Unlocking the Potential of Oil: A Pathway to Resolving the Venezuelan Humanitarian Crisis

Lyan Casamalhuapa is a sophomore in the College of Arts and Sciences studying Political Science.

The U.S. Treasury Department has recently authorized Venezuela, an OPEC member, to produce and export oil for the next six months without limitations. This move comes after a deal reached in Venezuela to begin lifting bans that kept opposition candidates from running in elections next year - a general step towards free and fair elections. 
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When taking a look inside Venezuela’s contradictory oil industry, Venezuela has more proven oil reserves than any other country in the world. They have led globally with over 304 billion barrels of proved reserves, surpassing the U.S’ 69 billion barrels. Given the immense oil reserves at its disposal, Venezuela should have a bolstering and prosperous economy; however, instead, the Venezuelan economy has been marked by hyperinflation, leading to escalating hunger, disease, and one of the largest external displacement crises in the world. This can be accredited to the country's main exportation, oil, plummeting by more than 75% over the past decade. [1] Thus, the question arises: how does a country with so much oil produce so little?

This issue is attributed to the Venezuelan oil sector sanctions. In 2019, the United States imposed harsh sanctions on Venezuelan oil exports in response to the escalating authoritarian practices of President Nicolás Maduro, ostensibly as a means of bolstering the position of the interim leader, Juan Guaidó. As a means to prevent the illegitimate Maduro regime from further plundering Venezuelan assets and natural resources, they sanctioned the state-run oil company, Petróleos de Venezuela, S.A. (PDVSA), by prohibiting oil exports to its designated markets. Further actions included sanctions that prevented PDVSA from receiving payments for petroleum exports, the freezing of $7 billion of PDVSA’s assets within the U.S., and general restrictions placed on U.S. firms exporting naphtha to Venezuela. [2] 

The profound economic impact of these sanctions drove oil production to record-low levels. When examining the U.S. sanction economic analysis in Caracas, the intricate consequences at play included the following: [3]

1. The sanctions-related decline in oil revenue caused the Venezuelan state to lose $11 billion annually. 
2. The decline in oil production in Venezuela has been ongoing since the Maduro regime, primarily due to mismanagement and corruption. However, the imposition of sanctions in 2019 has exacerbated the situation, leading to a significant increase in revenue losses. Estimates suggest that the impact of sanctions has resulted in a doubling of losses, with figures ranging from $17 billion to $31 billion in revenue. 
3. Venezuela’s economy heavily relies on oil revenue is a crucial source of hard currency, resulting in a significant hindrance for businesses to import essential goods. Consequently, the country experienced a sharp decline of 46% in public imports in 2019, followed by an additional 50% drop in 2020. This downturn directly impacted the most vulnerable citizens of Venezuela. 
4. The risk-averse stance adopted by banking and financial institutions within Venezuela precipitated the closure of bank accounts belonging to both humanitarian organizations and private companies, leading to the freezing or denial of legitimate transactions.
5. Analysis of the percentage variation in imports and oil exports in Venezuela shows that revenue from oil exports has been used to cover imports from basic goods like food, fuel, and medicine. 

From this report, it is clear that U.S. sanctions significantly exacerbated the already dire humanitarian crisis in the country. A sharp decline in revenue for Venezuela, due to the limitations to export oil, led to a significant devaluation of the national currency. In turn, hyperinflation resulted in the inability of most vulnerable communities to afford and access basic necessities and services. This intensified the humanitarian crisis by limiting access to healthcare services and medicine, leading to an overall decline in overall health standards. Moreover, the sanctions also disrupted the flow of international aid and investments, creating a multifaceted crisis that induced the scarcity of resources and the breakdown of critical infrastructure. In short, oil sanctions contributed to widespread economic distress, a severe shortage of essential services and goods, and social instability. 

Did the ends justify the means? In a certain way, yes. Sanctions are a typical foreign policy move to discourage or penalize certain policy actions. In this case, the oil sanctions were imposed to condemn unfair elections in Venezuela. Thus, the sanctions encouraged a change in behavior with specific demands--changes in election rules--in order to better the overall situation and ensure the upholding of democratic principles. This is one step in the right direction. 

The U.S. move follows months of diplomatic negotiations pressuring the Maduro regime to engage in meaningful dialogue and enact reforms aimed at restoring democracy and human rights. While the lifting of oil sanctions is seen as a gesture of goodwill or a reward for moving towards democratic standards, it also serves as a strategic manoeuvre to encourage economic recovery in Venezuela, in efforts to alleviate the suffering of its people and stabilize the region. The hope is that this move will foster an environment conducive to political dialogue and international cooperation, ultimately paving the way for sustainable economic growth and long-term democratic stability.
 
The relief is broader than just an economic recovery. There is an optimistic outlook for the country. In lifting sanctions, Washington is ensuring that, after a decade of oppression, politics can change in the state. Maduro is expected to be challenged, finally allowing a free national election in the second half of 2024. All parties will be allowed to choose a candidate, and international observers will be permitted to monitor the vote and grant the election as fair [4]. These steps toward restoring democracy will restore hope and ease forced migration. The rise in crude oil production, with a value adding of 10%, will also aid the economic devastation of the country. Accredited to the increased influx of funds the oil sector will bring in, this will stabilize the national currency, hopefully mitigating the effects of hyperinflation and enhancing the purchasing power of the Venezuelan citizens, enabling them wider access to basic goods. A more stable and robust economy will lead to overall increased social stability, fostering an environment of long-term stability. 

The future has grown brighter for the Venezuelan people. The easing of oil sanctions may have been the key to bolstering long-term economic growth and stability.
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[1] Rapier, Robert. “Inside Venezuela’s Contradictory Oil Industry.” Forbes, February 21, 2023. https://www.forbes.com/sites/rrapier/2023/02/21/inside-venezuelas-contradictory-oil-industry/?s%20h=717435ee7c13&sh=ee146467c131   

[2] “Treasury Sanctions Venezuela’s State-Owned Oil Company Petroleos de Venezuela, S.A.” U.S. Department of the Treasury, January 28, 2019. https://home.treasury.gov/news/press-releases/sm594 

[3] “New Report Documents How U.S. Sanctions Have Directly Aggravated Venezuela’s Economic Crisis.” WOLA, Advocacy for Human Rights in America, October 29, 2020. https://www.wola.org/2020/10/new-report-us-sanctions-aggravated-venezuelas-economic-crisis

[4] “New Report Documents How U.S. Sanctions Have Directly Aggravated Venezuela’s Economic Crisis.” WOLA, Advocacy for Human Rights in America, October 29, 2020. https://www.wola.org/2020/10/new-report-us-sanctions-aggravated-venezuelas-economic-crisis

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