Removal of sanctions on Venezuela should have an immediate impact on oil prices

Caracas.- The recent visit of officials from the Administration of the President of the United States, Joe Biden, to Venezuela was encouraging due to the possibility of a relaxation of the sanctions once morest that country.

The United States is one of the largest employers of sanctions; its use dates from colonial times, when Americans felt that British merchants were so dependent on their business in the United States that formal or other embargoes would increase political pressure on the Crown to relent or at least compromise with the United States. settler demands. Needless to say, it didn’t work.

In fact, few politicians who advocate sanctions seem to be aware that they have rarely proven effective in achieving their goals, although they are often more interested in faking it than achieving anything concrete. (Shocking, I know.), Forbes magazine highlights in the article written by Michael Lynch.

The academic literature clearly demonstrates that sanctions work when:

a) the target is much weaker than the sanctioning country and b) the demands are limited, and especially do not threaten the survival of the target regime.

Richard Nephew’s new book, The Art of Sanctions, explains that good sanctions require clear goals and an exit ramp or clear pathway for the goal to meet demands.

Such was not the case with the recent sanctions once morest the Venezuelan government that impoverished the country but left the ruling class largely intact (…).

Ending sanctions might easily add another million barrels per day of oil supply in the space of perhaps six months. Chevron has been quoted as saying it might quickly add 800 tb/d of supply, and there are certainly others who can contribute smaller volumes.

An influx of condensate to mix with heavy crude, but also engineers to do long neglected well maintenance, would add hundreds of thousands of barrels per day, gradually but building up.

The following figure shows the history of Venezuelan production, which first declined in the 1970s and 1980s as a result of the weakness of the world oil market and the transition from foreign oil operators to the national oil company, Petróleos de Venezuela (PDVSA). ).

Under Luis Giusti, the ‘opening up’ policy of the 1990s saw a rapid recovery in production, in part from heavy oil projects financed by major oil companies (Chevron was one), but also from leasing old fields. ‘marginal’ whose production had been reduced to private hands.

Oil companies that remodeled them, adding around 600 tb/d of production (no new discoveries). This should be a beacon not only for the current government in Caracas, but also for others like the one in Mexico, which is trying to revive production by replacing private companies with more investment in the national oil company.

The removal of sanctions on Venezuela will not solve the current energy crisis, but the prospect of increased supply later this year should have an immediate impact on oil prices, which would be beneficial for the global economy and energy consumers. everywhere. (Not so good for the oil industry, of course.)

The health and well-being of the Venezuelan population would benefit greatly and should naturally be the main objective, and perhaps this will ultimately result in more pressure for reform. Even if that doesn’t happen, removing sanctions will be a win (for consumers)-winner (for the Venezuelan population) and should be promoted by the Biden Administration for those reasons alone.