

“Oil sanctions would be devastating to the Venezuelan economy and to the regime’s internal stability as they would very strongly impact the revenues that flow through the patronage regime,” Fernando Freijedo, Latin America analyst at the Economist Intelligence Unit, told CNBC via email.

‘Epic story of economic mismanagement’

Maduro’s leftist administration is almost entirely dependent on crude sales in order to try to decelerate its spiraling crises.

Yet, the country’s production collapse has seen its crude output drop to around 1.4 million barrels a day (bpd) in recent months — a spectacular fall of nearly 40 percent since 2015.

“The sharp decline in oil prices has nothing to do with the dire state of the economy… (Instead) it is an epic story of economic mismanagement and indeed widespread corruption,” IHS Markit’s Moya-Ocampos said.

Protesters seen marching toward the OEA while holding the Venezuelan flag at the demonstration.

Roman Camacho | SOPA Images | LightRocket via Getty Images
Protesters seen marching toward the OEA while holding the Venezuelan flag at the demonstration.

The price of oil collapsed from near $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. Brent crude futures have since rebounded to multi-year highs of nearly $80 a barrel, amid a tightening energy market and ongoing OPEC-led production cuts.

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