New U.S. Sanctions on Venezuela Aim to Choke Off Government’s Finances
The Trump administration extended sanctions to the Central Bank of Venezuela on Wednesday, cutting off the bank’s access to United States currency and limiting its ability to conduct international financial transactions in order to further squeeze the finances of the government led by President Nicolás Maduro.
It is the latest in two years of escalating sanctions primarily aimed at halting the sale of Venezuelan oil to the United States, and American sales of light oil to Venezuela, which the national oil company blends with its heavy oil for export. The Trump administration and dozens of other countries now recognize Juan Guaidó, the leader of the National Assembly, as the interim president until new elections can be held.
By targeting the central bank, the sanctions close off a few remaining critical paths for financing.
Unlike the rest of the government, the central bank does not need approval from the opposition-controlled National Assembly to take out a loan. That loophole allowed it to take a $500 million loan from the Development Bank of Latin America in December.
The bank also handles most gold sales. Just days ago, Venezuela sold eight tons of gold from the central bank’s vaults valued at roughly $400 million. Remaining reserves are estimated at $8.6 billion. The Central Bank of Venezuela deals directly with the central banks of Russia, Turkey, Dubai and other Middle East nations, and Turkey has been an important buyer of Venezuelan gold.
Venezuela has defaulted on most of its debt, but continues to sell oil at a steep discount to India and other Asian nations, as well as gold, as a way to import vital food and medicines.
“Any limitations on gold sales are problems for Venezuelan government financing,” said Risa Grais-Targow, a Latin America specialist at Eurasia Group. But she added that countries or companies that were willing to buy Venezuela’s gold either did not have exposure to the United States banking payments system or were not concerned about potential political fallout.
Other analysts said the new sanction was primarily meant as a message for countries that still dealt with the Maduro government.
“This sanction is saying, ‘You deal with the Venezuelan Central Bank, we are going to come after you,’” said Ali Moshiri, formerly Chevron’s top executive in Venezuela.
The central bank does not directly process oil revenues, but Pdvsa, the national oil company, is required to transfer a portion of its export revenues to the central bank. Also, since the central bank handles foreign exchange, this sanction could interrupt purchases of the light oil that Venezuela must blend with its heavy oil for transport through its pipelines.
“This move makes sense in the overall context of what the U.S. administration is trying to achieve, which is to strangle financially the government of Venezuela,” said Jose L. Valera, an energy lawyer at the Houston office of the Mayer Brown law firm.
Humanitarian aid will not be included in the sanctions.