So, anything interesting in the news lately? Oh yeah, Venezuela just had a vote to instate a National Constituent Assembly that will change the political map of the country and which will likely lead the country into a dictatorship. That’s not all. Besides leaving more than a dozen deaths, Sunday’s vote could prove to be crucial to the always unstable performance of oil prices. The next coming months are definitely going to help shape the global oil landscape for years to come. Oil prices continue to be at historic lows and what has just occurred in the oil rich South American country will impact future prices and those involved. Suzzanne Uhland is here to provide some thoughts regarding who and what will be impacted by the Constituent elections in Venezuela and some of the decisions that come along with it.
Uncle Sam and the definite possibility of an embargo
The United States government has taken the lead that many were hoping they would. Their initial sanctions have been to freeze all of President Maduro’s assets in the United States, and they have barred all people from doing business with him. Additionally, there has been talking about detaining U.S. oil exports to Venezuela. While the latter decision would cripple the government’s pocket, it would only do so for a short while as Venezuela could probably get their supply from another country. What everyone is hoping for, is an embargo on Venezuelan oil. Almost half of what Venezuela produces goes to the United States and prohibiting the purchase of Venezuelan oil would surely make Maduro reconsider, even though it’s unlikely given his temperament. An embargo on oil would practically take away the funds to finance the Venezuelan regime, especially since most countries would follow Uncle Sam’s example. Remember, without selling oil, Venezuela has no money to work with. It’s that simple. The ball is in the United States’ hands and the international audience is waiting in anticipation. They must be careful because an embargo could affect Citgo, one of America’s leading oil companies and which is owned by Venezuela.
Venezuela’s dwindling oil industry will continue to suffer
Unlike his predecessor, Nicolas Maduro has not been able to take advantage of the country’s massive reserves of crude waiting to be drilled and converted into oil. Thanks to government decisions and the attacks on its own people, Venezuela has lost the support of strategic business partners. They have not been able to produce more oil because they have not been able to buy the parts to get the rigs and drills working as they once used to. Frankly, with the National Constituent Assembly becoming a reality, you can expect the few partners that Venezuela had to become even less. So far, the only other oil industry country that has supported the Assembly has been Russia by way of their fearless leader Vladimir Putin. He has gone on to basically warn those who are thinking about cutting oil ties with Venezuela to reconsider. On the other hand, the United States has ordered all businesses to stop dealing with Venezuela’s leader until democracy is restored.
What will happen with oil prices? The world wants to know
Here is where everyone is biting their nails. Instability and oil prices go hand in hand, but for a while now, oil prices, in general, have failed to climb above the 50-dollar mark per barrel. That’s something that was unfathomable. Thanks to overproduction, OPEC had to take measures and restrict how much oil was being produced in order to create more demand. With Venezuela’s crisis finally hitting its peak, it seems that there is promise for oil prices to rise once again to where the industry needs them to be. Oil dependent countries have been losing big with the steady drop of oil prices and the National Constituent Assembly seems to hold some hope for the industry. Yes, someone could result a huge winner out of the chaos coming out of Venezuela! It turns out that there is a real possibility that the Venezuelan oil industry could come to a halt given that no one wants to be associated with the country as long as Maduro is in charge. What this means is that more than a million barrels of crude would no longer be available for business, creating less supply and in the end, more demand. And basic economics has taught us that less supply and more demand equals higher prices.
As the Venezuelan crisis continues to unfold, the oil industry and the countries with business interests in Venezuela are playing it safe. Time will tell if Maduro comes to his senses or if the United States and other powerhouse countries will levy bigger sanctions to the country. Whatever happens, it’s pretty safe to say that the oil industry is due for a huge shake up; one that could forever change the industry all together.
* Featured Image courtesy of Zukiman Mohamad at Pexels.com