US Bans Dealing In Venezuelan Government Debt And New State-Owned Oil Company Debt & Equity

President Trump just signed an executive order deepening the sanctions on Venezuela, confirming the rumors of a ban on trading in Venezuelan debt that sent VENZ/PDVSA bonds tumbling.

As we noted previously, on Tuesday evening, the WSJ reported that the U.S. government is considering "restricting trades in Venezuelan debt as it seeks to punish President Nicolás Maduro for undermining the country’s democracy" and that "the unprecedented move would temporarily ban U.S.-regulated financial institutions from buying and selling dollar-denominated bonds issued by the Republic of Venezuela and state oil company Petróleos de Venezuela SA, according to a person who was briefed on the proposal."

One option being considered is banning the trading in just some papers issued by the state oil company to limit its access to external funds, said a third person.

The ban would be the first step against the Venezuelan financial system since Mr. Trump promised “swift economic action” against Mr. Maduro for installing a parallel parliament staffed with loyalists earlier this month.

The sanctions ban dealing in any new debt (or equity) issue by PDVSA and all Venezuelan government debt.

From Treasury:

All transactions related to, provision of financing for, and other dealings in the following by a United States person or within the United States are prohibited:

(i) new debt with a maturity of greater than 90 days of Petroleos de Venezuela, S.A. (PdVSA);
(ii) new debt with a maturity of greater than 30 days, or new equity, of the Government of Venezuela, other than debt of PdVSA covered by subsection (a)(i) of this section;
(iii) bonds issued by the Government of Venezuela prior to the effective date of this order;
(iv) dividend payments or other distributions of profits to the Government of Venezuela from any entity owned or controlled, directly or indirectly, by the Government of Venezuela.

Statement by the Press Secretary on New Financial Sanctions on Venezuela

President Donald J. Trump has signed an Executive Order imposing strong, new financial sanctions on the dictatorship in Venezuela.

The Maduro dictatorship continues to deprive the Venezuelan people of food and medicine, imprison the democratically-elected opposition, and violently suppress freedom of speech. The regime"s decision to create an illegitimate Constituent Assembly —and most recently to have that body usurp the powers of the democratically-elected National Assembly—represents a fundamental break in Venezuela"s legitimate constitutional order.

In an effort to preserve itself, the Madura dictatorship rewards and enriches corrupt officials in the government"s security apparatus by burdening future generations of Venezuelans with massively expensive debts. Maduro"s economic mismanagement and rampant plundering of his nation"s assets have taken Venezuela ever closer to default. His officials are now resorting to opaque financing schemes and liquidating the country"s assets at fire sale prices.

As Vice President Mike Pence has said, in Venezuela, "we"re seeing the tragedy of tyranny play out before our eyes." No free people has ever chosen to walk the path from prosperity to poverty. No free people has ever chosen to turn what was once, and should still be, one of South America"s richest nations into its poorest and most corrupt.
and most corrupt.

We will not stand by as Venezuela crumbles. The President"s new action prohibits dealings in new debt and equity issued by the government of Venezuela and its state oil company. It also prohibits dealings in certain existing bonds owned by the Venezuelan public sector, as well as dividend payments to the government of Venezuela.

To mitigate harm to the American and Venezuelan people, the Treasury Department is issuing general licenses that allow for transactions that would otherwise be prohibited by the Executive Order. These include provisions allowing for a 30-day wind-down period; financing for most commercial trade, including the export and import of petroleum; transactions only involving Citgo; dealings in select existing Venezuelan debts; and the financing for humanitarian goods to Venezuela.

These measures are carefully calibrated to deny the Maduro dictatorship a critical source of financing to maintain its illegitimate rule, protect the United States financial system from complicity in Venezuela"s corruption and in the impoverishment of the Venezuelan people, and allow for humanitarian assistance.

The United States is not alone in condemning the Maduro regime. Through the Lima Declaration of August 8, our friends and partners in the region refused to recognize the illegitimate Constituent Assembly or the laws it adopts. The new United States financial sanctions support this regional posture of economically isolating the Madura dictatorship.

The United States reiterates our call that Venezuela restore democracy, hold free and fair elections, release all political prisoners immediately and unconditionally, and end the repression of the Venezuelan people. We continue to stand with the people of Venezuela during these trying times.

Of course this will just add fuel to Maduro"s fire talk about America waging economic war against the Latin American nation (as opposed to the utter collapse of the country being due to decades of Bernie Sanders-style socialism).

As we noted previously, Maduro is afraid what would happen to PDVSA assets once the country defaults (not to mention to the army"s support of his regime, which has been solid as long as the money keeps flowing):

Most analysts and investors believe that this is because the government wants to keep the oil flowing. PdVSA is responsible for half of Venezuela’s fiscal income and some 90% of its exports, according to Standard & Poor’s.  For some analysts, Venezuela’s fear is that a debt default would push investors to try to seize PdVSA’s foreign assets.

Mr. Dehn has another theory over what is behind that fear: that PdVSA’s so-called joint venture partners, such as Russia’s Rosneft and China, would pull lines of credit if the country defaulted. That would starve it of working capital and prevent it from producing oil.

“If he stops [servicing the debt]…oil production will stop. The government will fall,” said Mr. Dehn.

The decision to block trading of Venezuela bonds could well be the tipping point that forces creditors to finally give up on the Caracas regime, leading to a prompt default and the fall of Maduro, in the process Washington will once again have succeeded in toppling a foreign regime, this time without firing a single shot.

Venezuela Bonds Tumble On Report U.S. To Ban Trading

Venezuela bonds are tumbling after the WSJ reported that the US government was considering a ban on trading in the country"s debt. PDVSA’s 12.75% 2022s were trading at 44.75 this morning,down from around 45.65 at Tuesday"s close and two points weaker than levels seen earlier in the week, according to MarketAxess. Bond traders also sold PDVSA"s 6% 2026s, which had fallen about a point to 30.00.

On Tuesday evening, the WSJ reported that the U.S. government is considering "restricting trades in Venezuelan debt as it seeks to punish President Nicolás Maduro for undermining the country’s democracy" and that "the unprecedented move would temporarily ban U.S.-regulated financial institutions from buying and selling dollar-denominated bonds issued by the Republic of Venezuela and state oil company Petróleos de Venezuela SA, according to a person who was briefed on the proposal."

One option being considered is banning the trading in just some papers issued by the state oil company to limit its access to external funds, said a third person. The ban would be the first step against the Venezuelan financial system since Mr. Trump promised “swift economic action” against Mr. Maduro for installing a parallel parliament staffed with loyalists earlier this month.

Then again, Trump may not have to lift a finger to accelerate Venezuela"s default. As reported last week, following the recent sanctions against Maduro"s socialist paradise, foreign banks are shutting out Venezuelan companies and are refusing to provide the country"s oil tankers with the letters of credit they need to offload oil, and replace it for one commodity most needed in Venezuela: hard dollars.  As a result, the decline in PDVSA"s (and Venezuela"s) dollar reserves is accelerating with every day, a pace which roughly tracks the recent plungein Venezuela bonds.

Or not.

Not everyone is convinced that Venezuela is facing an imminent default. In a separate report, the WSJ writes that one large holder of Venezuelan debt, Ashmore Group PLC, thinks investors have come to the wrong conclusion.

Mr. Maduro’s political power “has just increased dramatically,” said Jan Dehn, head of research at the emerging-market fund, which has $56 billion under management. The July vote, which was widely seen as fraudulent, convened a powerful new assembly aligned with Mr. Maduro that will be able to override other institutions and redraft the constitution.

Mr. Maduro’s administration has prioritized paying bondholders, even as the wider economy has shrunk, sparking widespread unrest and food shortages. As long as he retains a tight grip on power, that is unlikely to change, Mr. Dehn believes.

According to Dehn, Maduro’s political strength is one of three factors that should mean the country “can continue to service the debt indefinitely.” The other two are that oil remains above $40 a barrel and that state-owned oil company Petróleos de Venezuela SA, PdVSA, retains access to working capital.

