US Sanctions on Venezuela Add Uncertainty to Global Oil Market

Washington has decided to reimpose economic sanctions on Venezuela's oil sector, adding uncertainty to the oil market, when supply security remains a top priority for many regions around the world amid the ongoing conflicts in the Middle East.

RELATED: 

Venezuela: Popular Consultation Advances Strengthening Democracy

According to the new guidelines from the U.S. Treasury Department, American and European companies who obtained individual licenses after October 2023 are required to reapply for new licenses to work with Venezuelan national oil company PDVSA. Otherwise, they must end their operations in Venezuela by May 31, 2024.

To justify the reimposition of sanctions, Washington alleges that Venezuelan President Nicolas Maduro has not fully met the commitments made under the electoral roadmap agreement.

Therefore, General License 44, which authorized transactions related to the oil and gas sector with Venezuela, will expire after midnight and not to be renewed," said Matthew Miller, a spokesman for the U.S. Department of State.

General License 44, introduced by the Biden administration in October 2023, allowed some oil transactions to take place and Venezuela crude to reach the international market.

The 6-month sanction relief took effect when the Venezuelan government and opposition leaders from Unitary Platform reached an agreement on the 2024 elections. Several Western companies, including ENI of Italy, Repsol of Spain, and Maurel and Prom of France, resumed their operations in Venezuela.

Oil production rebounded in Venezuela as a result of the sanction relief. Both of the International Energy Agency and the U.S. Department of Energy projected that Venezuela's oil production would return to one million barrels per day by the end of 2024 from 690,000 barrels per day in 2022.

Energy analysts suggest that several factors may have influenced the Biden administration's decision to reimpose sanctions on Venezuela.

First, the Biden administration might have lost confidence in the roadmap of a Venezuelan presidential election the U.S. had wished. 

Second, U.S. domestic oil production is on pace to set another production record, while production growth from Guyana and Brazil is faster than the growth in Venezuela.

Meanwhile, the world economy is slowly recovering, leading to slow oil demand growth. All these factors have allowed the U.S. administration to reimpose sanctions against Venezuelan oil with less resistance from businesses and industries.

Venezuela has the world's largest proven oil reserves. Its oil reserves are estimated to be around 300 billion barrels, surpassing those of Saudi Arabia and other oil-rich countries.

With the sanctions back in place, the hostile relationship between the United States and Venezuela is widely expected to continue.

At the end of Thursday trading, one day after the United States reimposed sanctions on Venezuela, Brent went to US$89.72 per barrel, up 3 percent, while West Texas Intermediate went to US$84.92 per barrel, up 3.6 percent.

It is hard to decipher exactly whether the oil price fluctuation was directly and solely related to the White House decision because ongoing tensions between Israel and Iran may also have had some effect.

It remains to be seen how the global oil market will react to the White House's renewed sanctions in the longer term.