Venezuela vs United States: the consequences for the economy

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Maduro ended diplomatic relations with the US last Wednesday, although the rapture has not been executed, markets will suffer the consequences

Two weeks after Nicolás Maduro was sworn in for a second six-year term as president of Venezuela, Juan Guaidó, an opposition leader and president of the opposition-controlled National Assembly, declared himself president of the country on Wednesday.

Leer en español: Venezuela vs Estados Unidos: las consecuencias para la economía

Following this declaration, Donald Trump, president of the United States, along with the presidents of Colombia, Brazil, Argentina, and more than 40 countries, recognized Guaidó as the new president of Venezuela. In response, Maduro announced the breakdown of diplomatic relations with the US and gave the American diplomatic staff 72 hours to leave the country.

Another blow to Venezuelan investments in the United States

With this decision, David Bosco, an associate professor at the School of Global and International Studies at Indiana University, warned for The Washington Post that Venezuela's diplomatic presence in Washington will suffer a change, as the accredited diplomats no longer represent a recognized government.

This, says Bosco, will bring economic consequences to both countries. For example, the US will be able to seize the assets that the Venezuelan State has in the country and may even transfer these assets, including US refineries that are owned by Citgo a subsidiary of the state company of energy Petroleum of Venezuela, to the government of Guaidó.

Francisco Rodríguez, the chief economist of the investment firm Torino Capital, says for The Washington Post that "If the US government recognizes Juan Guaidó as president, the courts of the United States would see his government as the only one who can manage the assets."

Read also: The other side of the 10-year challenge: the Venezuelan economy

Oil exportation will also suffer

Likewise, it should be noted that while oil is Venezuela's largest export product, the United States is the nation's largest importer of oil. Thus, after the symbolic possession of Guaidó on Wednesday, the price of oil fell for the third time in four days, showing the possibility that the situation in Venezuela would interrupt the world crude supplies and generate a global decrease in the price of crude, such as pointed out by Helima Croft, head of commodities strategy at RBC Capital Markets.

CNBC warns that "The latest development raises the possibility that the United States will extend the sanctions on energy trade between the United States and Venezuela, a move that could be devastating for Venezuela […] depriving the socialist republic of its vital energy revenues, and exacerbating a devastating economic crisis."

Similarly, although the Trump administration has already imposed sanctions on Venezuela in the past, Republican legislators have so far prevented the blockade of exports of American diluents that are used in Venezuela to dilute heavy oil. If this sanction were carried out, Venezuela would be obliged to acquire the diluents in other places, which, according to Croft, could require cash transactions that are impossible to carry out due to the shortage of banknotes the country is experiencing.

This situation could also complicate US relations with the rest of OPEC given that last November Trump established economic sanctions Iran, another major oil exporter. Thus, Croft and CNBC point out, "the sanctions against Venezuelan crude would mean that the United States is restricting the flows of two OPEC countries with barrels that are not easy to replace."

LatinAmerican Post | Sofía Carreño

Translated from: 'Venezuela vs Estados Unidos: las consecuencias para la economía'