Additionally, Maduro is afraid what would happen to PDVSA assets once the country defaults (not to mention to the army"s support of his regime, which has been solid as long as the money keeps flowing):

Most analysts and investors believe that this is because the government wants to keep the oil flowing. PdVSA is responsible for half of Venezuela’s fiscal income and some 90% of its exports, according to Standard & Poor’s.  For some analysts, Venezuela’s fear is that a debt default would push investors to try to seize PdVSA’s foreign assets.

Mr. Dehn has another theory over what is behind that fear: that PdVSA’s so-called joint venture partners, such as Russia’s Rosneft and China, would pull lines of credit if the country defaulted. That would starve it of working capital and prevent it from producing oil.

“If he stops [servicing the debt]…oil production will stop. The government will fall,” said Mr. Dehn.

In thie case, one can imagine why Maduro would do everything in his power to delay default until the bitter end, both for creditors and his administration, which has so far had the support of the army but will promptly lose it once the cash flow tries up. That"s also why many Venezuelan bonds rebounded since the Constitutional Assembly vote.

However, if the Journal is corect and the US is about to block trading of Venezuela bonds, that could well be the tipping point that forces creditors to finally give up on the Caracas regime, leading to a prompt default and the fall of Maduro, in the process Washington will once again have succeeded in toppling a foreign regime, this time without firing a single shot.

Big Oil Nervous As Venezuela's Maduro Seizes More Power

Authored by Tsvetana Paraskova via OilPrice.com,

The pro-government constitutional assembly loyal to Venezuelan President Nicolas Maduro seized the powers of the opposition-led congress today, in a move that necessarily has Big Oil nervous that Trump will make good on his economic sanctions threat.

Maduro’s bold political move on Friday means further intensifies the dramatic decline of democracy that led Trump last week to threaten economic sanctions that could remove Venezuelan oil from the U.S. refining market.

It also comes right after Trump indicated that a ‘military option’ was not off the table.

The government has accused opposition leaders of conspiring with Washington to overthrow Maduro. 

As Venezuela disintegrates politically and economically, big oil is stepping in to urge Washington to refrain from resorting to economic sanctions against the country, the third-largest supplier to the U.S.

U.S. energy giants rely heavily on trade with Venezuela - home to the world’s largest oil reserves - and the Trump administration’s move last week to sanction eight top Venezuelan officials coupled with talk of country-level economic sanctions could negatively affect U.S. refineries, and drive up gas prices.

Everyone from Chevron and Phillips 66 to Valero and Citgo - among others - process heavy crude oil from Venezuela along the U.S. Gulf Coast. It would be prohibitively expensive to replace Venezuela’s specific heavy crude with an alternative, as nearly two dozen major U.S. refineries are set up only to process this type of crude. Canada, Mexico and Colombia also provide heavy crude, but volumes are not considered to be high enough to replace Venezuelan. Saudi Arabia heavy crude would have to serve as a replacement, but a costly one.

Meanwhile, the letters of protest continue to find their way to the White House. Two letters pleading Trump to forego economic sanctions have been sent by the American Fuel & Petrochemicals Manufacturers advocacy group, of which Chevron is a member.

A third letter of appeal came from a group of lawmakers led by Texas Republican congressman Randy Weber.

The letter noted that while the group respected the efforts to deal with the “disturbing decline of democracy” in Venezuela, sanctions could end up losing Americans 525,000 refining-related jobs along the Gulf Coast.

International oil companies are said to be pulling staff out of Venezuela, especially after the end-July vote that Maduro orchestrated.  

Repsol has recently pulled all of its foreign workers from Venezuela, Statoil has pulled out its expatriate staff, while Chevron and Total SA have withdrawn a small number of employees, according to Bloomberg.

"The Maduro Diet" - Venezuelans Suffer Drastic Weight Loss As Hunger Crisis Strikes

Shortages are becoming ever more severe in Venezuela. As Deutsche Welle reports, according to the World Health Organization, hospitals lack 95% of necessary medicines. Many people are undernourished and they receive no help from the government.

"An estimated 75% of Venezuelans lost at least 10 kilos last year because there is not enough food to go around... people here call it "The Maduro Diet"...

"When we say people are eating from the garbage, we are not joing, it"s our reality... people don"t have enough to eat."

Furthermore, a lack of food and basic services is also creating an education crisis with more than 1 million children no longer attending school due to a lack of food, running water and/or electricity.

About 30 percent of students who now stay home do not attend school because of water problems at home or on campus, 22 percent do not attend because of electricity blackouts and 15 percent do not attend due to school strikes, the survey found.

About 10 percent said a lack of food at home or in school was the reason for their absence. The survey said those in that category are considered among the poorest who previously never skipped school because they did not have food at home.

Of course, the failure of Venezuela"s socialist utopia likely means that civil war is all but inevitable at some point in the future absent a quick doubling of crude prices...

Venezuela Claims It "Crushed" A Military Rebellion

One day after Maduro"s new "constituent assembly" expelled chief prosecutor Luisa Ortega Diaz - the highest-ranking member of President Maduro’s administration to break ranks with the authoritarian - from her post and ordered her to stand trial, confirming fears that it would use its unchecked powers to root out government critics, Venezuelan authorities claimed to have suppressed a military rebellion near the central city of Valencia, an official said on Sunday morning.

As Reuters reports, socialist Party deputy Diosdado Cabello made the announcement shortly after the release of a video showing a group of men in military uniform announcing a rebellion and calling for a broad uprising against President Nicolas Maduro. Cabello also said that there was a "terrorist" attack at a military base controlled by troops loyal to the government and several people were arrested, according to AP. One witness in the area of a military base in the town of Naguanagua reported hearing gunshots before dawn, but Cabello said the situation had been brought under control.

On Twitter, Cabello said that troops acted quickly to control the situation in the early morning at the Paramacay base in the central city of Venezuela.

En la madrugada atacantes terroristas entraron al Fuerte Paramacay en Valencia, atentando contra nuestra FANB. Varios terroristas detenidos.

— Diosdado Cabello R (@dcabellor) August 6, 2017

Luego del ataque terrorista al Fuerte Paramacay, se activaron planes de defensa, despliegue de tropas, para garantizar la seguridad interna.

— Diosdado Cabello R (@dcabellor) August 6, 2017

In a video released on Sunday, a man who identified himself as Juan Carlos Caguaripano, a former National Guard captain, and flanked by about a dozen men in military uniforms said: "We demand the immediate formation of a transition government." He added that "this is not a coup d"etat. This is a civic and military action to re-establish constitutional order. But more than that, it is to save the country from total destruction." In the video, Caguaripano added that any unit refusing to go along with its call for rebellion would be declared a military target.

LO ÚLTIMO | Pronunciamiento de presuntos militares contra Maduro, lo encabeza el Capitán GNB Juan Carlos Caguaripano, prófugo desde 2014 pic.twitter.com/JdN4qdDifN

— Alberto Rodríguez (@AlbertoRT51) August 6, 2017

Video clips posted on Twitter on Sunday morning showed civilians singing the national anthem in front of the 41st armorder brigade in the Valencia military base.

#Venezuela #Now Civilians sing the national anthem in front of the 41st armored brigade in Naguanagua, Valencia ... pic.twitter.com/IDiYFjP1LZ

— Freiheit und Frieden (@newya1207) August 6, 2017

Previously on Saturday evening, prominent opposition leader Leopoldo Lopez was returned home to serve his sentence under house arrest, days after being hauled back to prison in the middle of the night in a move that drew international condemnation. The activist"s wife Lilian Tintori said in a message on Twitter that she and her husband remained committed to achieving "peace and freedom for Venezuela."

