The Trump administration slapped sweeping financial sanctions on Venezuela on Friday, dramatically ratcheting up tensions between the two countries and making it harder for embattled President Nicolas Maduro to raise badly needed cash to prevent a debt default.
The sanctions, which Trump signed by executive order, prohibit American financial institutions from providing new money to the government or the state oil company, PDVSA. They also restrict the Venezuelan oil giant’s U.S. subsidiary, Citgo, from sending dividends back to Venezuela and ban trading in two bonds the government recently issued to circumvent its increasing isolation from Western financial markets.
“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,” Treasury Secretary Steven Mnuchin said at the White House.
The financial sanctions drew quick rebuke from Venezuela’s government, with Foreign Minister Jorge Arreaza calling them the worst aggression against the country in two centuries.
“What do they want — they want to starve the Venezuelan people?” Arreaza told reporters at the United Nations after meeting with Secretary General Antonio Guterres.
He said his government would fight the measures with all of its diplomatic and economic strength, but also blamed members of the opposition — some of whom expressed satisfaction with the U.S. action — for conspiring to bring further hardships on the Venezuelan economy.
“We are also victims, as he is, of fake news,” Arreaza said in a rare show of solidarity with Trump.
A senior Trump administration official said additional sanctions would be imposed if Maduro doesn’t reverse course and meet opposition demands that he roll back plans to rewrite the constitution, free dozens of political prisoners, and hold fair and transparent elections.
In a conference call to brief reporters on the measures, the official said the United States has significant influence over Venezuela’s economy but does not want to wield it in an irresponsible manner that could further burden the already struggling Venezuelan people. The official spoke on condition of anonymity to discuss the measures in greater detail.
Reflecting those concerns and a strong lobby effort by the U.S. oil industry, Friday’s action stopped short of cutting off U.S. imports of Venezuelan oil that are crucial both to both Venezuela’s economy and to Gulf refiners. The executive order also allows debt financing for exports of food, medicine and other humanitarian goods.
The sanctions follow through on Trump’s threat last month that he would take strong economic actions if Maduro’s increasingly authoritarian government went ahead with plans to create a constitutional assembly that is made up wholly of government loyalists. The opposition boycotted the vote to elect the body’s 545 delegates.
Since the assembly was seated, it has voted by acclamation to oust the nation’s outspoken chief prosecutor, take lawmaking powers from the opposition-controlled congress and create a “truth commission” that many fear will be used to silence the government’s political opponents. Several prominent opposition mayors have also been removed or ordered arrested by the government-stacked supreme court.
U.S. Vice President Mike Pence signaled the move earlier Friday, tweeting that the U.S. “will not stand by as Venezuela crumbles.”
“The birthright of the Venezuelan people has always been and will always be libertad,” he wrote, using the Spanish word for “freedom.”
The sanctions are bound to worsen a crisis that has already seen Venezuela’s oil-dependent economy shrink by about 35 percent since 2014 — more than the U.S. economy did during the Great Depression. But it’s unclear how quickly the impact on the streets will be felt.
Maduro, who is among some 30 senior officials already barred from the United States, has been warning for weeks that the Trump administration was readying a “commercial, oil and financial blockade” in the mold of the one that has punished Cuba for decades.
He found an opportunity to argue his case that he’s being unfairly targeted after Trump said earlier this month that he wouldn’t rule out a “military option” to resolve Venezuela’s crisis — comments that were roundly rejected throughout Latin America, even by some of Maduro’s toughest critics.
On Friday, journalists were invited to a shooting range at Caracas’ main military base to watch as troops taught a handful of civilian government supporters how to fire assault weapons. The event, attended by military officials from China, Belarus and Russia, was a prelude to military exercises Maduro called for this weekend as a deterrent to any U.S. military intervention.
David Smilde, a Tulane University sociologist who has spent decades researching Venezuela, said blanket sanctions that cut off the government’s cash flow and hurt the population are likely to strengthen Maduro in the short-term.
“It will bolster his discourse that Venezuela is the target of an economic war,” said Smilde, who supports Friday’s more limited sanctions.
But with Venezuela’s streets calmer than they have been for months, and the opposition reeling from its failure to prevent the constitutional assembly from going forward, action from an increasingly concerned international community represents the best chance of reining in Maduro, he added.
Maduro is already struggling to combat widespread shortages and triple-digit inflation as oil production has tumbled to its lowest level in more than two decades. Any economic sanctions, however mild, increase the risk of a default on Venezuela’s ballooning debt.
The government and state oil company have about $4 billion in debt payments coming due before the end of the year but only $9.7 billion in international reserves on hand, the vast majority consisting of gold ingots that are hard to trade immediately for cash.
Venezuela has taken desperate steps to remain current on its debt throughout the economic crisis, and the president has blamed his enemies for spreading rumors about any impending default.