President Trump moved Friday to restrict the Venezuelan government’s access to the U.S. financial system and squeeze the oil-based economy that sustains President Nicolás Maduro, but he stopped short of imposing a full oil embargo.
Trump signed an executive order barring dealings in new bonds and stocks issued by the government and the state oil company, Petróleos de Venezuela, the parent of Citgo. Banks also cannot engage in new lending with the government or the oil giant.
“Maduro chose to embrace dictatorship over his own people,” national security adviser H.R. McMaster said. “With today’s announcement, the president is keeping his promise of strong action and continuing to show strong leadership.”
The action followed Maduro’s decision to convene a special assembly to rewrite the constitution of the oil-rich nation and assume many government powers. U.S. and Latin American leaders say Maduro’s government is veering toward dictatorship.
U.S. officials said the new restrictions ensure that U.S. financial institutions cannot be used to help finance or underwrite Maduro’s expansion of undemocratic rule.
The sanctions would prevent, for instance, a repeat of a $2.8 billion bond deal with Goldman Sachs reached earlier this year that gave the cash-strapped Venezuelan government an important lifeline. Yet Venezuela’s growing international isolation because of Maduro’s power grab, coupled with its fast-eroding financial stability, has already effectively shut it out of debt markets, with investors seeing it as too great a risk.
The new economic sanctions are likely to deepen the financial crisis in Venezuela, where the oil-based economy has shrunk by about 35 percent since 2014.
The Trump administration’s goal is a return to full democracy, including free elections, adherence to the country’s constitution and the reestablishment of the authority of the elected assembly, U.S. officials said.
Treasury Secretary Steven Mnuchin accused Maduro of “hollowing out Venezuela” and said his government “has been a catastrophe for the country.”
“Maduro may no longer take advantage of the American financial system to facilitate the wholesale looting of the Venezuelan economy at the expense of the Venezuelan people,” Mnuchin said. “Today’s actions is the next step towards freedom for the Venezuelan people.”
The penalties come on top of U.S. sanctions on Maduro and senior government officials announced last month. They are the first to directly target Maduro’s access to prime sources of funding.
U.S. officials called the new financial penalties calibrated and acknowledged that they are less severe than some of Maduro’s critics had requested. Venezuela can still export oil to the United States and import it from here. Venezuelan heavy crude oil is crucial to some U.S. refiners, which are geared to handle that specific type. Venezuela imports lighter crude, including from the United States.
And while the sanctions stop far short of an oil embargo, the move does suggest a willingness by the Trump administration to gradually turn up the heat on Maduro in new ways.
“It won’t have any important impact in terms of financial flows to Venezuela, because there aren’t any to speak of right now,” said Siobhan Morden, managing director and Latin America expert at Nomura Holdings. “But it confirms what we know, that they now definitely do not have access to external capital.”
Vice President Pence had signaled the move, writing on Twitter that the United States “will not standby as Venezuela crumbles.”
Pence and other U.S. officials have been threatening further sanctions for weeks, since Maduro moved to go around the national constitutional assembly, where opposition to his rule is strong.
Trump has also said he would not rule out military action.
Asked Friday whether the president is still open to a military option, McMaster did not directly answer.
“The president directed us not just to develop plans for the current situation but to anticipate the possibility of a further deterioration in Venezuela,” McMaster said. “The president said if things get worse, how could they get worse, and what are a range of options available to him that we could take in concert with our partners in the region?”
Venezuelan officials responded defiantly.
“There it is, more and more sanctions against Venezuela,” Delcy Rodríguez, the Maduro ally who heads the new Constituent Assembly, said Friday on national television. “They think that with economic sanctions, they’ll be able to suffocate the Venezuelan people. But we’ve pledged and will keep pledging to defend Venezuela no matter the type of imperial threat.”
In a televised meeting with officials and oil-sector leaders Friday, Maduro said Trump administration officials “look at us, the brown-skinned from the south, as less than them,” adding that “they’re looking to suffocate Venezuela’s productive economy” and to continue leading a “brutal economic war.”
He asked the Supreme Court and the Constituent Assembly to conduct a judgment for “betrayal of the homeland” for all those who asked for the sanctions and accused the president of the opposition-led National Assembly, Julio Borges, of being directly involved.
Maduro claimed that the sanctions would affect oil imports and called on U.S. investors and companies that benefit from Venezuelan oil to hold an urgent meeting to find solutions.
Venezuela’s national reserves have already hit 15-year lows of about $10 billion, most in gold bars, not cash. As Venezuela is boxed in financially, it will be harder and harder, analysts say, for the country to avoid a potentially devastating debt default. A key test will come in the fourth quarter of this year, when $3.8 billion in bonds come due.
Failure to pay could spark a cascading effort by foreign investors to seize Venezuela’s global assets, potentially slamming its all-important oil industry. As the economic crisis gripping the country deepens, it could also create conditions so harsh that Maduro’s grip on power could be challenged by the country’s military, some analysts say.
“The idea is that a default would be devastating in terms of economic impact, and that would force a political transition,” Morden said.
It would also test the will of Maduro’s two main foreign benefactors — China and Russia — to continue propping him up. Maduro has accelerated his public courting of Moscow in recent days, boasting of stronger ties.
In a news conference Wednesday, Maduro called Russian President Vladimir Putin the “main leader of the world.” He heralded a deal struck in June to bring 60,000 tons of Russian wheat a month to Venezuela, with the first shipments arriving this week.
Maduro said he would soon make a trip to Moscow to advance the commercial relationship. He dismissed the threat of further U.S. economic penalties.
“Despite many sanctions that the Trump-Pence duo approves, we can achieve more than them,” Maduro said.