Lopez was released from prison July 8 and placed under house arrest after serving three years of a 13-year sentence on charges of inciting violence at opposition rallies. Many human rights groups considered him a political prisoner. But he was taken back into custody last Tuesday along with former Caracas Mayor Antonio Ledezma in what many believed was a renewed crackdown on the opposition following the election of delegates to a new, all-powerful constitutional assembly charged with overhauling the nation"s charter.

It is unclear if a potential military coup was confined to just one base, and if it is indeed contained as the ruling regime claims; it is also unclear if this was a legitimate "rebellion" or another staged operation. Considering that just over a month ago, a famous action movie star manned a helicopter and "dropped grenades" in what was said to be an attempted coup, but many said was merely staged theater to generate empathy for the Maduro regime, it is difficult to keep track what in Venezuela is a real and what is a fake military uprising.

Venezuela Currency Disintegrates: Down 16% Today

Venezuela"s currency, the bolivar, is disintegrating at an incredible pace under the country"s political and economic crisis that has left citizens broke, desperate and in many cases, homicidal. The depreciation accelerated this week, after a disputed vote electing an all-powerful "Constituent Assembly" filled with allies of President Nicolas Maduro, which the opposition and dozens of countries have called illegitimate.

 Just two days ago, on August 2, we reported that one dollar would buy 14,100 bolivars, up from 11,280 the day before.

The next day, the bolivar slumped nearly 15 percent on the black market, to 17,000 to one US dollar. Today, it has crashed again, tumbling 16% to 20,142, and down almost 40% in just the past three days.

In the past year, the currency increasingly looks like shares of DryShips, having lost over 96% while the longer-term chart is simply breathtaking.

The decline, in France24"s words, has been "dizzying" yet completely largely ignored by the government, which continues to use an official rate fixed weekly that is currently 2,870 to the dollar, and which is completely useless. Meanwhile, ordinary Venezuelans refer only to the black market rate they have access to, which they call the "dolar negro," or "black dollar."

"Every time the black dollar goes up, you"re poorer," resignedly said Juan Zabala, an executive in a reinsurance business in Caracas. His salary is 800,000 bolivares per month. On Thursday, that was worth $47 at the parallel rate. A year ago, it was $200. The inexorable dive of the money was one of the most-discussed signs of the "uncertainty" created by the appointment of the Constituent Assembly, which starts work Friday.

As a result, those Venezuelans who are able to are hoarding dollars and other currency alternatives.

"People are protecting the little they have left," an economics expert, Asdrubal Oliveros of the Ecoanalitica firm, told AFP.

Zabala -- who is considered comparatively well-off -- and other Venezuelans struggling with their evaporating money said they now spent all they earned on food. A kilo (two pounds) of rice, for instance, cost 17,000 bolivares. The crisis biting into Venezuela since 2014 came from a slide in the global prices for oil -- exports of which account for 96 percent of its revenues.

The government has sought to monopolize dollars in the country through strict currency controls that have been in place for the past 14 years. Access to them have become restricted for the private sector, with the consequence that food, medicines and basic items -- all imported -- have become scarce.

According to the International Monetary Fund, inflation in Venezuela is expected to soar above 700 percent this year. In June, Maduro tried to clamp down on the black market trade in dollars through auctions of greenbacks at the weekly fixed rate, known as Dicom. There is also another official rate, of 10 bolivars per dollar, reserved for food and medicine imports.

"Things are going up in price faster than salaries," noted Zabala, who spends 10 percent of his income on diabetes treatment, when he can.

Meanwhile, Maduro who earlier this week was branded a "dictator" by the US State Department, has vowed that a new constitution the Constituent Assembly is tasked with writing will wean Venezuela off its oil dependency and restart industry, which is operating at only 30 percent of capacity. But Maduro, who links the "black dollar" with an "economic war" allegedly waged by the opposition in collaboration with the US, has not given details on what would be implemented. Instead, on Thursday Maduro promised that "speculators" setting their prices in line with "the terrorist criminal dollar in Miami" would go to jail.

Against that backdrop of tensions, "there is no limit on how far the black dollar can go," according to Ecoanalitica.

But a director of the firm, Henkel Garcia said he believed the current black market rate "didn"t make sense" and he noted that in the past currency declines weren"t linear.

Oliveros said increased printing of bolivares by the government was partly the reason for the black dollar"s rise. "When you inject bolivares into the market, that means that companies, individuals go looking for dollars, which are scarce," he said, estimating that the shortfall of dollars this year was some $11 billion.

And as Latin America"s socialist paradise succumbs to Venezuela, it has further headaches ahead: Venezuela has to make major debt payments, with a $3.4 billion dollar-denominated payment for state oil company PDVSA looming in October. It is increasingly unclear if the company will make the payment.

Venezuela Bolivar Loses A Third Of Its Value In The Past Week

With events in Venezuela now well into the endgame, following US sanctions that named "dictator" Maduro personally and a likely subsequent sanction that will cripple Venezuela"s oil industry promptly resulting in the nation"s insolvency as it loses its last remaining source of revenue, things are moving fast. So fast, in fact, that according to Reuters, Venezuela"s money supply surged 10% in just one week earlier this month, its largest single-week rise in a quarter of a century.

Meanwhile, in addition to now daily protests and strikes, Venezuela is undergoing a major economic crisis, with millions suffering food shortages, monthly wages worth only the tens of U.S. dollars, and soaring inflation - although no official data is available.  The central bank said late on Friday the total amount of local currency in circulation, or M2 as of July 21, was 27.3 trillion bolivars, up 9.66% from the previous week.

Obviously, the exponential rise in M2, the sum of cash, together with checking, savings, and other deposits, also means an exponential rise in the amount of currency circulating. As a result, Venezuela"s money supply is up 384% in the last year. In contrast, the United States" money supply is up 5.5% in the same period.

This means that Venezuelans are forced to carry huge bundles of cash to make basic purchases, if they can afford to do so given weekly price rises on many goods of course.

This means hyperinflation.

Today, the Dolar Today website reported that Venezuela"s black market exchange rate surged past 14,000 bolivars per dollar.

When President Nicolas Maduro came to power in April 2013, it was at 24 per dollar.

Putting the country"s bitter economic end in context, the bolivar has lost a third of its value in the past week.

That takes care of the economy, as for how how socialism ends in a social context, in a poll released today Gallup found the Venezuela is now the least safe country in the world.

Venezuela"s score on Gallup"s Law and Order Index -- its annual global gauge of how secure people feel -- continued to follow the country"s descent into chaos in 2016. The country"s index score of 42 out of 100 was the lowest in the world last year. This number is likely even worse now as the country"s economic and political crisis deepens, including the election on Sunday that critics, including the U.S. and a growing list of nations, are denouncing as a "sham."

Across 135 countries, Law and Order Index scores in 2016 ranged from a high of 97 in Singapore to the low of 42 in Venezuela. The index is based on people"s reported confidence in their local police, their feelings of personal safety, the incidence of theft in the past year and -- for the first time in 2016 -- the incidence of assault and mugging in the past year.

Venezuela"s scores on all of the individual questions that make up the current index were worse last year than at any point in the past decade. Just 12% of Venezuelans in 2016 said they felt safe walking alone at night where they live, and 14% expressed confidence in their police. These are not only the worst on record for Venezuela, but the worst for any country last year -- and for the past 10 years.

To put Venezuela"s 12% who feel safe walking alone at night into perspective, the next-lowest figure in 2016 was more than twice as high as Venezuela: 28% in El Salvador. Among the 12 countries in which residents are least likely to say they feel safe walking alone at night, five are in Latin America. Another six are in sub-Saharan Africa -- including two of that region"s more economically developed countries, South Africa (37%) and Botswana (38%).

At the same time, 38% of Venezuelans said they had had property or money stolen in the past year. This is up more than 10 percentage points from the previous year and a new record high for the country. Only five countries -- all in sub-Saharan Africa -- had higher percentages than Venezuela in 2016. 

