US oil sanctions take effect on Venezuela as crisis intensifies

Some 2.7 million Venezuelans have fled since 2015 faced with shortage of basic goods and medicine, according to UN figures. (File/AFP)
Updated 28 April 2019
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US oil sanctions take effect on Venezuela as crisis intensifies

  • Energy-hungry India was the third-biggest buyer of Venezuelan oil in 2017 after the United States and China
  • The sanctions take effect just as global oil markets are trending higher

WASHINGTON: US sanctions came into effect Sunday to block Venezuela’s economic lifeline of oil exports, in what Washington hopes will be a major blow in its fledgling campaign to topple leftist President Nicolas Maduro.
As of 12:01 am Washington time (0401 GMT), the United States will take action against anyone who deals with state-owned Petroleos de Venezuela, or PDVSA, or any entity in which the company holds at least a 50 percent stake.
It is among a volley of steps by President Donald Trump’s administration to oust Maduro and install opposition leader Juan Guaido, who is recognized by more than 50 countries, including most in Latin America.
Just Friday, the Trump administration said it would block any US assets of Foreign Minister Jorge Arreaza, confirming it has no desire to negotiate with Maduro, a socialist firebrand who presides over a crumbling economy but has withstood three months of intense pressure.
Until the crisis, Venezuela exported 500,00 barrels a day to the United States, its largest customer, with PDVSA omnipresent, if not highly visible, through ownership of the Citgo refining and gas station chain.
The United States has already moved to put Citgo under the control of Guaido, who appointed his own board.
Even though sanctions legally came into force Sunday, “the reality is that the oil trade between the United States and Venezuela has been absolutely limited and fallen sharply,” said Mariano de Alba, a Washington-based international law expert from Venezuela.
But the sanctions will still have an effect, with Washington vowing to enforce them against any foreign company with interactions in the United States — including the US financial system, which dominates the globe.
As of Sunday, “there is no doubt that the sanctions are in force and that any company assumes bigger risks than they did before this date,” de Alba said.

Energy-hungry India was the third-biggest buyer of Venezuelan oil in 2017 after the United States and China and until recently had been a major source of cash.
But Indian companies have backed off in the face of US sanctions, making China and Russia the crucial economic and political backers of Maduro — whose re-election last year was widely criticized for irregularities.
The sanctions take effect just as global oil markets are trending higher after the United States similarly demanded that all countries, notably India and China, stop buying oil from Iran.
Oil is the blood of Venezuela’s crippled economy, accounting for 96 percent of exports.
The country nonetheless is facing a major economic crisis, with projections that inflation could soar to a mind-boggling 10 million percent this year.
Some 2.7 million Venezuelans have fled since 2015 faced with shortage of basic goods and medicine, according to UN figures.
One immediate problem for Venezuela is not its exports but its imports. It used to rely on 120,000 barrels of light crude each day from the United States to blend with its heavier oil. It will need to turn to other suppliers to sell its own crude, increasing production costs.
US-based consultancy Rapidan Energy Group says PDVSA’s production could temporarily fall by 200,000 barrels a day.
It would be a stunning further reduction for PDVSA which pumped 3.2 million a day in 2008, a figure that had nosedived to just 840,000 in March.

The United States has wasted no opportunity to blame Maduro and his late predecessor Hugo Chavez for Venezuela’s economic woes — with Trump also trying to link their socialism to his Democratic foes at home.
Elliott Abrams, the US envoy leading the effort to oust Maduro, promised that “tens of billions of dollars” will flow into Venezuela to rebuild its economy.
“That recovery can only start when there is a fully inclusive government that represents all Venezuelans,” Abrams said Thursday.
But a study by two prominent left-leaning US economists, Mark Weisbrot and Jeffrey Sachs, warned that the growing sanctions will “vastly” harm ordinary Venezuelans.
The study, released by the Center for Economic and Policy Research, found that Venezuela recorded more than 40,000 additional deaths between 2017 and 2018 as they blamed sanctions for shortages of food and medicine.
“American sanctions are deliberately aiming to wreck Venezuela’s economy and thereby lead to regime change,” Sachs said.
“It’s a fruitless, heartless, illegal and failed policy, causing grave harm to the Venezuelan people.”


Gulf of Oman tanker attacks jolt oil-import dependent Asia

Updated 15 June 2019
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Gulf of Oman tanker attacks jolt oil-import dependent Asia

  • Iranian threats to close the Strait of Hormuz have alarmed Japan, China and South Korea
  • Japan’s conservative prime minister, Shinzo Abe, was in Tehran when the attack happened

SEOUL: The blasts detonated far from the bustling megacities of Asia, but the attack this week on two tankers in the strategic Strait of Hormuz hits at the heart of the region’s oil import-dependent economies.

While the violence only directly jolted two countries in the region — one of the targeted ships was operated by a Tokyo-based company, a nearby South Korean-operated vessel helped rescue sailors — it will unnerve major economies throughout Asia.

