US oil sanctions take effect

US sanctions came into effect to block Venezuela's economic lifeline of oil exports, in what Washington hopes will be a major blow in its fledgeling campaign to topple leftist President Nicolas Maduro.

Background

A socioeconomic and political crisis that began in Venezuela during the presidency of Hugo Chávez, has continued into the presidency of Nicolás Maduro. It is marked by hyperinflation, climbing hunger, disease, crime and death rates, and massive emigration from the country. The situation is the worst economic crisis in Venezuela's history, and among the worst in the world since 2014.

Oil revenues were the dominant source of income for the Venezuelan government, and the large foreign reserves it accumulated enabled Chavez to institute expensive social security programs which nearly bankrupted the state. The averse socio-economic situation in the country is worsened by rampaging protests against Maduro which demand his resignation and a re-alignment of the country.

Analysis

The United States will take action against anyone who deals with state-owned Petroleos de Venezuela, or PDVSA, or any entity in which the company holds at least a 50 percent stake.

It is among a volley of steps by President Donald Trump's administration to oust Maduro and install opposition leader Juan Guaido, who is recognized by more than 50 countries, including most in Latin America.

The Trump administration said it would block any US assets of Foreign Minister Jorge Arreaza, confirming it has no desire to negotiate with Maduro, a socialist firebrand who presides over a crumbling economy but has withstood three months of intense pressure.

Until the crisis, Venezuela exported 50,000 barrels a day to the United States, its largest customer, with PDVSA omnipresent, if not highly visible, through ownership of the Citgo refining and gas station chain.

However, the sanctions will still have an effect, with Washington vowing to enforce them against any foreign company with interactions in the United States -- including the US financial system, which dominates the globe.

Assessment

Our assessment is that without oil revenues, the State-owned oil companies will sell its stock in the black market, worsening the economic situation and driving the population further into chaos. We believe that the US will look to transfer the ownership of Citgo, a natural gas and petroleum refining company to Juan Guaido's government in order to bolster the anti-Maduro forces in the country.

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