WTI Jumps Above $50 On Report US Prepping Sanctions Against Venezuela Oil Industry

After both Brent and WTI rose above their respective 50DMAs on Friday, capping 2017"s best weekly rally for oil, the rising tide is accelerating as the latest CFTC COT data confirmed, when net specs boosted bullish Nymex WTI crude oil bets by 27K net-long positions to 423K, the highest in two months, as producers continued to cover short hedges, sending their net position to the most bullish since the summer of 2015.

Meanwhile, oil started the Sunday session jumping out of the gate, with WTI rising above $50 for the first time since May in early Asian trading, following the usual non-material weekend chatter and "noise" out of OPEC (which to exactly nobody"s surprise "can"t stop pumping"), however what has attracted traders" attention, is a WSJ report that following last week"s latest round of sanctions, and after today"s vote to overhaul Venezuela"s constitution further entrenching Maduro"s unpopular regime, US government officials are considering announcing sanctions against Venezuela"s oil industry as early as Monday, although as the WSJ notes, a full-blown "embargo against Venezuelan crude oil imports into the U.S. is off the table for now."

In its latest escalation, last Wednesday the U.S. government levied additional sanctions on 13 high-ranking Venezuelan officials for alleged corruption, human-rights violations and undermining democracy in the South American country. On Friday Mike Pence vowed “strong and swift economic actions” if the vote goes ahead.

While Maduro"s government has responded defiantly, "dismissing sanctions and warnings from Washington", with Maduro insisting the government would notch a triumph in Sunday’s vote, the potential collapse in oil trade between Venezuela could crippled the country even more, while sending the price of oil sharply higher.

In fact, in a note from last week posted here, Barclays Warren Russell explains just what will happen should Trump expand Venezuela"s sanctions to impact its oil sector: "a sharper and longer disruption (eg, exceeding three months) could raise oil prices at least $5-7/b and flatten the curve structure despite an assumed return of some OPEC supply, a more robust US shale response, and weaker demand. It may be just the opportunity OPEC needs to exit its current strategy. US producer hedging activity would pick up if WTI moves to $50-55, limiting price upside potential."

Furthermore, among the downstream consequences, is that refining margins should deteriorate if Venezuelan crude oil supply is curtailed. US refiners will be negatively affected by any sanctions related to trade constraints. On the other hand, China and India could benefit if Venezuelan oil is offered at a discount to comparable grades, Barclays suggests.

Finally, looking at Venezuela from a longer-term perspective, this is how Barclays estimates the local investment climate:

It is too early to assess the investment appetite in Venezuela in a post-Maduro environment. Though Venezuela’s assets are large, they are not short-cycle. Companies with deep connections to the country are likely to maintain a presence, but wait for the political landscape to stabilize before making incremental investments. Either way, it looks like Venezuela’s production trend is down over the near term.

Of course, the higher the price of oil goes, the more profitable shale will be, the more oil it will produce and so on, in the diabolic feedback loop that will assure oil does not go too far above $50 for the foreseeable future, as Goldman explained efficiently in just three bullet points last Thursday:

• Oil prices have rebounded over the past month on large inventory draws, a declining US rig count and strong demand data, suggesting that the rebalancing is accelerating.


• We remain, however, cautiously optimistic on prices from the current level with the recent improvements in fundamentals needing to be sustained for oil prices to rally meaningfully further.


• In fact, too large a price recovery now would only increase the downside risks to our year-end $55/bbl WTI price forecast given the fast velocity of shale’s supply response.

At which point it"s back to square one. For now, however, the bulls get to enjoy the next few days until the momentum reverses once again.

* * *

For those who are eager for more reasons to buy oil, there are more details in the full Barclays excerpt below and posted here first last week:

Looming risk of sanctions against Venezuela

The Trump administration is considering a wide variety of sanctions against the Venezuelan regime, which could range from sanctions on several senior government officials to targeting PDVSA’s ability to transact in US dollars, according to Reuters. This would not be the first time the Trump administration has taken action against Venezuela. The US already imposed sanctions on Venezuela’s vice president (February 2017), eight members of the Supreme Court (May 2017), and other military and government officials. The most recent Supreme Court sanctions were in response to the court’s decision to disband the democratically elected congress. The administration’s recent discussion of potential new sanctions would aim to keep elections “free and fair” and prevent President Maduro from being able to establish a dictatorship, which could occur as early as July 30.

The Trump administration is likely to proceed cautiously and incrementally with any sanctions. In contrast to the energy-related sanctions imposed on Russia and Iran, the more entrenched connections between US companies and consumers and the Venezuelan oil industry lead us to believe that the US administration will take a cautious approach.

Venezuela produces around 2.2 mb/d of oil and NGLs, which represents roughly 2% of the global petroleum market. Its Orinoco heavy oil plays a critical role as a feedstock for complex refineries around the world, particularly along the US Gulf Coast. Close to half of its 1.8 mb/d of oil exports go to OECD countries, with Asia consuming most of the remainder. Venezuela is the third largest exporter of oil to the US (?750 kb/d), behind Canada (3.2 mb/d) and Saudi Arabia (1.1 mb/d).

As a guide to potential outcomes, we examine US sanctions on Iran and Russia and their impact on the oil market. We find that the sanctions on Russia have not had a noticeable effect on its production or the oil market, while sanctions against Iran lowered its production and exports and supported oil prices. For more on sanctions on Russia and Iran, see the Appendix of this report.

We see several important differences between the situation in Venezuela and those in Iran and Russia.

1. Unlike Russia and Iran, Venezuela is at significant risk of political and economic collapse. Low oil prices have greatly reduced the government’s ability to pay its outstanding debts while funding imports of basic goods. As a result, President Maduro has taken decisions that have resulted in a deteriorating quality of life for Venezuelans in recent years. Amid the current instability, even limited sanctions are likely to have an outsized effect on the oil market.


2. A collapse in Venezuela could turn it into a regional crisis. More than 1.5mn Venezuelans have already fled the country because of the current crisis, this number could increase exponentially, affecting neighboring countries, particularly Colombia. The international community will need to support the region in a refugee crisis. In the case of Colombia, the situation could have additional implications because there are nearly 2mn Colombian and Colombian descendants living in Venezuela. Those people would likely be the first to cross the border and the Colombian government cannot deny them their rights as Colombian citizens. This could become significant fiscal burden for the Colombian government.
   Venezuela needs to import oil and refined products to produce oil. Roughly 50% of Venezuelan production is heavy oil, which is typically blended with diluent for transportation purposes. Without access to diluent imports from the US and elsewhere, certain Orinoco projects may be at risk of being shut-in. A trade embargo, sanctions that affect PDVSA, or a sovereign default could be catalysts for heavy oil shut-ins in the Orinoco. We estimated earlier this year that a default could take around 300 kb/d of heavy oil production offline (Commodities special report: The black swans of 2017, January 2017).


3. The current state of Venezuela’s refinery sector necessitates fuel imports, which have been met in part by imports from the US. Plagued by underinvestment, Venezuela’s refineries have been running well below nameplate capacity, with Bloomberg recently reporting that the Puerto La Cruz refinery is running at 15% utilization. Restricting fuel shipments to Venezuela would result in increased dependency on the PDVSA’s dilapidated plants and imports from other origins to prevent the country coming to a standstill.


4. Venezuela’s oil sector is much more intricately connected to the North American energy system, due to CITGO’s presence in the US and the dependence of other US refineries on Venezuelan feedstock. This interdependency with the US and the lesser connection with other OECD countries, mean Venezuela’s position in the international energy system is quite different to that of Russia or Iran.

If the US does impose further sanctions on Venezuela, it would likely take into account these differences. The use and timing of various sanctions will likely depend on how much the conflict escalates in the coming days and whether other factors (such as the potential for default on sovereign debt payments due in October and November), might be a catalyst for political change in the near future. In our view, if the Trump administration decides to issue sanctions, it would proceed conservatively and become increasingly restrictive only if its goals are not being achieved. One of the stated goals of the Trump administration is for Venezuela to hold “free and fair elections,” according to the White House press statement on July 17, 2017. Before implementing more aggressive sanctions, the administration is likely to seek multilateral support from other nations.

