Mini Series: What’s war got to do with it? Venezuela’s Energy sector is paving the way for the country’s democracy

The U.S. administration’s new oil sanctions relief toward Venezuela, though unlikely to have any immediate effect on international oil prices, is poised to re-align not only regional oil trade which is buoyed by conflict in the east, but also the country’s democratic prospects.

In the short term, the U.S. sanctions framework is not designed to be a game changer for the oil market - the licence it has been granted will not permit Venezuela to produce so many barrels of oil that it would affect oil prices. However, in the long term, it may be that Western democracies feel that having a new source of hydrocarbons outside conflict zones could be highly attractive.

The lifting of sanctions is on a temporary basis of six months, whereby the unofficial premise is to allow Maria Corina Machado to run against Maduro. This is a deal which has been beneficial to the US as it allows for a reduction of the impact the sanctions have had on the migration crisis in the U.S., which has been a big challenge for the administration.

Though the U.S. has put a big red line on clawing back sanctions relief if the conditions are not met, Juan Gonzalez, the White House’s top Latin America official has gone on record stating that it is unlikely that there will be a return to a Trumpian era level of sanctions which will continue to penalise the Venezuelan population.

The Baker Institute’s Francisco Monaldi also believes we will see a less stringent sanctions regime from the E.U. than from the U.S.

At worst, he states, there will be the less attractive proposition of working with the European and Russian companies in the region (ENI, Repsol, Gazprom) and operating through their licences, but it will not inflict a level of pain on PDVSA’s profit which was felt at the hands of Trump’s regime.

It is not just Oil we should concentrate on. ENI and Repsol have a large field in the eastern part of Venezuela used for domestic markets but there is potential to build an LNG field from scratch, which would be a new endeavour for Venezuela. Gas is relevant geopolitically because the Europeans care for it. In terms of money, it is not as important for Maduro as oil is, but he has realised that the E.U. cares more about gas than oil and has therefore taken a keen interest in it lately.

So, we should not understate that Venezuela could be a big producer in the future of Oil and Natural Gas which can allow Western democracies to have another source that is not in the middle of conflict zones (Central Asia, Russia, ME). Though the E.U. and the U.S. will keep a close eye on Venezuela’s approach to democracy in the next six months, it is unlikely given the active conflict zones near oil-producing regions that they will support going back to restrictive and failed sanctions which patently did not improve the political situation in Venezuela and far more likely that they will push for relations to be normalised.

There is a strong chance for Venezuela to enter a new political reality and become more democratic. Changing governments in Colombia, Brazil and Mexico also have space to play a constructive role to put pressure on him to encourage competition in the elections. In the short term, the immediate lift of sanctions gives Maduro a very important amount of money to invest in his campaign and improve his stances in the election. Signs of progress, however small are improvements at large for Venezuela’s middle class.