Biden’s new, common-sense approach to Venezuelan oil

Photo: Boston Globe

 

Conditions attached to the deal should ensure that revenues from Venezuela’s oil go toward easing the country’s humanitarian catastrophe.

By Boston Globe

Dec 04, 2022

It might not have seemed like a big deal when the Biden administration authorized Chevron to resume operations in Venezuela last week. After all, it will probably be months before the California-based oil company, the second-largest in the United States, begins pumping crude in the South American petrostate led by Nicolás Maduro, whose authoritarian regime has been the subject of crushing US sanctions for more than three years.

But Biden’s move is indeed a big deal, if it works as intended. That’s because the administration attached conditions that should help ease the humanitarian crisis that has plagued Venezuela for about a decade. Despite its oil wealth, Venezuela’s economy has collapsed. Persistent poverty, record high rates of hyperinflation, and political turmoil have led more than 7 millions of its citizens to flee since 2015, according to the United Nations – with an increasingly large number ending up in the United States. 

The limited Chevron license has important strings attached to ensure the money it generates plays a constructive role in ending Venezuela’s woes. The new permit was issued only after representatives of the Maduro regime and the political opposition resumed secret talks in México City, which came after Maduro was reelected nearly four years ago in an election widely recognized as fraudulent. (As a result, the US government does not recognize Maduro as Venezuela’s legitimate president.) Once the talks resumed, both parties agreed to establish a fund to be managed by the United Nations. Up to $3 billion dollars in frozen assets from the Maduro regime, now held in foreign banks, will be gradually released to the new fund and can only be spent on basic needs such as medicine, food, and other humanitarian aid for Venezuelans.

One of the most important goals of the negotiations, both for the opposition and for the US government, is to ensure democratic and transparent elections in Venezuela in 2024 – something that Maduro naturally resists. But his willingness to come back to the table signals that he is in desperate need of relief; he wants more sanctions lifted.

Crucially, the new license prevents any cash payments from going to the Venezuelan government and will allow Chevron to export oil only to the United States. Still, many Republicans opposed Biden’s move and suggested it would prop up Maduro’s socialist regime. Mike Pompeo, who served under former president Donald Trump as secretary of state, tweeted that he “worked to sanction Venezuela’s communist dictatorship. Reversing our sanctions won’t help Venezuelans – but it will help Maduro.”

While that’s always a possibility, there is no guarantee that Maduro will reap anything from the Chevron license. Nor is there any certainty that the Biden administration will continue to lift those sanctions if this step has unintended consequences. But Maduro does have an incentive now to cooperate with the opposition and the US government: The worldwide energy crisis derived from Russia’s invasion of Ukraine offers him a unique opportunity to come out of global isolation. (The Biden administration, meanwhile, insists the purpose of the move is to promote democracy in Venezuela, not to reduce energy prices.)

As for Chevron, it will take some time for the company to revive its operations, given the dilapidated state of Venezuela’s oil infrastructure and an exodus of industry professionals. Experts told The Wall Street Journal that in the next six months or so, Chevron might be able to increase Venezuela’s oil output by roughly 20,000 to 30,000 barrels a day, a tiny amount that won’t make a dent in a global market that has faced shortages due to bans on Russian oil exports. Prior to the 2019 US sanctions imposed on Venezuela, Chevron produced about 200,000 barrels a day.

Venezuela holds the largest proven oil reserves in the world, but its oil production is less than a quarter of what it was a decade ago. In September, Venezuela produced only about 700,000 barrels of oil, most of which were exported to China.

The Biden administration’s new approach to the authoritarian regime in Venezuela shows that it is possible to engage Maduro by holding out the promise of sanction relief. This everybody-wins approach represents the best chance that Venezuela has to regain its footing in the industry, and, more important, for its citizens to get some relief from the pressures causing so many to flee the country. All that, of course, depends on Maduro following through on his commitments. It may be a big risk, but it’s one worth taking given the humanitarian stakes involved.

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