The EU recently expressed a willingness to impose sanctions on Venezuela as well. We believe sanctions could turn out to be a double-edged sword. Multilateral sanctions implemented after having exhausted negotiations are most likely to be successful. Nonetheless, history shows that sanctions alone are not enough to trigger political change, eg, Cuba, North Korea, and Syria. This finally depends on the level of internal pressure, which in Venezuela seems high.

Sanctions against individuals

Additional US-imposed sanctions against government officials may be the next step. Such sanctions are likely to cause some inconvenience but probably would have only a limited impact on Venezuela’s oil industry, in our view.

Sanctions on Venezuela’s energy sector

Sanctions could take several forms, ranging from sanctions similar to those imposed on Russia to more disruptive ones that could completely halt existing operations.

• Sanctions that prohibit or limit investment in new exploration and production activity would not likely have an immediate direct impact on Venezuelan production. Many of the companies with equity stakes in Venezuela’s new greenfield developments are headquartered in non-OECD countries. Furthermore, due to the current upstream investment environment and the increasing political risk within Venezuela, we believe upstream spending on greenfield projects is limited, with many projects shelved for future reconsideration.


• Sanctions prohibiting businesses from operating in Venezuela would be much more disruptive to Venezuela’s current contribution to the oil market. A policy that would limit US producer and service company operations and further investment in Venezuela, would require PDVSA and other international companies to step in to maintain operations. This scenario is likely to exacerbate Venezuela’s declining production profile.

Sanctions against PDVSA

The US could take an even more drastic approach by issuing direct sanctions against PDVSA. In an extreme scenario, if the NOC is banned from banking activity in the US and from trading with US entities, the impact would likely be swift and very damaging to Venezuelan oil production. Directly targeting PDVSA will also likely lead to a sovereign debt default in 2017. This action would affect Venezuela’s petroleum imports and exports.

• PDVSA would have to find new destinations for nearly half of its oil exports, assuming production does not collapse. Currently, Venezuela ships more than 700 kb/d of oil to the US and nearly 100 kb/d to the EU. China and India would likely be alternative destinations for some of this crude.


• PDVSA would also need to find a new source for some of its diluent needs. Algerian and Nigerian crude and condensates were previously used for diluent purposes and could substitute for shipments of US crude and products used in the transport of heavy oil. PDVSA could ask it JV partners to import diluent, but the capacity to do this would depend on the extent of sanctions and other countries’ participation. Even if possible, this could also increase the production cost of these fields to levels that are not financially viable, which could ultimately result in shut-ins.

We believe the US would implement such measures only as a last resort. In addition, the US would likely seek multilateral support from other nations before taking this route. Such an action is likely to be severely disruptive to Venezuela as well as the oil market and its participants.

Sanctions against PDVSA would likely also mean that US producers and service companies conducting business in Venezuela would have to cease operations, which would have an outsized effect on oil production compared to the effect of the US-imposed sanctions on Russia. Compared with Russia, Venezuela is much more reliant on foreign oilfield service companies for oil extraction.

Discussions of broader sanctions likely limits Venezuela’s access to capital

Regardless of whether new sanctions are imposed, discussion of broader sanctions could limit the Venezuelan government’s ability to raise financing and to make debt payments coming due in October and November. Moreover, it could change the government’s willingness to pay. If the current government wants to remain in control and not negotiate, it may be unwilling to use the few assets left to service its debt. As mentioned above, default alone would have a significant impact on oil production and the domestic economy.

The US could sell oil from the SPR to steady the market

We believe the US would consider the sale of oil from the strategic petroleum reserve (SPR) in order to smooth any price volatility that may result from a disruption to supply from Venezuela. The previous US administration was willing to tap the SPR to steady markets after the Libyan supply disruption, and we believe the current administration would consider this option as well. The US did not sell oil from the SPR during the 2002-03 Venezuelan supply disruption and prices rose by more than 40% during that period, although other factors also contributed. We doubt a disruption will result in a 40% price increase in the event of a supply disruption, but we think prices will rise nonetheless. For this reason, we think the US government would consider using the SPR as a backstop.

At present, we believe the price response to a disruption would be more muted than previous disruptions due to the apparent increased willingness of the US to use its SPR, the fact that OPEC could raise quotas, and US producers would begin to respond to sustained higher prices.

Explosion Rocks Caracas, Injures Cops As Venezuela Votes

With opposition parties boycotting what they call a rigged election, Reuters reports the streets of Caracas were deserted on Sunday as a minority of Venezuelans trickled to the polls to elect a constitutional super-body that unpopular leftist President Maduro vowed would begin a new era of combat in the crisis-stricken nation. That is good news as, following the death of two people yesterday, shortly after a large group of motorbikes sped through the city, and explosion hit, reportedly injuring a number of police officers.

A number of police officers were injured in Venezuela"s capital Caracas after an explosion during an anti-government protest decrying a vote for a constituent assembly on Sunday, according to a Reuters witness.

Further details were not immediately available.

The moment of the explosion...

#30Jul #Caracas 12:36 pm Momento en el que explotan 2 motos de la PNB en Altamira. pic.twitter.com/1pKgAKed3m

— TVVenezuela Noticias (@TVVnoticias) July 30, 2017

Social media is awash with clips of injured (it is uncertain if this is from the explosion)...

#HACEMINUTOS herido en el Paraíso. Sector Las Fuentes. Escuchen #jul30 pic.twitter.com/qkRCff7fTC

— Elyangelica Gonzalez (@ElyangelicaNews) July 30, 2017

For now, the fire from the explosion continues...

As a reminder, Reuters reports, Maduro, widely disliked for overseeing an economic collapse during four years in office, has pressed ahead with the vote to create the all-powerful assembly despite the threat of further U.S. sanctions and months of opposition protests in which more than 115 people have been killed. Opposition parties are boycotting what they call a rigged election. Their sympathizers planned protests on highways across the South American country and scuffles were already reported in the provinces - raising the prospect of violent clashes with tens of thousands of troops deployed to safeguard the vote.

Authorities confirmed there were two deaths on Saturday, including the killing of a candidate to the assembly during a robbery, while the opposition put the total death toll in Saturday"s protests at five.

Critics say the assembly will allow Maduro to dissolve the opposition-run Congress, delay future elections and rewrite electoral rules to prevent the socialists from being voted out of power in the once-prosperous OPEC nation.

The opposition has vowed to redouble its resistance and U.S. President Donald Trump has promised broader economic sanctions against Venezuela after the vote, suggesting the oil-rich nation"s crisis is set to escalate.

"Even if they win today, this won"t last long," said opposition supporter Berta Hernandez, a 60-year-old doctor, in a wealthy Caracas district. "I"ll continue on the streets because, not long from now, this will come to an end."

Venezuela Will Be The First Sovereign Oil Producer To See An "All-Out Collapse"

Venezuela’s anti-government protests are growing increasingly violent, with the death toll from clashes between protesters and government forces that began in May topping 100. Despite the country’s increasing political instability, and US President Donald Trump’s half-serious threats of an invasion, President Nicolas Maduro has decided to press ahead with his vote to create a rubberstamp constituent assembly that will allow him to amend the country’s constitution.

With the country’s finances looking ever more precarious, Bloomberg warns that that this decision could bring about the first collapse of a sovereign oil producer. Venezuela has the largest natural oil reserves of any country on Earth, yet the decline in oil prices that began in 2014, coupled with years of economic mismanagement, have been enough to bring the country’s economy to its knees.

“We may be about to see the first sovereign producer to unequivocally fail. The oil producer in question is Venezuela, and that assessment comes courtesy of Helima Croft, who is global head of commodity strategy at RBC Capital Markets and formerly worked with both the Council on Foreign Relations and the CIA. In a global oil market mired in excess inventory and low expectations, Venezuela is the most tangible of wildcards. Its tragic and volatile mix of a failing, oil-dependent economy, political gridlock and simmering unrest is well known at this point.But things are building to a head, partly due to the relentless logic of the bond market and partly due to the more proprietary logic of U.S. foreign policy.”

