The United States is going after Venezuela's state-run energy company. On Aug. 25, the White House directed the Treasury Department to ban U.S. individuals and companies from financial transactions that create new debt with the Venezuelan government or Venezuelan state energy company Petroleos de Venezuela (PDVSA). This new U.S. measure increases pressure on Venezuela to discourage the ruling United Socialist Party of Venezuela (PSUV) from fashioning the country into a one-party state.
The PSUV currently rules through a National Constituent Assembly, which is acting to rewrite the constitution in the ruling party's favor. The prohibitions on new debt transactions are the United States' strongest measure against Caracas to date. The measure is far more serious than previous sanctions placed on individual Venezuelan political elites and has the capacity to harm Venezuela's ability to find reliable funding long term.
The sanctions left PDVSA's U.S. subsidiary Citgo — which refines and markets Venezuelan oil in the United States — untouched. But PDVSA now cannot rely on new debt in the form of bonds, which will further complicate the cash-strapped company's ability to fund its operations. The White House's measure may accelerate Venezuela's path toward financial default. After all, if PDVSA is shut off from U.S. debt markets and faces increasing reluctance to do business from financial institutions elsewhere, Venezuela may move steadily toward debt default to alleviate PDVSA's immediate cash flow problems.
However, a default would come with its own set of problems, including the loss of services firms that help produce oil and natural gas. That would cause a decline in oil production, Venezuela's main source of foreign revenue, which would in turn rapidly lead to a decline in food imports. Venezuela would probably also be forced to give up assets to creditors seeking repayment. For now, PDVSA can still search for support elsewhere, possibly in the form of loans from the Chinese government or Russian oil firms with a stake in the country, such as Rosneft. The inability to issue debt in the United States will quickly complicate Venezuela's ability to reliably obtain funding and will force Caracas to rely on individual deals with companies and governments.
The U.S. government's newest sanctions could cause the PSUV to reconsider its path forward, but hardline PSUV officials who see the constituent assembly as their last available option for remaining in power are unlikely to change course quickly. Meanwhile, Venezuelan resistance groups — made up of former PSUV military, political, and intelligence officials — have not yet proved themselves an existential threat to the government. Moving forward, the most critical factors to watch will be the potential for further splits in the government and action against the state by low and mid-ranking military officers.
