Following the controversial results of Venezuela’s July election, pressure is mounting for the United States to reinstate severe sanctions on the country’s oil sector. Advocates for change within Venezuela assert that the Office of Foreign Assets Control (OFAC) should revoke licenses that currently enable U.S. and European firms to engage in Venezuela’s petroleum industry. However, while these calls may seem reasonable in light of the election’s legitimacy issues, a strategic reassessment of U.S. policy towards Venezuela reveals that maintaining the current licensing system is a more effective avenue than reverting to the “maximum pressure” tactics previously employed.
Maximum Pressure: The Inadequate Strategy
In January 2019, the Trump administration’s initial sanctions against Venezuela’s state oil company, PDVSA, heralded a campaign of “maximum pressure.” This approach blocked U.S. companies from conducting business in Venezuela and extended the sanctions to non-U.S. firms. While it aimed to cripple the Maduro regime’s revenue, the reality was far from it. Crude oil production plummeted from approximately 1.6 million barrels per day at the onset of the sanctions to merely 430,000 barrels by mid-2020, influenced not only by the sanctions but also by systemic issues like prolonged underinvestment and external shocks such as the COVID-19 pandemic.
Despite these drastic reductions, sanctions failed to oust Maduro. Surveys indicated that most Venezuelans viewed these measures unfavorably, and the regime adapted swiftly, using a network of intermediaries to evade restrictions. This circumvention allowed China and Iran to become key trading partners, demonstrating that maximum pressure facilitated rather than undermined Maduro’s grip on power.
A Shift in Strategy: The Current Licensing System
In response to the lack of effectiveness observed during the maximum pressure campaign, the Biden administration altered its approach. In November 2022, OFAC introduced General License (GL) 41, permitting Chevron to manage crucial aspects of its joint ventures with PDVSA, including crude marketing and procurement. This shift allowed for greater oversight and operational control, leading to improved working conditions and enhanced safety measures in Venezuela’s oil sector.
Further adjustments occurred with the introduction of GL 44 in October 2023, which sought to stimulate a more democratic electoral process by relaxing sanctions. Although this license eventually expired due to the regime’s failure to acknowledge opposition candidates, the evolving strategy demonstrated a willingness to adapt based on conditional improvements.
Under the current licensing regime, U.S. companies are now authorized to pay Venezuelan taxes and royalties in local currency, and a portion of revenues is reinvested back into oil operations. This structured financial flow not only improves conditions within the industry but also indirectly supports the Venezuelan economy, aiding in stabilizing inflation and enhancing the exchange rate.
The Case for Continuation
Recent developments, including widely recognized electoral malpractice and severe human rights violations in Venezuela, complicate the rationale for licensing foreign oil operators. However, this strategy serves as a far more effective mechanism to regulate the cash flow from oil sales than the previous sanctions. By navigating revenues toward U.S. and allied markets, these licenses have successfully redirected oil exports away from undesirable partners, fostering stronger ties with the West.
Over fiscal years 2021 through 2023, Venezuela’s oil exports to China have dropped significantly, demonstrating that U.S. engagement can yield tangible benefits. With specific licenses in place, the management of Venezuelan oil revenues has favored greater transparency and accountability, rather than putting the resources in the hands of a regime that has historically exploited them.
Risks of Reversing Course
Revoking the current licensing system would likely backfire, returning PDVSA to a position of unchecked control, allowing it to access revenues from oil exports without accountability measures in place. Furthermore, tightening sanctions would likely reroute oil exports back to China and Iran, significantly undermining U.S. energy security interests in the region.
Given the instability in geopolitical hotspots, especially the Middle East, losing access to Venezuelan oil—which constitutes a mere 1 percent of global production—could exacerbate energy security risks for the U.S. The continued involvement of Western companies in Venezuela not only provides a check on the illegitimate regime but also preserves a vital economic lifeline for the Venezuelan populace, who stand to suffer from the haphazard consequences of sanctions.
Finding a Balance
The existing policy framework has thus emerged as a nuanced approach to engagement with a complex regime fraught with socio-political challenges. Although U.S. efforts to directly influence political outcomes in Venezuela may have limitations, maintaining the current licensing strategy offers a pragmatic path forward.
It contributes to a semblance of economic stability for ordinary Venezuelans, supports a more effective opposition to regime policies, and facilitates a transparent flow of resources that could potentially encourage change from within—however slowly that may come. As the world watches, the U.S. must weigh its foreign policy decisions carefully, finding a delicate balance between safeguarding human rights, ensuring energy security, and navigating the intricacies of regional geopolitics.