While many oil dependent nations are working to diversify or ride out low oil prices in other ways, it seems unlikely that the crisis in Venezuela will be reversed anytime soon. Here’s the full fiscal breakeven needed by OPEC producers, including Venezuela, to help normalize things:

The country’s fate, as Bloomberg explains, is largely tied up in the bond market, where yields on Venezuelan bonds recently soared to 36% as Maduro renewed his calls to rewrite the Constitution. With the US threatening sanctions, investors are worried that the situation could reach a crisis point by Christmas.

“Venezuelan bonds, which haven"t looked rock-solid for a few years, crashed this week as embattled President Nicola Maduro renewed calls to rewrite the country"s constitution, which would effectively disenfranchise the millions of Venezuelans who oppose him and entrench his regime. The U.S. has warned it may impose much tougher sanctions if Maduro goes ahead with his plan.

Whether Maduro will, and what those sanctions might be, are the big unknowns here. But there"s an awful confluence of factors that could quite easily push this toward a debacle by the end of the year.”

Regardless of what happens to the Maduro regime, the country’s citizens are already living in hyperinflationary hell. As we recently reported, Venezuelans are paying 1000x more for dollars than they were in 2010. The collapse in social services like police has created lawlessness reminiscent of the Mad Max film series, where members of the public routinely lynch suspected thieves, and gangs of bikers waylay merchants carrying commodities to market.

The country’s economy is in free-fall: By the end of this year, it will have shrunk by 32 percent compared to where it was at the end of 2013, according to International Monetary Fund forecasts. Also by the end of this year, the government is on the hook to pay back more than $5 billion in debt - including bonds owed by the state-owned oil company, Petróleos de Venezuela S.A., or PdVSA - plus billions more in interest. As of this week, Venezuela"s international reserves stood at less than $10 billion.

Meanwhile, mismanagement, a lack of investment and re-nationalization of foreign oil companies have caused Venezuela"s oil production to slump from around 3.3 million barrels a day a decade ago to about 2 million now. Even allowing for the fact that domestic consumption has dwindled along with GDP, Venezuela"s surplus of oil available for earning export dollars has shrunk considerably.

Compounding this is the fact that the country must devote a lot of its output to paying off loans from China and Russia, further reducing the actual amount it can use to generate cash. Francisco Monaldi, a fellow in Latin American energy policy at Rice University"s Baker Institute for Public Policy, estimates that could be as little as 800,000 barrels a day.

While the US and Venezuela have for years traded hostilities as part of the leadership’s rhetoric, the two countries have enjoyed a lucrative business relationship, with the US buying hundreds of thousands of barrels of Venezuelan oil a day. Even under the late socialist firebrand Hugo Chavez, who never missed an opportunity to antagonize the US, business was steady.

But by pursuing sanctions against Venezuela, the US risks pushing it closer toward Russia’s sphere of influence.  

Further isolation of Venezuela, or a sovereign default, could easily push the country further toward the embrace of Moscow. Rosneft Oil Co. PJSC, Russia"s national oil company, loaned money to PdVSA last year collateralized with a 49.9 percent stake in Citgo Petroleum Corp., the U.S. refining and marketing business owned by the Venezuelan oil company. Rosneft is now said to be negotiating swapping that collateral for stakes in Venezuelan reserves and a fuel-supply agreement instead, according to a report from Reuters on Thursday. Swapping valuable downstream assets on U.S. soil for reserves under Venezuelan soil wouldn"t look terribly rational from a purely economic point of view. So if this were to happen, the rationales could range from an expectation on Rosneft"s part that U.S. sanctions against Russia, and national security considerations, might stymie any chance of actually taking possession of a Citgo stake to a desire to further cement Russian influence in Venezuela on the ground.

According to Bloomberg, allowing Moscow set up camp in Caracas would appear to violate the Monroe Doctrine. Moreover, blocking Venezuela"s relatively heavy inflow of oil would squeeze the margins of US refiners set up to process it, and likely lead to higher gasoline prices. Two unattractive options for any president.

Venezuelans Are Now Paying 1000 Times More For US Dollars Than They Did In 2010

The hyperinflationary-hell in Venezuela’s currency is deepening as a crippling dollar shortage and a threat of oil sanctions (amid President Maduro"s attempts to rewrite the constition to maintain his grip on power) take their toll on the economy.

Venezuela’s Latin American neighbors urged President Nicolas Maduro to refrain from actions that might exacerbate the country’s political crisis in a disappointment to some regional governments that favored more direct and forceful criticism. As Bloomberg reports, Mercosur, South America’s largest trade bloc, called on “the government and the opposition not to carry out any initiative that could divide further Venezuelan society or aggravate institutional conflicts,” in a joint statement issued at the end of a summit in Mendoza, Argentina. Member countries Brazil, Argentina, Uruguay and Paraguay were joined by Chile, Colombia, Guyana and Mexico in signing the statement.

International condemnation of the Maduro government’s plan to rewrite the country’s constitution to maintain its hold on power is gathering pace after the U.S. said it would impose sanctions on Venezuelan officials if Maduro goes ahead.

As we noted earlier in the week, The Trump administration is mulling over sanctions against senior Venezuelan government officials, and additional measures could include sanctions against the country’s oil industry, such as halting imports into the U.S., according to senior Washington officials who spoke to media.

The goal of the sanctions is to prevent the Nicolas Maduro government from having things its way at a July 30 election for a Constituent Assembly that, the U.S. administration believes, would serve to cement Maduro’s power and turn Venezuela into a “full dictatorship.”

The Constitutional Assembly vote was proposed by the government as a means of tackling the political crisis that Venezuela slid into last year, after the election of a new parliament where the opposition had a majority that put it at odds with the government. A Constituent Assembly can rewrite the country’s constitution, and many observers see the move as an attempt to strengthen the current regime’s hold on power.

After months of often violent protests, the opposition has now called a 24-hour national strike after conducting an unofficial referendum that, Al Jazeera reports, suggested overwhelming opposition to the idea of voting for a Constituent Assembly and equally overwhelming support for transparent parliamentary elections.

And as protests escalate and international pressure builds, the black market price for dollars in Bolivars has gone vertical. In fact, Venezuelans are now paying 1000 times more for a US dollar than they were in 2010...

Visualized a little differently, as Bloomberg notes, the black-market rate for the bolivar traded weaker than 8,700 per dollar for the first time, according to dolartoday.com on Friday, compared with the official rate of around 10 and a more widely used alternative rate of 2,757.

In fact, the last 3 months have seen the currency collapse by 30% as the hyperinflationary endgame of socialist utopias once again ends in bloodshed and a nation torn apart...

As AP reports, thousands are gathering in the Venezuelan capital for a march toward the embattled nation"s Supreme Court in an escalating push to stop President Nicolas Maduro from proceeding with his plans to rewrite the constitution.

The opposition is calling on frustrated Venezuelans to take to the streets to support a slate of Supreme Court judges appointed by the National Assembly on Friday but quickly rejected by the government-stacked court.

Organizers hope Saturday"s protest in Caracas will be one of the largest before a scheduled July 30 election for a special assembly to rewrite Venezuela"s charter. Maduro is facing mounting international pressure to cancel the controversial vote.

Nearly four months of anti-government protests have left at least 97 people dead, and thousands more have been injured or detained.

National guard troops in Venezuela"s capital have launched tear gas at protesters, clouds of white gas and rows of officers on motorcycles are blocking the demonstrators in Caracas.

The violent protests ate instigated from both sides (pro- and anti-Maduro), alleged supporters of Venezuelan President Nicolas Maduro stormed the opposition-controlled Venezuelan National Assembly in Caracas earlier this month, injuring several journalists and law makers in the process.

