Updates throughout.
The US adopted a fourth round of sanctions to prevent Venezuela and state-owned oil company PdV from issuing new debt and equity that it says are helping to finance the "illegitimate rule" of president Nicolas Maduro.
The sanctions, which US president Donald Trump approved today, include exemptions that allow PdV continued access to financing needed to maintain crude exports, and allow PdV's US downstream subsidiary Citgo to sustain business operations.
US officials say the sanctions are intended to pressure Maduro to hold elections, while avoiding harm to Venezuela's economy and its citizens. Trump on 11 August floated the possibility of a "military option" in Venezuela, but US administration officials believe further sanctions are the most effective response to 30 July constituent assembly elections widely seen as fraudulent. The new assembly has since assumed the powers of the Venezuelan opposition-controlled legislature that was elected in December 2015.
"Today's action is focused on restricting the regime's access to US debt and equity markets," US treasury secretary Steven Mnuchin said today. "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."
The sanctions limit Venezuela's ability to raise revenue through the US financial system by prohibiting the issuance of new debt and bonds, with exceptions such as commercial trade financing, financing the import and export of petroleum, and financing for humanitarian assistance.
The US says the Venezuelan government has resorted to "opaque financing schemes" and liquidating assets at "fire sale prices" to enrich itself.
The White House stopped short of prohibiting imports of Venezuela crude, and included multiple exemptions to allow Citgo to "continue its business operations and ensure the dictatorship does not loot" the company, says a senior US administration official.
The sanctions prohibit Citgo from sending profits or dividends back to Venezuela, but do not prohibit secondary market trading in US financial markets of existing Venezuelan bonds.
Citgo declined to comment on the new US sanctions.
The US says further sanctions are possible in the future. "What we are trying to do here is create a series of escalatory measures we can take. Obviously the US has a lot of influence over the Venezuelan economy, but we do not want to rush in and use our influence in an irresponsible manner," said a senior administration official.
Prior to today's action, the US had imposed targeted sanctions on around 30 Venezuelan officials, including more recently Maduro himself.
At today's briefing, Mnuchin said the new sanctions show US "condemnation of tyranny and dictatorship in Venezuela....Our plan is to continue to turn up the heat on the Venezuelan government," with exemptions to allow US pension funds and fiduciaries to wind down their positions.
Contingency planning is underway should the situation deteriorate, but no military actions are anticipated in the near future, US national security advisor HR McMaster said today. US-based bankers consulted by Argus say the new sanctions step up the likelihood of a default on Venezuelan sovereign and PdV debt, as early as the fourth quarter.
Speaking at the UN in New York this afternoon, Venezuelan foreign minister Jorge Arreaza called the new US actions "anachonistic" and "hostile", and said the US "could not be allowed to cause a humanitarian crisis in Venezuela."
In Caracas, there was no immediate response from PdV or the energy ministry.
But the Venezuelan defense ministry said it would hold military exercises involving "over 1mn armed combatants" this weekend to show it can repel a US invasion. Maduro ordered the exercises last week after Venezuelan intelligence and diplomatic officials confirmed that Washington was preparing tough new financial sanctions, a senior defense ministry official tells Argus.
Military delegations from Cuba, Russia, China, Belarus and Vietnam will participate as direct observers in the national defense exercise, the defense ministry said.
Venezuela currently produces around 1.9mn b/d of crude, of which about 1.4mn b/d is exported mainly to the US, China and India. Production has fallen steadily since the 1990s, when the Opec country pumped in excess of 3mn b/d.
Former Venezuelan central bank economists Orlando Ochoa and Jose Guerra warned earlier this month that Venezuela's economy may contract by over 10pc in 2017, with annual inflation ballooning to over 1,200pc by early 2018.
