Up until now – pace Ken Livingstone – any sanctions upon Venezuela have been, at the economy level, entirely trivial. They’ve been about trying to make sure the leading kleptomaniacs at the top don’t get to enjoy their ill-gotten wealth, no more. This is now changing as the new American sanctions become clearer.
For it isn’t just that US citizens and organisations should not buy Venezuelan oil without putting the payment into escrow. It’s that anyone using the American payments and banking system should do so. And that means just about everyone. Not because everyone does bank through America, nor in dollars, but every bank that anyone might want to use does and therefore they’ll not start facilitating the transactions.
U.S. sanctions will sharply limit oil transactions between Venezuela and other countries and are similar to but slightly less extensive than those imposed on Iran last year, experts said on Friday after looking at details posted by the Treasury Department. Treasury’s notice makes more explicit that the sanctions restrict foreign entities from doing business with Venezuela using the U.S. financial system or U.S. brokers after April. With most oil transactions conducted in dollars, that is expected to sharply curtail off Venezuela’s efforts to seek buyers around the world. U.S. officials imposed sanctions on state-owned Petroleos de Venezuela, or PDVSA, this week, seeking to cut off President Nicolas Maduro’s primary source of foreign revenues.
It’s not the use of dollars there that’s the problem. Easy enough to *pay* for oil in euros, gold, rubles, whatever. Sure, the price is in dollars but that’s a liquid currency and it’s just not a problem, not even really a hassle, to change the currency of payment.
But it’s this that is a problem:
“If a supplier can do so without using the U.S. financial system, then they are not in breach of anything. But find me any market participant that does not,” said an executive at a major trading house.
You can pay, in euros, for the oil. Sure. But that’s not quite how the American reach works. For in other cases the US has pointed out to those with American banking operations that a banking licence is a fragile thing. It could be lost as a result of a regulatory review. So, even though you’re entirely obeying the law, sure you are, we’d really rather prefer you didn’t allow these non-Americans to buy Venezuelan oil in a non-American currency.
And it’s that which is the killer. Not being able to use the dollar? OK. Not being able to use the US banking system? Fine! Not being able to use an international bank which as an American banking operation? Ahh, now, who’s left?
There’s also that interesting technical point, which is that Venezuela’s very heavy crude requires a certain set up at the refinery. Which only the American refineries have the spare capacity to handle. There just isn’t the space in any other refinery which can take it. And the American refineries can only now take it if the money doesn’t go to Maduro.
These sanctions really are going to have substantial effect. Thankfully, as it’s about time that Venezuela was free again.