 

In a move aimed at proving a vision of a possible post-Maduro government, Bloomberg reports that Venezuela’s opposition-controlled National Assembly swore in 33 Supreme Court judges in a largely symbolic move as it protests President Nicolas Maduro’s plan to rewrite the constitution.

The existing Supreme Court, appointed by a previous assembly that supported the ruling socialist regime, has been the focus of protests over the past four months. It has sought to limit lawmakers’ power, and pre-emptively ruled today’s Congress session null. The standoff between the rival groups of jurists is likely to increase institutional instability in the country.

“The National Assembly has taken this important measure to signal the future of the country and to have a court that serves the people and not a political party,” Julio Borges, president of the National Assembly, told opposition deputies and spectators assembled in eastern Caracas.

“There won’t be true democracy until we have a strong court. A court without political colors, and where all Venezuelans are equal before the law”

About 7.5 million opposition supporters rejected Maduro’s plan in an unofficial referendum Sunday, and 24-hour strike paralyzed the country Thursday. The opposition is building on momentum as the July 30 vote to name members of a constitutional assembly vote approaches.

Visualizing The Countries Suffering Most From Low Oil Prices

As Warren Buffet says, “Only when the tide goes out do you discover who’s been swimming naked.”

And, as Visual Capitalist"s Jeff Desjardin details, in 2014, when oil prices crashed and burned, the tide was gone – and it was shown that too many countries were relying on frothy oil revenues to balance out their trade deficits.

A LINGERING CRISIS

Fast forward to today, and low oil prices are still causing big problems for many countries. The interactive visualization below from the Council of Foreign Relations shows how the world economies most reliant on oil exports have fared since the 2014 crash.

The end results are not pretty – and even in 2016, there were 18 economies that had breakeven prices (based on spending on imports) that were above the average oil price for the year:

Source: Visual Capitalist

The oil price crash made many oil-reliant economies more fragile, and this fragility can be triggered in different ways. One interesting case study is Venezuela, which is currently embroiled in an ongoing economic, currency, and humanitarian crisis.

BAD TIMING FOR MADURO

During the Hugo Chávez era, sky-high oil prices enabled fiscal and trade policies that subsidized Venezuelan life in many ways. That all changed in 2014, which was only one year after Nicolás Maduro took office.

Despite having largely the same policies as his predecessor, low oil prices have hammered the Venezuelan economy. Even with today’s prices, oil generates an estimated 95% of export revenues for the country. This has resulted in a disaster for the socialist nation, and Venezuela is now stuck with shortages in essential goods, crushing unemployment, a contracting economy, skyrocketing crime and murder rates, and even widespread malnutrition.

At the root of much of this, arguably, is an uncontrollable cycle of hyperinflation:

Source: Visual Capitalist

With an economy that is a runaway train, the government prints more and more cash to try to maintain the status quo. This almost never works, and last year it even led us to publish a chart comparing Venezuelan hyperinflation with that of Weimar Germany.

According to DolarToday.com, a website that tracks the black market rate for Venezuelan currency, it takes 8,470 bolívars to buy US$1 today. Right before the oil crash this was closer to 65 bolívars.

A LOST CAUSE

While many oil dependent nations are working to diversify or ride out low oil prices in other ways, it seems unlikely that the crisis in Venezuela will be reversed anytime soon.

Here’s the full fiscal breakeven needed by OPEC producers, including Venezuela, to help normalize things:

U.S. May Halt Oil Imports From Venezuela

Authored by Irina Slav via OilPrice.com,

The Trump administration is mulling over sanctions against senior Venezuelan government officials, and additional measures could include sanctions against the country’s oil industry, such as halting imports into the U.S., according to senior Washington officials who spoke to media.

The goal of the sanctions is to prevent the Nicolas Maduro government from having things its way at a July 30 election for a Constituent Assembly that, the U.S. administration believes, would serve to cement Maduro’s power and turn Venezuela into a “full dictatorship.”

The Constitutional Assembly vote was proposed by the government as a means of tackling the political crisis that Venezuela slid into last year, after the election of a new parliament where the opposition had a majority that put it at odds with the government. A Constituent Assembly can rewrite the country’s constitution, and many observers see the move as an attempt to strengthen the current regime’s hold on power.

After months of often violent protests, the opposition has now called a 24-hour national strike after conducting an unofficial referendum that, Al Jazeera reports, suggested overwhelming opposition to the idea of voting for a Constituent Assembly and equally overwhelming support for transparent parliamentary elections.

Russian Sputnik quoted Venezuela’s Foreign Minister Samuel Moncada as saying Venezuela will reconsider its relations with the U.S. should Washington go ahead with the sanctions, which, for the time being, seem to target two senior government officials: Defense Minister Vladimir Padrino Lopez and the second most senior figure in the ruling Socialist Party, Diosdado Cabello. The allegations against them are for rights violations.

Venezuela is the third-largest oil exporter to the US, with the daily rate of imports for the week to July 7 at 823,000 barrels, according to the EIA, about 30,000 bpd less than Saudi Arabia’s daily exports to the U.S.

In 2016, Venezuelan imports accounted for 9.5 percent of total U.S. crude imports.

"All Options On Table" - US Threatens Sanctions As Venezuela's Maduro Vows To Create New Constitution

The US is weighing whether to impose sanctions on Venezuela’s defense minister and several other top officials for human-rights violations, according to Bloomberg, citing officials familiar with the government’s deliberations. They added that the action was one of several under consideration by the Trump administration against President Nicolas Maduro’s government.

Despite these and other threats from the US, the country’s embattled leadership remains defiant, vowing to proceed with plans for a controversial new congress despite what it called a "brutal interventionist" threat by Washington to impose economic sanctions, according to Reuters.

The above-mentioned comments - pushing back against what some view as the United States meddling in the affairs of a foreign power - followed the president"s threat to take "strong and swift economic actions" if Maduro goes ahead with the new body. As some have pointed out, his threats relating to Venezuela are sounding increasingly militaristic, prompting taunts from Maduro, who last month dared Trump to "send in the Marines."

A vote on whether to create the new Congress is set for July 30 – a vote that is widely expected to succeed. The legislative super-body, known as a Constituent Assembly, would help Maduro rewrite the country’s constitution, ultimately helping him consolidate his authority.

As Bloomberg noted, the US Treasury could announce the sanctions, which would freeze the handful  officials out of the US financial system, as soon as Tuesday, the people said. Among those named would be Defense Minister Vladimir Padrino Lopez, 54, and Diosdado Cabello, 54, a longtime ally of late President Hugo Chavez and power broker within the ruling Socialist party, they said.

Venezuelan President Nicolas Maduro

The move against top officials - potentially the third round of sanctions against Venezuelans under the Trump administration - are one offshoot of a broader U.S. probe into allegations of Venezuelan corruption that began several years ago and has resulted in some criminal charges. Other Venezuela-related measures are also in the works, the people said, adding that U.S. officials have given briefings on the potential actions in recent weeks to lawmakers including Senator Marco Rubio of Florida. Giving his government"s response, Foreign Minister Samuel Moncada said the July 30 vote for the legislative super-body known as a Constituent Assembly would go ahead anyway, according to Bloomberg.

Moncada say it’s “a dark day for U.S.-Venezuela relations” in a televised address.

“These are unacceptable threats” Moncada says. Venezuela will “thoroughly” review relations with US, he added.

“Nothing and no one can stop the constituent assembly.”

Maduro only narrowly won election in 2013 to replace the late Hugo Chavez.

Foreign Minister Samuel Moncada

Even Venezuela’s neighbors have voiced their opposition to the legislative body.

"The Constituent Assembly should be abandoned to achieve a negotiated, safe and peaceful solution in Venezuela. The whole world is asking for that," Colombia"s President Juan Manuel Santos tweeted.

