Are U.S. Sanctions on Venezuela Effective?
For over a decade, the United States has imposed sanctions on Venezuela. Recently, the Trump administration has significantly expanded sanctions in response to the authoritarian leadership of Nicolás Maduro. Trump’s executive order, signed in August of 2019, was intended to escalate his campaign to remove Maduro from office and cited “the continued usurpation of power” by Maduro in addition to “human rights abuses, including arbitrary or unlawful arrest and detention of Venezuelan citizens, interference with freedom of expression, including for members of the media, and ongoing attempts to undermine Interim President Juan Guaidó and the Venezuelan National Assembly’s exercise of legitimate authority in Venezuela.”
As of August 20, the Treasury Department has imposed sanctions on more than 150 Venezuelan individuals and the State Department has revoked the visas of more than 1,000 individuals and their families. The Trump administration has also imposed sanctions on Venezuela’s state-run oil company, the government, and the central bank. Sanctions have dramatically elevated the economic pressure on the Maduro government, prompting a sharp decline in oil revenues with exports dropping 40 percent after just one month of U.S. sanctions. Nevertheless, Maduro remains in power a year and a half since the United States ceased to recognize his presidency. The Trump administration has promised continued support to Juan Guaidó, who is recognized as the interim president by the United States and 57 other governments. In light of the apparent ineffectiveness of U.S. sanctions in ousting Maduro, critics have called for ending them. However, the U.S. sanctions on Venezuela may be more effective than we realize.
Venezuela’s economy is completely dependent on oil revenue and unfortunately for them, Venezuela’s number one customer just happens to be the United States. Reuters reports that oil accounts for more than 90 percent of Venezuela’s government revenue, 95 percent of their export revenue, and 25 percent of their GDP. Unsurprisingly, Venezuela’s monthly export revenue dropped from $5.3 billion to just under $250 million after U.S. sanctions. Critics of U.S. sanctions stress their ineffectiveness, often mentioning the failure of the Cuban embargo to oust Castro and the consequences that the targeted countries’ populations face as a result of heavily depleted government revenues. They imply that with lower revenues, the government would be forced to neglect its people and fail to provide critical resources like food, water, and medicine. What critics fail to realize is that sanctions were implemented to remove an authoritarian dictator that is destroying Venezuela; one that continuously refuses to accept aid from the United States, claiming that it’s simply an attempt to gain power over his country. In fact, in 2019, Maduro had a truck full of supplies such as food, water, and medicine from the United States destroyed in a show of resistance.
Reversing sanctions against Maduro and giving the regime access to oil revenues will not fix the humanitarian crisis for one key reason: corruption. Maduro’s regime has neglected to provide food and medicine to the Venezuelan people. Instead, they have directly profited from these revenues by funding illicit projects and buying the loyalty of military officials. Sanctions, specifically those expanded under the Trump administration to Maduro’s inner circle, are designed to choke off these earnings, weakening Maduro’s grasp on power; therefore, accelerating the restoration of democracy. Granting financial access to Maduro only serves to exacerbate the situation and undermine calls for free and fair elections as now he feels the need to maximize his influence.
Maintaining sanctions may also have another unforeseen upside: breaking Venezuela free from the oil curse and forcing them to diversify their economy. In fact, economists have observed that countries rich in natural resources, especially oil, tend to do very poorly. In a 1995 study, Jeffrey Sachs of Columbia University showed that the resource-rich grow more slowly than other poor countries—even after such variables as initial per capita income and trade policies are taken into account. This is due to a multitude of reasons, one of which is the oil market’s volatility that has been increasing since the 1990s and essentially collapses oil-dependent economies due to the constant fluctuation of the market. As The Economist puts it, “when a country strikes hydrocarbons (chemical compounds for crude oil), a sudden inflow of dollar-denominated revenues often leads to a sharp appreciation in the domestic currency. That tends to make non-oil sectors like agriculture and manufacturing less competitive on world markets, thus leaving oil to dominate the economy.”
We see this exact development in Venezuela with the state-run oil company subsidizing the vast majority of export revenues. Before sanctions, Venezuela’s oil sector was also heavily mismanaged, another testament to the corrupt regime as well as the dangers of a natural resource specialized economy. Even during the golden age of oil, roughly 2004 to 2014, Venezuela’s oil production fell by 24 percent between 2005 and 2016, which CSIS explains was due to the consequent underinvestment in and mismanagement of the sector. Because of this mismanagement, Venezuela likely would’ve never been able to recover the oil economy anyway, and fortunately, U.S. sanctions depleting the oil sector have actually forced Venezuela to expand other sectors of the economy, which provides for a superior and more sustainable economy in the long term.
While sanctions may not have ousted Maduro yet, the impact they’ve had on his power and influence has certainly been felt within the region. Venezuela is closely aligned with several left-wing extremist groups in Colombia, notably the FARC and ELN groups that have been at war with the government of Colombia for years. Venezuela has been identified as a “vital base of operations” and a close ally of rebel groups through strategic and military support.
Much of the weapons stockpile of the FARC comes from the budgets of ideological allies in South America, but most significantly, from Venezuela. In fact, Venezuela has been supporting these rebel groups because their alliance with Colombia’s rebels offers benefits such as strengthening its negotiating hand by enabling it to make credible threats to destabilize Colombia, ultimately allowing them to strengthen their leverage in the region and maintain power. Venezuela has been conducting military exercises on the border of Colombia, which has only furthered tensions between the countries.
U.S. economic sanctions reduce the Venezuelan government’s ability to support these extremist groups in two ways. The first is removing financial ability through crippling their oil revenues, limiting their ability to fund Colombian rebels. The second is discouraging officials through specifically sanctioning Venezuelan officials for colluding with rebel groups. Without sanctions, officials are emboldened as they face virtually no consequences for their actions. Ending sanctions on Venezuela would inflame relations with Colombia since Colombia has already proven they’re willing to take serious action against FARC, including entering the Ecuadorian Territory in 2008 to combat them. Without sanctions, Maduro’s regime would only use their funds to further inflame Colombia which would potentially escalate tensions to the point of war, possibly kill thousands, displace millions, and likely destabilize the region for decades.
While the impact of sanctions may not be effective in directly removing Maduro, crippling his revenues, and ultimately deterring corrupt spending is key to long term change in Venezuela.