By Zach Dyar
Historical Context & Current U.S. Policy
Despite the media’s recent portrayal of Venezuela as a country rife with human suffering and political instability, the nation was once one of the richest in South America. For nearly a century, Venezuela was one of the world’s top producers of oil— an industry that supported both a large portion of the economy and a generous government safety net. However, a combination of underinvestment in production, low oil prices, and government mismanagement caused a sharp decline in the Venezuelan oil industry in the early 2010s. Amidst rising inflation and falling oil exports, the new regime of Nicolás Maduro brutally stifled anti-government protests in 2014, arresting thousands of opposition members (Duddy 2). These human rights violations caught the attention of the international community, prompting the U.S. to impose financial sanctions in 2015 on any individual inhibiting democratic practices (Congressional Research Service). As the political repression worsened, the Trump administration doubled down on the goal of regime change with the doctrine of “maximum pressure,” imposing sweeping sanctions in 2017 that barred Venezuela from U.S. financial markets (ibid). Additionally, in 2018 the U.S. blocked the purchase of Venezuelan e-currency and debt, and in 2019, the Trump administration crippled Venezuela’s oil industry by prohibiting transactions with PdVSA, the state-owned oil company that accounts for a large portion of oil exports (ibid). As Venezuela’s economic troubles worsened, the country entered a political crisis. In 2019, opposition leader Juan Guiado established an independent National Assembly, fracturing the government and making legislating nearly impossible.
Amidst the compounding crises of the past decade, the quality of life in Venezuela has been greatly reduced by nearly every metric. Paralyzed political institutions have prevented economic recovery, causing poverty to rise sharply over the past decade as GDP per capita has decreased from $14,484 in 2016 to a meager $5,259 in 2020. (Global Nutrition Report). Additionally, the health of the Venezuelan people has suffered as the percent of undernourished Venezuelans growing from 2.5% in 2011 to 31.4% in 2018 (ibid).
Figure 1: Undernourishment and Poverty in Venezuela (Global Nutrition Report)
Thus, given the lack of political change after four years of maximum pressure and deteriorating humanitarian conditions, U.S. policymakers must reassess sanctions. It’s crucial that in their decision calculus, policymakers evaluate both the potential of sanctions to cause political change and the humanitarian tradeoffs that hurt the Venezuelan people sanctions were intended to aid.
Sanctions Worsen the Political and Economic Crisis
The most common justification for sanctions is that they force elites to make concessions, but in the case of Venezuela, sanctions have created inadequate pressure to force Maduro to the bargaining table and have increased Maduro’s public support. The most immediate problem with sanctions is that other actors can dodge them through trade backchannels, undermining their efficacy. Indeed, last year, investigative reporting revealed that China received shipments totaling 19.7 million barrels of rebranded Venezuelan oil— likely only a fraction of all covert shipments (Cohen & Parraga). Additionally, the Venezuelan elites that sanctions were intended to turn into defectors can dodge targeted sanctions by hiding their money in plain sight. Due to the economic crisis that began in 2014, wealthy Venezuelans in Maduro’s inner circle, already invested their money outside the Venezuelan market, including 7,000 properties in Madrid, meaning sanctions failed to target their wealth (Aponte-Moreno). Not only are sanctions ineffective at pressuring Maduro, but they also increase his public support by increasing anti-American sentiment. This “rallying around the flag” was likely why after a fresh round of sanctions in 2017, Maduro’s approval rating rose by 6% (Reuter’s Staff).
Figure 2: Association Between Oil Exports and Public Imports (Oliveros 11)
However, the much more pressing problem with sanctions is their hefty humanitarian price tag. Current sanctions have unintended effects on civilian mortality due to two unique characteristics of the Venezuelan economy. First, the oil revenue cut off by U.S. sanctions has a trickle-down effect on the most vulnerable Venezuelans. Sanctions devastated the Venezuelan oil market— exports of crude oil to the U.S. fell from 586,000 to 71,000 barrels a day after Venezuela was cut off from the U.S. market (Weisbrot & Sachs 10). While some of these oil exports are used to bribe Maduro’s inner circle, most of the oil revenue funds a broad social safety net including food import programs (Oliveros 10). Additionally, sanctions adversely affected mortality by cutting off imports of medicine. Despite exemptions for medical imports, many banks err on the side of caution and have elected to not lend to Venezuelans at all (Weisbrot & Sachs 13). Given that imports account for 90% of all pharmaceuticals and 75% of Venezuelan food, and total public sector imports fell by 42% in 2019 and another 50% in 2020 after sanctions, the over-compliance of banks is causing a supply crisis (Oliveros 7-8).