Emerging-market investors are also worried that the country will soon run out of cash as its foreign-currency reserves have dwindled to $10 billion, begging the question: Will Venezuela repay its debt? Even leadership change wouldn’t be enough to draw some seasoned Latam investors back into the country’s capital markets.  

"We don’t want to pick up pennies in front of a steamroller. Looking at the numbers, they’ve run out of money. These guys are scraping the barrel. They had to sell ‘hunger bonds’ and do a repo transaction with Fintech Advisory Inc. That’s not a sustainable debt model."

Although the fund has no exposure to Venezuela, Robert Koenigsberger says he expects the recovery value on the nation"s bonds to eventually exceed 65 cents on the dollar. He compares it to Peruvian bonds, which traded in the low single digits in 1990, yet eventually were worth 125 cents through a consensual restructuring in 1996.

"In 30 years, I can’t recall human conditions being so bad beneath a debt stock. When President Nicolas Maduro is gone, some people think there might be a ‘Macri of Venezuela’ that will quickly solve the problem. That’s a bit crazy because the issues are so much more dire."

Maduro’s beleagured political opponents have been largely marginalized by his administration, part of the president’s clampdown on dissent amid a worsening economic collapse that has led to widespread famine as well as a breakdown in social order. In the streets of Caracas, the Venezuelan capitol, citizens have begun taking the law into their own hands. As we’ve previously reported, the number of lynchings has risen sharply over the past year. Maduro has also ratcheted up the pressure on the country’s top prosecutor, who has emerged as a top antagonist to his regime Maduro. Maduro"s opponents say they drew 7.5 million people onto the streets at the weekend to vote in a symbolic referendum where 98 percent said they disagreed with the assembly plan.

Polls show the ruling Socialist Party would likely be thrashed in any normal vote due to many Venezuelans" anger against Maduro and over their economic hardships.

And while many question the "unriggedness" of any former and potential election in Venezuela; wouldn"t this be seen by some as "meddling" in the affairs of another country? We are sure there are Congressional probes being readied right now to question the sanctity of democracy itself as the United States steps in the middle of another LatAm crisis... because they have always worked out so well in the past.

Maduro Thugs Storm Venezuela National Assembly, Beat Opposition Lawmakers, Default Risk Jumps

Venezuela celebrated 206 years of independence in a manner uniquely befitting Latin America’s socialist paradise: A gang of armed Maduro supporters broke into the National Assembly and viciously assaulted opposition lawmakers, nearly killing one.

Here’s Reuters:

“The melee, which injured seven opposition politicians, was another worrying flashpoint in a traumatic last three months for the South American OPEC nation, shaken by opposition protests against socialist President Nicolas Maduro.

Pipe-wielding government supporters burst into Venezuela"s opposition-controlled congress on Wednesday, witnesses said, attacking and besieging lawmakers in the latest flare-up of violence during a political crisis.

The melee, which injured seven opposition politicians, was another worrying flashpoint in a traumatic last three months for the South American OPEC nation, shaken by opposition protests against socialist President Nicolas Maduro.”

Mobs of anti-government protesters have been gathering daily in the streets of Caracas and other Venezuelan cities to protests Maduro’s intensifying crackdown on dissent. As is well known, government mismanagement in the country with the world"s biggest oil reserves has led to hyperinflation of over 10,000% and a total collapse in the standard of life. The country"s dire financial straits have led to widespread hunger while necessary supplies like medicine have become dangerously scarce. At least 90 people have died in the unrest since April, many of them young men, like a 22-year-old protester whose government-sanctioned murder was caught on tape.

Earlier this year, Maduro "annuled" the Assembly, stripping it of most of its legislative powers in favor of consolidating power in the hands of the executive branch.

After the July 5 "Independence Day" attack (Venezuela celebrates its independence one day after the US), National Assembly president Julio Borges said more than 350 politicians, journalists and guests to the Independence Day session were trapped in the siege that lasted until dusk. 

‘There are bullets, cars destroyed including mine, blood stains around the (congress) palace,’ he told reporters. "The violence in Venezuela has a name and surname: Nicolas Maduro."

The crowd had gathered just after dawn outside the building in downtown Caracas, chanting in favor of Maduro, witnesses said. In the late morning, several dozen people ran past the gates with pipes, sticks and stones and went on the attack. Several injured lawmakers stumbled bloodied and dazed around the assembly"s corridors. Some journalists were robbed. After the morning attack, a crowd of roughly 100 people, many dressed in red and shouting ‘Long Live The Revolution!’, trapped people inside for hours, witnesses said.”

Some in the crowd outside the legislature brandished pistols, threatened to cut water and power supplies, and played an audio of former socialist president Hugo Chavez saying "Tremble, oligarchy!" Fireworks were thrown inside. One lawmaker, Americo De Grazia, was hit on the head, fell unconscious, and was eventually taken by stretcher to an ambulance. His family later said he was out of critical condition and being stitched up.

In October 2016, Maduro quashed a recall vote organized by the assembly. Maduro, a former bus driver and chosen successor of its deceased former leader, Hugo Chavez. Venezuela"s opposition has stepped up its criticism of the dictator Maduro for seeking to solidify his control through the creation of a Constituent Assembly, a superbody that will be elected at the end of July. The opposition has promised to boycott the vote, which it (rightly) claims is being rigged.

There has been a string of clashes at the country’s assembly since the opposition thrashed Maduro’s Socialist Party in December 2015 parliamentary elections.

“In a speech during a military parade for Independence Day, Maduro condemned the "strange" violence in the assembly and asked for an investigation. But he also challenged the opposition to speak out about violence from within its ranks.

In daily protests since April, young demonstrators have frequently attacked security forces with stones, homemade mortars and Molotov cocktails, and burned property. They killed one man by dousing him in gasoline and setting him on fire.

In a statement that redefines irony, Maduro condemned the violence on the opposition that was unleashed by his own supporters.

‘I want peace for Venezuela," Maduro said. "I don"t accept violence from anyone.’”

Western officials quickly condemned the attack:

"I condemn the grotesque attack on the Venezuelan assembly,’ tweeted UK ambassador John Saville.

‘This violence, perpetrated during the celebration of Venezuela"s independence, is an assault on the democratic principles cherished by the men and women who struggled for Venezuela"s independence 206 years ago today,’ the U.S. State Department said.”

Meanwhile, Venezuela"s opposition is demanding general elections to end Maduro’s rule over the OPEC member state. Police pilot Oscar Perez, who staged a coup attempt earlier this month and somehow survived, also condemned the violence.

As previously noted, Perez had not been seen since he hijacked a helicopter last week and flew through Caracas pulling a "Freedom" banner. He reportedly opened fire and dropped grenades on the Interior Ministry and Supreme Court but nobody was injured. That attack is widely believed to have been staged to divert attention from the unrest that has brought the country to the brink of economic and political collapse.

Expect violence to worsen as the Constitutional Assembly vote - slated for later this month - draws closer.

Meanwhile, international investors, who have largely ignored the political upheavals in the socialist nation, have started to notice, and as Bloomberg reports, Venezuela"s default odds are once again sharply rising as its foreign reserves tumble toward $10 billion amid ongoing deadly anti-government protests and President Nicolas Maduro’s push to rewrite the constitution.

The implied probability of the country missing a payment over the next 12 months rose to 56 percent in June, based on the latest CDS data, the highest level since December. Implied odds of a credit event over the next five years increased to 91% last month.

Maduro, who has faced three months of violent protests that have left almost 80 dead, has drastically cut imports of food and medicine in order to conserve the cash needed to pay bondholders with declining oil prices and production. That hasn’t stopped a drop in reserves, which usually provide investors with a certain degree of assurance that the government will avoid default in the short-term. Recent deals to provide the government with liquidity have only resulted in minor spikes that have disappeared quickly.

The country faces payments on principal and interest of more than $5 billion in the remainder of the year, although no large sums are due before October. Judging by the recent moves in Venezuela CDS, the market is growing increasingly concerned that Maduro will have enough control over the country to make them.