Maduro Faces Endgame In Venezuela

Obviously, the Trump administration has been keen on fomenting, encouraging and otherwise facilitating a coup in Venezuela for the entire time Trump has been president.

Back in July, for instance, reports suggested that during an Oval Office meeting in the summer of 2017, Trump asked aides if he could invade the country which he amusingly calls America’s “neighbor”. Subsequently, he publicly stated that he wasn’t taking a military option off the table – that was around the same time his “fire and fury” comments on North Korea were grabbing headlines.

“We have many options for Venezuela. And by the way, I am not going to rule out a military option,” he said, while standing next to a visibly concerned Nikki Haley and then-Secretary of State Rex Tillerson.

A little over a month later, on the sidelines of the UN General Assembly, H.R. McMaster reportedly had to “pull Trump aside” and explain to him that continually asking Latin American leaders (at dinner, no less) if they are “sure” they don’t want the U.S. to storm into Venezuela, Iraq-style, is dumber than a bag of hammers.

In September of last year, following the “drone incident” with Maduro, The New York Times reported that the Trump administration once held clandestine meetings with rebel elements within the Venezuelan military and discussed plans to overthrow Maduro.

You get the idea.

Through it all, Venezuela continued to descend into failed state status, a devolution we documented extensively until – frankly – it became apparent that nobody cared. Inflation continued to spiral out of control (“1 million percent” was bandied about), Tareck El Aissami held a pancake luncheon for the nation’s creditors, the price of a cup of coffee rose at an annualized pace of 500,000%, Maduro issued a cryptocurrency and on and on.

Again, the sad reality of the situation is that the Venezuelan tragicomedy has been going on for so long that most people no longer care, even as the country’s citizens continue to suffer. Or at least nobody cared until last week, when Juan Guaidó (the 35-year-old president of the Venezuela National Assembly who nobody had ever heard of) decided to declare himself leader.

As you’re aware, the international community quickly threw its support behind Guaidó after the Trump administration moved to recognize the opposition leader as Venezuela’s rightful head of state amid mass protests. The military still backs Maduro – coke and bribes are a powerful incentive, not that I’d know or anything. So here we are, at a crossroads.

That, in a nutshell, is where things stood headed into Monday when the US moved ahead with sanctions on PDVSA. John Bolton and Mnuchin delivered the news at a press event, where they took questions from reporters. Mnuchin predictably downplayed the impact on gas prices, said Citgo assets will remain operational as long as the cash doesn’t end up with Maduro (it will go to a “blocked account”) and indicated that the ultimate goal was to transfer control of PDVSA to Guaido who is also looking to access some £1.2 billion in Venezuelan gold reserves from the Bank of England.

As far as the industry impact is concerned, Barclays had this to offer late last week:

Medium-term, we think sanctions would have a minimal impact on global light-heavy differentials: If sanctions are implemented, we would expect Venezuela to sell the associated crude and fuel oil to Asia. This would likely in-turn displace some of Asia’s current heavy oil supplies from the Middle East, which could be sent to the United States. Thus, while the global heavy oil supply/demand balance would not necessarily be impacted, the U.S. refiners would likely need to pay a higher transportation cost for their heavy imports. We suspect the incremental cost could fall in the $0.50-$1.00/bl range.

Citgo, Valero, Chevron and PBF account for the majority of U.S. crude + residual fuel imports: Per the EIA, these four companies accounted for 85-90% of Venezuelan imports from August through October 2018 (the most recent 3 months with final reported data).

Beyond that, Barclays notes that “apart from Citgo, the large U.S. importers likely have backup plans should they be unable to procure oil from Venezuela [given that] the geopolitical tensions in [the country] and downfall of the nation’s oil industry have been well documented for the past several years.”

On the broader economy, Torino Capital predicted a contraction of 26.4% in 2019 in a note out Monday. “This would bring the cumulative decline in GDP since Nicolas Maduro took office in 2013 to 59.9% by the end of 2019″, chief economist Francisco Rodriguez wrote.

Getting back to Guaido, he insisted on Twitter Monday that assets need to be taken now before Maduro “steals any more from Venezuelans.”

#ComunicadoOficial al pueblo de Venezuela de los avances logrados sobre el:

Acuerdo en solicitud de protección de activos del Estado venezolano.#ANAvanzaConResultados pic.twitter.com/i7ec6UyKbm

— Juan Guaidó (@jguaido) January 28, 2019

We’re certainly not defending Maduro here (his regime is a solid contender for most indefensible regime on the planet), but it’s probably a good idea for everyone to take a step back here and remember that nobody really knows anything about Guaido. Just a thought.

