Venezuela Sanctions: The U.S. Needs to Change its Goals

Photo credit: FreightWaves

Between 2017 and 2019, former U.S. President Donald Trump instituted comprehensive economic sanctions against the Nicolás Maduro-led Venezuelan government, cutting off access to the U.S. financial system and freezing government assets, among others. The Trump administration also sanctioned state-owned oil gas company PDVSA, state-owned gold mining company, Minerven, and the Central Bank of Venezuela. The sanctions aimed to restore democracy by forcing the Maduro regime to step down and bringing the U.S.-recognized government led by Juan Guaidó to power. This goal was modified in March 2020 to the establishment of a transitional government, followed by free and fair elections. Three months into 2023, not only is Maduro still in power, but he has consolidated his position while the opposition has weakened. The economic and human rights crises that began before the sanctions started have worsened. By every measure, sanctions have failed to achieve their objective. It is time for the U.S. government to change its approach and its goals.

The United States must shift from coercing a return to democratic governance to improving Venezuela’s economic and humanitarian situation. The wars in Iraq and Afghanistan demonstrated the difficulty of an external power trying to promote democracy by military force. Sanctions against Venezuela, as well as Syria and Cuba, demonstrate the difficulty of an external power trying to promote democracy through economic sanctions.  The United States should focus on targeted sanctions against individuals, including government officials and entities directly involved in human rights abuses, drug trafficking, and terrorism. At the same time, the United States should build on current humanitarian aid efforts and work with the Maduro government and the opposition to roll back the broader sanctions instituted by the Trump administration and perpetuated by the Biden administration. The overall goal would be to punish those violating human rights while improving Venezuela’s economic and humanitarian situation.

Sanctions Have Failed

The United States first instituted sanctions against Venezuela in 2005 for failing to carry out its obligations under international narcotics agreements. In 2006, terrorism-related sanctions followed the 2005 sanctions. In 2015, Congress passed a law requiring the U.S. President to sanction individuals and entities in Venezuela whom the President believed responsible for acts of violence, human rights abuses, or antidemocratic actions.

Former President Donald Trump expanded sanctions during his presidency with the goal of forcing Maduro to step down. Trump blamed Maduro for the humanitarian and economic crisis in Venezuela. Trump also opposed Maduro’s creation of the Constituent Assembly to take power from the democratically-elected National Assembly as Venezuela’s legislative body and Maduro’s rigged election victory in 2019. The Trump administration prevented the Venezuelan government from accessing the U.S. financial system; froze the bank accounts and other assets of the Maduro government; prohibited transactions related to purchasing Venezuelan debt; blocked oil imports from Venezuela’s state-owned oil and gas company, PDVSA; and blocked the assets and transactions of companies benefiting from the Maduro government’s corrupt practices. However, four years later, Maduro remains in power. Sanctions have also failed to change the behavior of individuals in the Maduro government or induce individuals yet to be sanctioned to leave the Maduro government.

It should not be a surprise that sanctions have failed. Research has found that economic sanctions are rarely successful at compelling countries to do (or stop doing) something. Rather than inducing authoritarian regimes to become more democratic, sanctions often increase authoritarianism and repression. According to a paper by Dursun Peksen and Drury Cooper, autocrats also take advantage of the economic hardship sanctions cause to “manipulate access to and redistribute resources made scarce by sanctions to enhance its authority and subsequently to weaken opposition groups.” Sanctions also give the sanctioned government an external enemy they can present to the public as the true cause of their pain. This is precisely what the Maduro government has done.

Source: @NicolasMaduro Tweet

This is not to say that sanctions never work. Research has found that sanctions work best when executed  multilaterally, aimed at achieving a specific and modest policy outcome, levied against a friendly country, imposed on a democratic country, financial-based rather than trade-based, conducted in parallel with other forms of statecraft, and designed to impose a high and immediate cost. The problem is that U.S. sanctions against Venezuela miss most of these categories. They aim to remove Maduro from power, are levied against an unfriendly and authoritarian country, are both financial-based and trade-based, and have been ratcheted up to varying degrees since 2015. Further, the United States has instituted both sanctions against individuals (e.g., restricting financial transactions with government officials) and sanctions targeting Venezuela’s economy (e.g., blocking PDVSA oil imports). In contrast, the sanctions introduced by other countries have only targeted individuals. Furthermore, other countries, including Russia, China, Cuba, Turkey, and Iran, have worked to help Venezuela (or at least the Maduro regime) weather the sanctions. Furthermore, other countries, including Russia, China, Cuba, Turkey, and Iran, have worked to help Venezuela (or at least the Maduro regime) weather the sanctions.

The Venezuelan Public Feels the Pain

At the same time as sanctions are failing to compel Maduro’s government to step down, they are hurting the Venezuelan public. A 2019 report from the Center for Economic and Policy Research found that sanctions, particularly those enacted in 2017 and 2019, have exacerbated Venezuela’s economic crisis, reduced the public’s caloric intake, increased disease and mortality, and forced millions of Venezuelans to leave the country to avoid worsening economic depression and hyperinflation. In 2019, the Brookings Institute and the Center for Strategic and International Studies separately disputed the Center for Economic and Policy Research report. The Brookings Institute and the Center for Strategic and International Studies reports stated Venezuela’s economic and humanitarian situation began deteriorating well before the 2017 sanctions and that this was largely driven by government economic mismanagement.

However, subsequent reports from the Washington Office on Latin America, the UN Special Rapporteur on unilateral coercive measures and human rights, the Fourth Freedom Forum, and the United States Government Accountability Office have found that sanctions are exacerbating pre-existing economic difficulties by lowering oil production (Venezuela’s main revenue stream), reducing access to key goods and services such as electricity, water, fuel, gas, food, and medicine and reducing the availability of foreign currency needed to import goods. Despite efforts to mitigate the humanitarian impact, sanctions have created delays and obstacles in receiving donations and remittances, processing financial transactions, transferring funds, and delivering humanitarian aid.

