Is Biden Preparing To Ease Restrictions On Venezuelan Oil?

In a surprise move, President Biden has withdrawn U.S. support for a Saudi-led military campaign against Houthi rebels in war-torn Yemen, describing the country's bitter civil war as a humanitarian and strategic catastrophe. The near decade long civil war, which is a prominent symbol of Riyadh and Teheran's proxy conflict for control of the Middle East, has created what the United Nation's describes as the world's worst humanitarian crisis. Saudi Arabia's grinding six-year-long offensive against Iran-backed Houthi rebels, which until Biden's foreign policy pivot was supported by the U.S., has failed to reinstall the former Yemeni government. The Houthis maintain control of Yemen's capital Sanaa and the largest port city Hodeidah, allowing them to exert control over important Red Sea shipping routes. Riyadh's military operations have only prolonged, intensified, and fragmented Yemen's civil war further magnifying the suffering of the Yemeni people. The key motivation for Riyadh's involvement in Yemen, aside from blunting Iranian influence in a country immediately bordering Saudi Arabia, is to cement control of its economically vital Red Sea shipping lanes. Biden's decision to end U.S. support for Riyadh's military operations in Yemen, because of the ceaseless human suffering they are causing, is a portent of things to come for other global crises linked to U.S. foreign policy, the most notable being oil-rich Venezuela. During his 2020 election campaign, Biden flagged that compared to the Trump administration's hard-line approach he would pursue a different policy regarding Venezuela.

Biden is expected to take a more humanitarian and diplomatic approach with a focus on targeted sanctions, especially when it is considered that there is substantial evidence indicating the previous administration's hard-line approach has failed. By the end of 2020, Maduro had taken control of the National Assembly, the last government institution not under his control, winning 256 out of 277 seats in the legislative body during the December 2020 elections. That saw opposition leader Juan Guaidó lose his position as the legislative body's leader. As a result, despite not acknowledging the legitimacy of the election, the European Union's 27 member states ceased recognizing Guaidó as Venezuela's interim president. This has significantly undermined his standing as the leader of Venezuela's opposition and internationally recognized interim president.

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Those events demonstrate that even in the face of strict U.S. sanctions, a failing economy, crumbling oil industry, and near bankruptcy, Maduro and his regime has not only survived but is thriving. Venezuela's President is softening his stance on foreign investment and offering some concessions with a new President in Washington who is reviewing U.S. sanctions against the oil-rich Latin American nation. Clearly, Maduro's hope is that sanctions will be eased and Venezuela's ability to access economically vital international energy and capital markets will be, at least, partially restored. There is speculation that Biden will show flexibility toward Venezuela, ease some sanctions and potentially even reinstate crude-for-diesel swaps by non-U.S. companies. That last point is especially important because of Venezuela's dependence on diesel for vital public transport and agriculture as well as a fuel for back-up generators used by critical infrastructure during the country's frequent blackouts. While there are signs that Biden will seek a more diplomatic and humanitarian approach to Venezuela, the U.S. State Department has said the President is not expected to engage directly with the Maduro regime.

It is the catastrophic shortage of gasoline and diesel, caused in part by harsh U.S. sanctions, which has been a key element responsible for accelerating Venezuela's economic collapse, imposing additional hunger and hardship on Venezuelans. Strict U.S. sanctions have also made it almost impossible for targeted aid to reach poverty-stricken Venezuelans while strengthening the illicit economy, which has been a key source of fiscal revenue for the Maduro regime. The rapid growth of Venezuela's illicit economy has not only provided Caracas with an important financial lifeline, which has cemented Maduro's grip on power but created an ideal environment for corruption and organized crime. There has been a sharp increase in what oil industry insiders call dark voyages where tankers carrying Venezuelan crude oil turn off their transponders making them difficult to identify. Through necessity, this and other smuggling techniques have flourished. While these strategies have been developed to skirt U.S. sanctions to facilitate the transport and sale of crude oil while gaining access to capital and payments for petroleum cargoes, they can be easily applied to other goods such as arms and narcotics. When combined with a weak state, which is struggling to control its geographic territory outside of the major cities and gravely dilapidated government institutions, it creates a haven for non-state actors seeking to engage in illicit activities. As a result, the Lebanese political party, militant group, Iranian ally, and U.S. designated terrorist organization Hezbollah has established a large network in Venezuela. The petroleum-rich Latin American nation, since Hugo Chavez's ascension to power, has become an important regional base of operations for the Shiite militant group. Hezbollah is engaged in a wide range of illegal activities in Latin America, including narco-trafficking, money laundering, arms smuggling, and other illicit transnational undertakings. Venezuela is also a safe haven for Colombia's dissident FARC and ELN guerillas, further adding to its destabilizing effect in an already volatile region. Those developments are the reason for a sharp spike in the volume of cocaine, sourced from neighboring Colombia the world's largest producer, being shipped from Venezuela to the U.S. and Europe. The lack of a U.S. diplomatic presence in Venezuela, with an online diplomatic post operating from the U.S. embassy in Bogota, is impeding Washington's ability to monitor events and blunt the influence of undesirable non-state groups and nations.

These issues highlight the challenges ahead for Biden's administration and the need for a viable solution to curtail the activities of illicit non-state actors and undesirable nation states operating in Venezuela, while visibly reducing the suffering of the population. Biden's pivot on U.S. support for a key Middle East ally Saudi Arabia and its military offensive in Yemen, because of humanitarian concerns, indicates that U.S. policy toward Venezuela will change. The pressing urgency with which this needs to occur is reinforced by the suffering of the Venezuelan people, the failure of U.S. sanctions to spark regime change, Maduro's growing grip on power, and flourishing criminal enterprises in the vacuum created by a near-failed state.

By Matthew Smith for Oilprice.com 

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