“We believe the probability of policy regime change has increased meaningfully, but still there are some missing links in the chain”, BofAML wrote on Thursday, before listing all the reasons why Maduro might be reaching the end of the road (there’s nothing particularly profound in any of this, but for those who like bullet points, it’ll work):

• New opposition leadership Juan Guaido is providing an opportunity for opposition parties to reunite amid a common goal (regime change), with additional momentum reignited by the protests. However, it remains to be seen if the opposition will be able to work out the differences that kept them split months ago or whether it is just strategic behavior.
• Massive protests have reignited, including the first organized opposition demonstration in 18 months amid the economic crisis. Importantly, protests have spread to several poor neighborhoods, traditionally a stronghold of Chavismo.
• International pressure is increasing, more vocally from Brazil’s new government and risks of additional economic (oil sanctions) are on the rise. This includes not only completely withdrawing recognition of Maduro’s regime but now also the recognition of Guaido as interim president by several countries in the Americas.
• There is recent evidence of new frictions inside the regime as the economic crisis continues. There are some emerging signs of divisions inside the military forces amid a deepening economic crisis (mutiny of a National Guard group and critics to the regime by a General). These add to frictions already present inside Chavismo

In any event, at the Monday presser, Bolton noted that Trump (still) hasn’t ruled out a military option for Venezuela in the event Maduro gets feisty.

“The president has made it very clear on this matter that all options are on the table”, Bolton said.

He also called on Maduro’s military and security apparatus to stand down and resign themselves to their fate. I don’t know if you’d call it a “threat”, but at this point, the writing is on the wall – it’s over for Maduro, one way or another.

 

Finally, if you’re wondering what Maduro is actually up to (besides railing against international conspiracies), he’s tweeting about Simón Bolívar and dancing around with troops.

Soldados y Soldadas de nuestra gloriosa #FANB, el adiestramiento y apresto operacional es vital para defender la Patria Sagrada que fundó nuestro Libertador Simón Bolívar. ¡Cuenten con mi apoyo y mi respaldo absoluto! pic.twitter.com/Hiw4PIBgfq

— Nicolás Maduro (@NicolasMaduro) January 28, 2019

Full release from Treasury

Washington — Today the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated Petroleos de Venezuela, S.A. (PdVSA) pursuant to Executive Order (E.O.) 13850 for operating in the oil sector of the Venezuelan economy.  PdVSA is a Venezuelan state-owned oil company and a primary source of Venezuela’s income and foreign currency, to include U.S. dollars and Euros.

“The United States is holding accountable those responsible for Venezuela’s tragic decline, and will continue to use the full suite of its diplomatic and economic tools to support Interim President Juan Guaidó, the National Assembly, and the Venezuelan people’s efforts to restore their democracy,” said Secretary of the Treasury Steven T. Mnuchin.  “Today’s designation of PdVSA will help prevent further diverting of Venezuela’s assets by Maduro and preserve these assets for the people of Venezuela.  The path to sanctions relief for PdVSA is through the expeditious transfer of control to the Interim President or a subsequent, democratically elected government.”

As with previous OFAC designations of certain Venezuelan officials and their supporters, U.S. sanctions need not be permanent.  Sanctions are intended to change behavior.  The United States has made it clear that we will consider lifting sanctions for those who take concrete, meaningful, and verifiable actions to support democratic order and combat corruption in Venezuela, including PdVSA.

As Venezuela’s state owned oil company, PdVSA has long been a vehicle for corruption.  A variety of schemes have been designed to embezzle billions of dollars from PdVSA for the personal gain of corrupt Venezuelan officials and businessmen.  For example, a 2014 currency exchange scheme was designed to embezzle and launder around $600 million from PdVSA, money obtained through bribery and fraud.  By May 2015, the conspiracy had allegedly doubled in amount, to $1.2 billion embezzled from PdVSA.  Abraham Edgardo Ortega, a Venezuelan national who was PdVSA’s executive director of financial planning, pled guilty to one count of conspiracy to commit money laundering for his role in the billion-dollar international scheme to launder funds embezzled from PdVSA.  In a separate case, U.S. prosecutors have alleged that, from 2011 to 2013, senior Government of Venezuela and PdVSA officials, including Nervis Villalobos, the former Venezuelan vice minister of energy; Rafael Reiter, who worked as PdVSA’s head of security and loss prevention; and Luis Carlos de Leon, a former official at a state-run electric company, sought bribes and kickbacks from vendors in exchange for helping them secure PdVSA contracts and gain priority over other vendors for outstanding invoices during its liquidity crisis.

Today’s action designating PdVSA follows a determination by Secretary Mnuchin pursuant to E.O. 13850 that persons operating in the oil sector of the Venezuelan economy may be subject to sanctions.

Concurrent with this action, OFAC is issuing general licenses that authorize certain transactions and activities related to PdVSA and its subsidiaries within specified timeframes.

As a result of today’s action, all property and interests in property of PdVSA subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them.

For additional information about the methods that Venezuelan senior political figures, their associates, and front persons use to move and hide corrupt proceeds, including how they try to exploit the U.S. financial system and real estate market, please refer to FinCEN’s advisories FIN-2017-A006, “Advisory on Widespread Public Corruption in Venezuela,” and FIN-2017-A003, “Advisory to Financial Institutions and Real Estate Firms and Professionals.”