The Policy of Economic Sanctions and the Elections in Venezuela

Source: The author

1. Three points should be taken into account when reflecting on the U.S. government’s sanctions policy toward Venezuela and the elections scheduled for July 28: (i) the content of that policy; (ii) the consequences that could derive from the announced expiration of General License 44 and (iii) the alternatives that could be considered from the human rights centrality. 
2. First point. The U.S. government has repeatedly warned that if the conditions of the Barbados Agreement are not met, General License 44 (LG 44) will not be renewed after April 18. The forcefulness and clarity of the message have been such that, without concrete progress, especially about the unitary candidate, it will be tough for the United States to justify the renewal of that license, especially considering the recent setbacks derived from the political persecution against civil society and the Unitary Platform. 
3. The narrative about the “failure of sanctions” clouds the understanding of the role of this policy. The Bogotá declaration of April 2023 and the U.S. government’s own announcements,  like it or not, show a consensus in which the review of economic sanctions will depend on progress in restoring conditions of electoral integrity. The renewal of the LG 44, regardless of any progress, would be a decision inconsistent with that policy. 
4. Second point. Notwithstanding the above, we must consider that the LG 44 has a limited scope as an incentive to move forward with freer elections, especially in the short time available. Despite the announcements of new investments based on this license, the necessary capital investments and the limitations of the legal framework for hydrocarbons constrain any short-term positive impact beyond creating conditions for more efficient commercialization of crude oil, access to diluents, and small-scale operating contracts. 
5. Another factor to consider is that PDVSA’s legal representation in the United States is exercised by its ad hoc board, not the Maduro-appointed board of directors, which also limits the practical scope of LG 44. As long as the Maduro government does not have legal representation, its incentives to advance democratization based on LG 44 will be limited. 
6. Similarly, oil tax revenues do not depend so much on LG 44 as on LG 41. Thus, due to what we have described as the de facto privatization of PDVSA, oil production recovered after 2020 despite the sanctions. In any case, this recovery primarily results from developed production before the license. However, the main incentive seems to come from LG41, which has been maintained despite the fact that the Fund for the Social Protection of the Venezuelan People has not been implemented. 
7. Therefore, the immediate impact that the expiration of LG44 could have on the U.S. market would be shallow. The Citgo crisis and the foreign public debt crisis may significantly impact the U.S. market, yet these issues have generated much less attention. 
8. In addition, the expiration of LG 44 could generate counterproductive consequences in terms of incentives for the greater informalization of the oil industry, given PDVSA’s inability to comply with its obligations derived from the Organic Law on Hydrocarbons. This informality is an obstacle to Venezuela’s democratic transformation. 
9. This brings us to the third and final point. LG 44’s limited practical effect makes it advisable to rethink its role—and the role of economic sanctions in general—as incentives, particularly considering that GL 44 expires on April 18, just two days before the end of the lapse for candidate substitutions entitled to appear on the ballot. Two complementary policies could be considered. 
10. The first complementary policy is to get out of the dilemma between renewing or not renewing the LG 44 and think more broadly about a new framework for sanctions that generates the right incentives to achieve tangible electoral improvements in a short time. In addition, a new institutional design could facilitate humanitarian financing with a portion of oil tax revenues. 
11. The second policy is that in addition to sanctions (personal and economic) as instruments that raise the costs of repression, it is urgent to resume the honest and credible debate on transitional justice in Venezuela. It is not enough to increase the costs of repression with sanctions; it is also necessary to reduce the costs of tolerance toward plural and peaceful social and political coexistence. That is a pending task. 
12. These policies would also help to prioritize the most critical obstacles to the recovery of the Venezuelan economy as a whole and the oil industry in particular: the lack of state institutions and capabilities. As long as the emphasis remains on the sanctions policy – which, ultimately, is not within the control of Venezuelans – attention will be diverted from other essential factors that Venezuelans can address, such as establishing new institutions and, most importantly, transitional justice.
13. If we have reached the current juncture – unprecedented in terms of the possibilities for advancing in democratic transformation – it is because of the path taken in recent years, including sanctions. If Maduro’s government agreed to establish the Dialogue and Negotiation Mechanism in 2021 and subscribe to the Barbados Agreement in 2023, it would be because of that path. The conversations of Doha between the U.S. government and Maduro also respond to that path. Before announcing premature failures, and based on the standards set in the Barbados agreement, it seems more coherent to think of innovative solutions to recalibrate the sanctions policy and strengthen its incentives, complemented by actions aimed at transitional justice focused on human rights.