A Changing Political and Economic Landscape

Recent events are raising further questions about whether the United States can realistically use sanctions to get the Maduro government to step down. After Juan Guaidó declared himself interim president of Venezuela in January 2019, the United States, 17 EU countries, Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Honduras, Paraguay, Peru, Australia, Canada, and Israel all recognized Guaidó as Venezuela’s president. At one time, almost 60 countries recognized Guaidó. However, support for Guaidó has been falling since 2021. The elections of left-leaning leaders in Brazil, Chile, Colombia, and Peru have reduced Venezuela’s political isolation in the region. In 2022, Colombia, Peru, and Honduras all switched their recognition to Maduro, and Brazil’s then-president-elect pledged to do so. In October 2022, the Organization of American States (OAS) narrowly approved a resolution allowing Guaidó’s representative to continue participating in the OAS. Colombia deepened ties with the Maduro government in 2022 by signing an agreement with Venezuela to restart trade between the two countries in February 2023.

Guaidó’s support outside the region has also fallen. In January 2021, the EU stopped recognizing Guaidó as interim president, although it does not recognize Maduro as president either. And in January of this year, the U.S. stopped recognizing Guaidó following a vote by Venezuelan opposition lawmakers to end Guaidó’s interim presidency, although the United States continues to recognize the 2015 opposition-led National Assembly. Meanwhile, Venezuela has continued to deepen its ties with China, Russia, and Iran.

Economically, Venezuela has also seen an improvement. The Maduro government said the economy grew by 15% in 2022, although the United Nations Economic Commission for Latin America and the Caribbean said growth was 10%, marking the second straight year of growth following nine years of decline. Maduro’s decision to relax price and currency controls and allow foreign currencies to be used in more transactions helped drive the growth. Venezuela’s economy is projected to grow by 5% in 2023. However, the Venezuelan economy remains well below its 2010 high and the recovery has not been felt by everyone. High inflation and a loosening of currency controls have made U.S. dollars a prized currency. Unfortunately, U.S. sanctions have made it difficult for Venezuelans to access dollars, creating a “two-tier society” between those who have U.S. dollars and those who do not.

The Way Forward

The United States must change what it hopes to achieve by sanctioning Venezuela. Expecting sanctions will induce the Maduro government to step down is unrealistic. Even getting the Maduro government to conduct free and fair elections is unlikely due to the threat it could pose to their power. While the United States should not stop promoting democracy in Venezuela, it should moderate its goals. It is time for the United States to shift from coercing a return to democratic governance to improving Venezuela’s economic and humanitarian situation.

There are signs the United States is moving in the right direction. In November 2022, the Maduro government, the opposition, and the U.S. agreed to a deal where the U.S. and Europe would unfreeze up to $3 billion of the Venezuelan government’s funds in order to fund health, food, and education programs in Venezuela. The UN will manage the money. The U.S. also agreed to lift some oil sanctions. Talks between the Maduro government and the opposition have continued regarding the funds, but progress has come in fits and starts.

However, a joint statement from the U.S., UK, EU, and Canada following the deal called for “free and fair elections in 2024, the restoration of democratic institutions, and an end to the humanitarian crisis in Venezuela” and expressed a willingness to review sanctions if the Maduro government “makes meaningful progress in the announced talks to alleviate the suffering of the Venezuelan people and bring them closer to a restoration of democracy.” While the goals are virtuous and more moderate than regime change, they are still focused on democracy restoration and ignore the possibility that sanctions have contributed to Venezuela’s increased authoritarianism and humanitarian crisis.

The United States should work to leverage current sanctions to negotiate further deals related to economic and humanitarian relief. Such deals could include expanding the recent easing of oil sanctions to allow Venezuela to use that revenue to pay down other government debts as well. Currently, Venezuela can only use the profits to pay debt owed to Chevron. Another possibility is an oil-for-essentials program. Numerous groups have raised the oil-for-essentials option, which entails using oil sales to pay for basic goods, such as food and medicine.

However, the United States should also be willing to consider unilaterally rolling back the oil embargo on PDVSA, government asset freezes, sectoral sanctions, and the other expanded sanctions introduced by the Trump administration if negotiations fail. The U.S. government should undertake a detailed analysis to determine (1) what goal is the United States hoping to achieve with sanctions, (2) what are the chances the United States will achieve these goals, and (3) will the benefits of sanctions outweigh the humanitarian and economic costs they impose on innocent Venezuelans? Unilaterally rolling back the expanded sanctions Trump introduced may be politically and possibly morally unpalatable due to the likelihood that Maduro would use sanctions relief to reward his cronies while continuing to violate human rights. However, it is worth asking whether continued human rights violations and greater economic prosperity for Venezuela, even if unevenly benefitting Maduro and his cronies, would be an improvement over continued human rights violations combined with poor economic conditions for all Venezuelans.

The United States could instead focus on ramping up targeted sanctions against individuals, including government officials and entities directly involved in human rights abuses, drug trafficking, and terrorism. These could include the already-in-place individual sanctions against Maduro and the leaders of Venezuela’s army and police but should not include sanctioning companies whose only transgression is dealing with sanctioned individuals or entities. Such sanctions will allow the United States to punish (and hopefully deter and reverse) such activity while reducing the impact on the Venezuelan economy and the public. Meanwhile, the United States can continue to promote democracy by providing monetary, logistical, and rhetorical support to the democratic opposition.

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