The Global Impact of Venezuela’s Disputed Elections

Hopes that Venezuela’s oil industry could resurge to meet the constant demand for this key resource have faded with the contested results of Venezuela’s Presidential elections held on July 28, 2024. The current President, Nicolás Maduro, and the opposition candidate, Edmundo González, have both claimed victory.

Maduro has doubled down and rejected calls for independent verification of the elections. Meanwhile, there are deep concerns about the Maduro government’s commitment to the legitimate transfer of political power which underlie the sanctions on Venezuela’s oil sector that have been in place since January 2019.

Why Does This Matter?

Although currently producing at less than half its capacity, Venezuela holds the world’s largest proven oil reserves. Before the sanctions, the United States, China, and India were the biggest buyers of the country’s oil.

Venezuela was also the main oil supplier for several Caribbean and Central American countries which, through the PetroCaribe arrangement, received purchase terms that gave the members up to 25 years to pay their oil bills. For these cash-strapped countries which spend a significant and increasing percentage of their GDP on oil imports, PetroCaribe became a lifesaver upon its introduction in 2005.

After sanctions were imposed in 2019, Russia, already Europe’s major supplier, stepped in to help fill the gap. Then came Russia’s February 2022 invasion of Ukraine and the subsequent imposition of sanctions on Russia’s oil and gas sectors, among others.

Taking into account Iran and Libya, oil exports from four of the world’s top ten holders of oil reserves are currently banned or controlled. Growing instability in the Middle East adds another element of concern to this bleak picture and its result – rising oil prices.

As a pathway to reversing this situation, Venezuela represents “low-hanging fruit”, so to speak. To minimize the impact of sanctions against Russia on their economies, European countries would welcome a pivot towards Venezuela. Interested Caribbean and Central American countries could resurrect PetroCaribe, or a similar arrangement, something Venezuela has indicated it is willing to do. These possibilities require the lifting of sanctions.

Sanctions Stops and Starts

Towards this end, in 2022 the U.S. began to ease sanctions restrictions, issuing a license for Chevron, the US energy company, to resume production and the export of petroleum products. Intended as encouragement for the Maduro government, this approach seemed to be working when on October 18, 2023, the Government and Opposition – Plataforma Unitaria Democrática – signed the Barbados Agreement laying out a path to competitive elections. In response, the U.S. further eased sanctions, including a six-month general authorization of transactions involving Venezuela’s oil and gas sector.

When primary election results showed the strength of the Opposition, however, the Maduro government began to renege on the Barbados Agreement. It imposed a ban on the candidacy of the Opposition’s chosen candidate for the July 2024 election, which Venezuela’s Supreme Court upheld. In response, in January 2024, the U.S. revoked the general authorization granted less than three months earlier. The contested election results and intransigence of the Maduro government suggest that this latest re-start to Venezuela sanctions may continue for some time.

The impact of these starts and stops is particularly worrisome to Trinidad and Tobago, a Caribbean oil and gas producer. Located seven miles off Venezuela’s coast at its closest point, several gas fields straddle the maritime boundaries of the two countries. Plans for their joint exploration have hit several sanctions stops and starts.

The latest turn occurred in May 2024 when Trinidad and Tobago was nevertheless granted a license by the U.S. to pursue an agreement reached with Venezuela for a 20-year natural gas production and exploration deal of one of the fields. Nothing prevents the U.S. from rescinding this license should it decide to strengthen sanctions in light of the outcome of the July elections.

What Next?

The international community has been divided in its response to Venezuela’s elections. An attempt by the Organization of American States (OAS) to forge a unified call for an impartial verification of the election results failed by one vote. Many countries, several in the Caribbean included, appeared torn on the issue, perhaps because of their economic interests. Who can blame them?

Perhaps it is time to seriously consider whether economic sanctions are an effective policy tool. Their intended goal is to induce political change. In theory, sanctions create pressure that leads either to a course correction by the government or an uprising from below that creates a regime change. The authors of How Sanctions Work: Iran and the Impact of Economic Warfare question this theory.

Iran was first sanctioned in 1979 and is today the second-most sanctioned country in the world. Yet, the Islamic Republic of Iran has survived to become one of the strongest threats to U.S. policy in the Middle East. The economy of Russia, the most-sanctioned country, has not only survived but, at least for the moment, apparently thrived.

To the extent that they have an impact, sanctions help force the country’s populace into hardships that the leadership finds ways to bypass. Sanctions can also undermine the economy of trade partners and their productive capacity. Sanctions are being ignored by more countries, undermining their effectiveness.

In considering how to achieve the desired policy goals vis-à-vis Venezuela, the questionable outcomes of decades of economic sanctions indicate that they may be best achieved using the traditional means of sustained engagement and strategic diplomacy.