Ultimately, sanction’s humanitarian consequences in Venezuela have contributed to an estimated 40,000 annual deaths, with 300,000 more Venezuelans running dangerously low on necessities (Weisbrot & Sachs 4). Given sanctions failure to oust Maduro and their growing humanitarian cost, the U.S must re-evaluate its approach.
Alternative U.S. Policies
Although sanctions are failing to achieve their intended goals and have disastrous humanitarian consequences, it isn’t feasible for a U.S. executive to simply remove them without a valid policy replacement. From a purely political lens, it would be a major electoral blow for any presidential administration to abandon the goal of regime change. In many key electoral states, including Florida, there are millions of Cuban, Columbian, and Venezuelan voters who favor hardline policies against Maduro— a strategy Trump pursued to win Florida in 2020 (Groppe & Shesgreen). Thus, U.S. politicians cannot feasibly remove sanctions without a replacement or evidence of significant success.
The most obvious alternative to current policy is renewed negotiations with the Maduro regime with the hopes of either implementing fair elections or gradually reforming Venezuela’s political and economic institutions. This option is appealing given that Maduro left the negotiating table in Barbados in 2019 after being hit with a new round of sanctions, vowing to only make concessions in exchange for a relaxation of sanctions (Kurmanaev). While putting the option of easing sanctions on the table might increase the probability of successful negotiations, it’s unlikely to happen in the status quo. The Biden administration indicated in February that they would not negotiate with Maduro and would only communicate with opposition leader Juan Guaidó (Sesin).
Additionally, the U.S. could increase funding of its foreign aid programs to help ease the humanitarian suffering of the Venezuelan people. One problem with direct aid, even through NGOs such as the Red Cross, is that the Maduro regime has previously rejected aid from the U.S. and Western NGOs’ at the border. However, if given political cover, Maduro may be more willing to accept aid, especially from international sources.
Recommendations for Future Policy
The goals of U.S. foreign policy— structural political change and reducing repression in Venezuela— are both noble and achievable. However, current policies that focus solely on sanctions and escalating pressure on the Maduro regime are failing to achieve these goals and having deleterious effects on the most vulnerable Venezuelans. The Biden administration should use its relatively clean foreign policy slate to reshape Venezuela policy in three stages: first, increase aid to combat the humanitarian crisis; second, return to direct negotiations with the Maduro regime where sanctions can be relaxed in exchange for political reform, and third, pressure Venezuela to alter its economic institutions that promote corruption and mismanagement.
First and foremost, the Biden administration must address the humanitarian crisis that U.S. sanctions have been partially responsible for. While a food-for-oil program appears appealing at first glance, problems with potential corruption mean that direct aid is the most feasible option. The U.S. could funnel key supplies to Venezuela either directly through the USAID program, or by using its influence in international programs like the World Food Program to increase existing flows of humanitarian aid into Venezuela. The latter option is attractive given that the Maduro regime seems to be increasingly open to accepting international aid amid the pandemic, such as a recent agreement with the Pan American Health Organization (Human Rights Watch).
As the U.S. aids the Venezuelan people hurt by the economic fallout from sanctions, the Biden administration should reverse its policy of non-negotiation and be willing to relax sanctions in exchange for political reforms. Given their disastrous humanitarian impacts, the U.S. should remove the broad sanctions on the Venezuelan oil and financial markets in the long run. But in the interim, sanctions serve as a key bargaining chip that Maduro places a premium on, meaning that removing them for nothing in exchange would waste a key source of leverage that can be used to achieve long-term change in Venezuela. Thus, the U.S. must abandon the strategy of ousting Maduro through economic pressure and instead use sanctions as diplomatic leverage.
