Venezuela’s political turmoil may lead to a near-term shortage of crude for some U.S. refiners. But in the long run, it could lead to higher output for the South American country, which has seen production suffer under the regime of President Nicolás Maduro, analysts said on Wednesday.
In a statement, U.S. President Donald Trump said the U.S. had officially recognized Juan Guaido, the new head of Venezuela’s National Assembly, as interim president after the assembly declared Maduro illegitimate. Earlier, the Trump administration told U.S. energy companies it “could impose Venezuela oil sanctions as soon this week if the political situation there deteriorates further,” Reuters Venezuela tweeted Wednesday, citing sources.
Antigovernment protesters took to the streets of Caracas, the capital, to demand Maduro’s resignation. Maduro gave U.S. diplomats 72 hours to leave the country after breaking diplomatic relations with Washington over its decision to recognize Guaido as interim president.
The administration’s move allows the U.S. to withhold support, such as block IMF loans, and potentially allow the U.S. to sanction countries doing business with Maduro, said Phil Flynn, senior market analyst at Price Futures Group.
That would be significant as the U.S. imported about 17.7 million barrels of crude oil and petroleum products in October 2018, according to the Energy Information Administration.
“With the possibility of a Trump oil sanction [on Venezuela], [U.S.] Gulf Coast refiners that depend on heavy crude may have to look elsewhere,” said James Williams, energy economist at WTRG Economics.
It’s possible that this would also lead to a “short interruption of exports,” he said. “However, in the long term it would mean a restoration of [oil] production to pre-Chavez levels.”
“Production dropped by two thirds,” he said, under Hugo Chávez, who was Venezuela’s president from 1999 to 2013 and Maduro, who succeeded him.
Williams, however, warned that the developments have put Guaido’s life “at risk.”
And while Flynn agreed that under Guaido, Venezuela’s oil production could rise, he also warned that all of this “could lead to a war.”