As the fallout from the United States’ abduction of Venezuelan President Nicolas Maduro continues to unfold, an immediate question is how his ouster will impact Venezuela’s economy.
A lot will depend on any relief in US sanctions on Venezuela, relations between Maduro’s replacement and the US, and, perhaps most crucially of all, what happens to revenues from Venezuela’s vast oil reserves, according to analysts.
Recommended Stories
list of 4 itemsend of list
Since Maduro’s capture on Saturday, the US has issued a series of announcements about Venezuela’s oil, the world’s largest known reserves, at lightning speed.
On Wednesday, US President Donald Trump’s administration, which has threatened Venezuela’s interim government with further consequences if it does not cooperate with its demands, said Washington would control Venezuela’s oil sales “indefinitely”.
US Energy Secretary Chris Wright said the US had already started marketing the sanctioned oil, held in storage until now due to the US embargo on Venezuelan exports, and that it planned to control all future sales.
Proceeds from those sales will be held in US Treasury accounts, with the money to be shared between the US and Venezuela, Wright said, without offering further details, including what proportion of the proceeds would go to Caracas.
Wright’s comments came a day after the Trump administration said it had struck a deal with Caracas to export up to $2bn worth of Venezuelan crude to the US, under which Venezuela will be “turning over” between 30 and 50 million barrels of sanctioned oil.
In the longer term, the Trump administration is likely to ease sanctions on the importation of Venezuelan oil “and eventually [the] import of equipment and capital”, Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, told Al Jazeera.
Trump, who has claimed that US oil companies are primed to invest billions in Venezuela’s oil sector, will likely issue licences to specific US businesses, facilitating an influx of foreign investors who can provide capital, equipment and expertise, Ziemba said.
Venezuela’s current oil output, at close to 1 million barrels per day (bpd), is far below the 1990s peak of 3.5 million bpd.
But none of this is expected to take place any time soon.
Ziemba said she anticipated that the US would maintain some sanctions on Caracas, though some oil exports are likely to continue to escape the measures, especially if Washington does not share revenues with the country.
US oil company interests ‘a myth’
Despite the Trump administration’s announcements, there continues to be a “great deal of uncertainty” about what will happen next, said Cynthia Arnson, an adjunct lecturer at the Johns Hopkins School of Advanced International Studies.
“Oil companies make very costly investments and usually in difficult environments. So until it’s clear which way this is going, and how much stability is there … the idea that the capture of Maduro will cause US oil companies to jump into Venezuela is also a myth,” Arnson told Al Jazeera.
There is a chance things could worsen for the Venezuelan economy before they get better, especially as it is not clear how soon – if at all – the US government will reimburse the country for its sanctioned oil.
According to Tim Hunter, senior economist for Latin America at Oxford Economics, 78 percent of the Venezuelan government’s budget is allocated to social spending.
With those finances squeezed, there could be “very quick knock-on consequences in terms of social spending, which in turn comes with a risk of social unrest”, Hunter told Al Jazeera.
Already, locals are experiencing a sharp increase in prices in some daily essentials, as Al Jazeera has reported.
Ultimately, oil revenues will be key to the revival of Venezuela’s economy, said Benjamin Radd, a senior fellow at the UCLA Burkle Center for International Relations.
But getting the Latin American country’s oil market ready will take massive investment in infrastructure, “so we are years away before we see any of that in Venezuela”, Radd told Al Jazeera.
While Trump has pledged to “run” Venezuela and control energy sales, there has been little clarity on what that would entail.
“Trump has been very vague on this entire process,” Radd said.
A key factor is the structure of Venezuela’s government, which has been left largely in place, in contrast to the de-Ba’athification of Iraq following the US’s 2003 invasion.
“It is also not clear what is the status of the legitimacy of the current Venezuelan government, [or] what economic measures can they even undertake,” Radd said.