This change in mindset from viewing sanctions as a tool to force out Maduro to framing them as a bargaining chip is key, as the U.S. has previously relied on Maduro making reforms before the U.S. commits to relaxing sanctions. The U.S. has been expecting concessions while giving up nothing in return— a strategy which has failed given Maduro’s ability to dodge sanctions and keep himself afloat. Rather than hoping Maduro caves first, the U.S. must simultaneously exchange a relaxing of sanctions for political reforms. The primary political concessions the U.S. should seek are an agreement between Maduro and his political opposition about how to structure an interim government and a long-term goal of free elections with U.N. election monitors. Any outcome must distribute legislative power so that both factions are seen as politically legitimate and ensure both the military and the opposition can support the regime.
Additionally, the U.S. should also seek reforms of the economic policies that enable Maduro’s corruption and mismanagement and set the stage for the humanitarian crisis. The primary way the U.S. should accomplish this is by disentangling the Venezuelan government from the oil sector and privatizing the industry. While Maduro may be hesitant to accept this deal, privatization in exchange for removing sanctions may be seen as a net neutral for Maduro’s power given sanctions’ effect on the oil industry. Either with sanctions or privatization, Maduro knows he will lose a large portion of oil revenues, but he may see privatization as a small price to pay for restoring access to international markets to bolster the wider Venezuelan economy that has collapsed under his leadership. Consequently, privatization would both decrease corruption by cutting off Maduro’s slush fund of oil revenues from PdVSA and reduce the mismanagement of Venezuela’s oil industry by ensuring Maduro doesn’t misallocate resources for his benefit. The combination of access to international markets and decreased mismanagement in a post-sanction world would allow Venezuela to harness its natural resources to revitalize its economy, alleviating the humanitarian crisis.
Conclusion
The Biden administration has pursued foreign policy far different than their predecessors, and ought to similarly alter its Venezuela policy. Passing up the opportunity to change the trajectory of current sanctions would only cement Maduro’s corrupt, autocratic regime and compound the pain sanctions have inflicted on the most vulnerable Venezuelans. Years of strong-arming have failed. The U.S. must return to the negotiating table and broker a deal that alleviates human suffering and meaningfully reforms institutions to return to stability and economic prosperity to Venezuela.
Bibliography
Aponte-Moreno, Marco, 5 reasons Trump’s Venezuela embargo won’t end the Maduro regime, Business Insider, August 7th, 2019.
Cohen, Luc & Parraga, Marianna, Special Report: How China got shipments of Venezuelan oil despite U.S. sanctions, Reuters, June 12th, 2020.
Country Nutrition Profiles: Venezuela, Global Nutrition Report 2020, 2020.
Duddy, Patrick, Political Crisis in Venezuela, Council on Foreign Relations, 2015.
Groppe, Maureen & Shesgreen, Deirdre, Trump’s Venezuela policy is also good 2020 politics in key state of Florida, USA Today, February 1st, 2019.
Kurmanaev, Anatoly, Venezuela’s Leader Suspends Talks With Opposition, The New York Times, August 8th, 2019.
Oliveros, Luis, The Impact of Financial and Oil Sanctions on the Venezuelan Economy, Washington Office on Latin America (WOLA), October 2020, pp 7-11.
Reuter’s Staff, Venezuela’s Maduro approval rises to 23 percent after Trump sanctions: poll, Reuters, October 2nd, 2017.
Sesin, Carmen, Biden administration won’t be negotiating with Venezuela’s Maduro, keeping hard-line approach, NBC News, February 4th, 2021.
Weisbrot, Mark & Sachs, Jeffrey, Economic Sanctions as Collective Punishment: The Case of Venezuela, Center for Economic and Policy Research, April 2019.
Venezuela: Deal to Distribute Aid through UN, Human Rights Watch, June 2020.
Venezuela: Overview of U.S. Sanctions, Congressional Research Service, January 21, 2021, published by the Federation of American Scientists.