Officials, analysts and media commentators on Friday hammered home the importance of the Strait of Hormuz for Asia, calling it a crucial lifeline, and there was deep interest in more details about the still-sketchy attack and what the US and Iran would do in the aftermath.

In the end, whether Asia shrugs it off, as some analysts predict, or its economies shudder as a result, the attack highlights the widespread worries over an extreme reliance on a single strip of water for the oil that fuels much of the region’s shared progress.

Here is a look at how Asia is handling rising tensions in a faraway but economically crucial area, compiled by AP reporters from around the world:

WHY ASIA WORRIES

The oil, of course.

Japan, South Korea and China don’t have enough of it; the Middle East does, and much of it flows through the narrow Strait of Hormuz, which is the passage between the Arabian Gulf and the Gulf of Oman.

This could make Asia vulnerable to supply disruptions from US-Iran tensions or violence in the strait.

The attack comes months after Iran threatened to shut down the Strait of Hormuz to retaliate against US economic sanctions, which tightened in April when  the Trump administration decided to end sanctions exemptions for the five biggest importers of Iranian oil, which included China and US allies South Korea and Japan.

Japan is the world’s fourth-largest consumer of oil — after the US, China and India — and relies on the Middle East for 80 per cent of its crude oil supply. The 2011 Fukushima nuclear disaster led to a dramatic reduction in Japanese nuclear power generation and increased imports of natural gas, crude oil, fuel oil and coal.

In an effort to comply with Washington, Japan says it no longer imports oil from Iran. Officials also say Japanese oil companies are abiding by the embargo because they don’t want to be sanctioned. But Japan still gets oil from other Middle East nations using the Strait of Hormuz for transport.

South Korea, the world’s fifth largest importer of crude oil, also depends on the Middle East for the vast majority of its supplies.

Last month, South Korea halted its Iranian oil imports as its waivers from US sanctions on Teheran expired, and it has reportedly tried to increase oil imports from other countries.

China, the world’s largest importer of Iranian oil, “understands its growth model is vulnerable to a lack of energy sovereignty,” according to market analyst Kyle Rodda of IG, an online trading provider, and has been working over the last several years to diversify its suppliers. That includes looking to Southeast Asia and, increasingly, some oil-producing nations in Africa.

THE GEOGRAPHY AND THE POLITICS

Asia and the Middle East are linked by a flow of oil, much of it coming by sea and dependent on the Strait of Hormuz.

Iran threatened to close the strait in April. It also appears poised to break a 2015 nuclear deal with world powers, an accord that US President Donald Trump withdrew from last year. Under the deal saw Tehran agree to limit its enrichment of uranium in exchange for the lifting of crippling sanctions.

For both Japan and South Korea, there is extreme political unease to go along with the economic worries stirred by the violence in the strait.

Both nations want to nurture their relationship with Washington, a major trading partner and military protector. But they also need to keep their economies humming, which requires an easing of tension between Washington and Tehran.

Japan’s conservative prime minister, Shinzo Abe, was in Tehran, looking to do just that when the attack happened.

His limitations in settling the simmering animosity, however, were highlighted by both the timing of the attack and a comment by Iranian Supreme Leader Ayatollah Ali Khamenei, who told Abe that he had nothing to say to Trump.

In Japan, the world’s third largest economy, the tanker attack was front-page news.

The Nikkei newspaper, Japan’s major business daily, said that if mines are planted in the Strait of Hormuz, “oil trade will be paralyzed.” The Tokyo Shimbun newspaper called the Strait of Hormuz Japan’s “lifeline.”

Although the Japanese economy and industry minister has said there will be no immediate effect on stable energy supplies, the Tokyo Shimbun noted “a possibility that Japanese people’s lives will be affected.”

South Korea, worried about Middle East instability, has worked to diversify its crude sources since the energy crises of the 1970s and 1980s.

THE FUTURE

Analysts said it’s highly unlikely that Iran would follow through on its threat to close the strait. That’s because a closure could also disrupt Iran’s exports to China, which has been working with Russia to build pipelines and other infrastructure that would transport oil and gas into China.

For Japan, the attack in the Strait of Hormuz does not represent an imminent threat to Tokyo’s oil supply, said Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics.

“Our sense is that it’s not a crisis yet,” he said of the tensions.

Seoul, meanwhile, will likely be able to withstand a modest jump in oil prices unless there’s a full-blown military confrontation, Seo Sang-young, an analyst from Seoul-based Kiwoom Securities, said.

“The rise in crude prices could hurt areas like the airlines, chemicals and shipping, but it could also actually benefit some businesses, such as energy companies (including refineries) that produce and export fuel products like gasoline,” said Seo, pointing to the diversity of South Korea’s industrial lineup. South Korea’s shipbuilding industry could also benefit as the rise in oil prices could further boost the growing demand for liquefied natural gas, or LNG, which means more orders for giant tankers that transport such gas.