Trump sanctions Venezuela oil company PDVSA, pressuring Maduro

By Saleha Mohsin and Jennifer Epstein on 1/28/2019

WASHINGTON (Bloomberg) -- President Donald Trump sanctioned Venezuela’s state-owned oil company PDVSA and its central bank on Monday, the latest U.S. move intended to raise pressure on the regime of President Nicolas Maduro.

National Security Adviser John Bolton urged Venezuela’s military to accept a peaceful transfer of power to the leader of the country’s National Assembly, Juan Guaido, whom the U.S. has recognized as the nation’s interim president. Bolton told reporters at the White House that Trump’s action will block $7 billion in Venezuelan assets and reduce the country’s exports by $11 billion over the next year.

“The U.S. is holding accountable those responsible for Venezuela’s tragic decline,” Treasury Secretary Steven Mnuchin said.

Mnuchin said that Citgo Petroleum, a Houston-based unit of PDVSA, will be able to continue to operate but won’t be allowed to remit money to the Maduro regime. Its proceeds must instead be held in blocked U.S. accounts. Guaido said Monday he would take control of Venezuelan accounts abroad and would name new boards of directors for PDVSA and Citgo.

The Treasury secretary added that in the “short term” he expects “modest” impact on U.S. refineries. He noted the sanctions wouldn’t affect oil already purchased that is being shipped, and said he didn’t expect U.S. gas prices to rise.

West Texas Intermediate crude futures were little changed at $52.16/bbl after the announcement, after settling $1.70 lower on the day.

Trump assailed Maduro in a letter to Congress explaining his executive order implementing the sanctions, saying that the action would Guaido, endorsed last week by the U.S. and other nations as the country’s rightful president. He accused Maduro’s regime of “human rights violations and abuses in response to anti-Maduro protests, arbitrary arrest and detention of anti‑Maduro protesters, curtailment of press freedom, harassment of political opponents, and continued attempts to undermine” Guaido’s government-in-waiting.

As of Monday, all PDVSA assets and property subject to U.S. jurisdiction are blocked, according to a Treasury statement, and U.S. citizens and companies are generally prohibited from doing business with the Venezuelan firm. The move is consistent with the Trump administration’s efforts to starve Maduro of oil money, while still blunting the potential impact on U.S. refiners and U.S. motorists, said Jim Lucier, managing director of Washington, D.C.-based Capital Alpha Partners.

The administration is using “a scalpel, rather than a meat ax,” he said in an email.

U.S. Senator Marco Rubio praised the sanctions in a statement released before they were announced.

“The Maduro crime family has used PDVSA to buy and keep the support of many military leaders,” Rubio said. “The oil belongs to the Venezuelan people, and therefore the money PDVSA earns from its export will now be returned to the people through their legitimate constitutional government.”

The Florida Republican represents a large Venezuela expatriate community and is a vocal opponent of the Maduro regime, which the U.S. declared illegitimate last week.

The sanctions would be the latest move in Trump’s campaign oust the leftist regime of Maduro, who succeeded the late President Hugo Chavez in 2013. The U.S. last week recognized opposition leader Juan Guaido as the country’s rightful head of state as protests against the Maduro regime expanded.

Venezuela’s oil company PDVSA has been moving away from dollar-denominated transactions in the past couple of years, since the Trump administration announced financial sanctions in August 2017. The company sells oil to clients in the U.S., Europe and Asia and requires payment in euros, and buys gasoline and diesel for payment in euros as well.

PDVSA also buys fuels via Citgo, owner of three refineries in the U.S. Most of those are barter deals, which means PDVSA gets the fuels and pays the suppliers -- including trading house Vitol SA and Reliance Industries Ltd from India -- in Venezuelan crude.

Maduro and Guaido, a 35-year-old engineer-turned-lawmaker, are now locked in a struggle for support in the streets, the military and the country’s mainstay oil industry. Guaido so far hasn’t been able to sway the armed forces to his side but he’s tapped deep public discontent with an economy beset by hyperinflation spiraling at an annual rate of about 225,000% and vast shortages of food and medicine.

U.S. officials successfully lobbied the the Bank of England to deny Maduro access to $1.2 billion worth of gold the government holds in London, stymieing the regime’s efforts to pull in cash from abroad. The UK, along with Canada and most Latin American countries, followed the U.S. in recognizing Guaido as the country’s legitimate leader.

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