The US and Venezuela: Sanctions Snapback and the Essequibo Gambit

The fragile process of diplomatic re-engagement between Joe Biden’s America and the Venezuelan regime of Nicolas Maduro may have nosedived by the beginning of December, due to two key developments.

Firstly, US policymakers have threatened to “snap back” sanctions which were eased on Venezuela on 17 October, as part of a deal in which relaxation of sanctions on Venezuela’s oil and gas sector and the state gold company for six months were traded for an agreement by the Maduro regime to an electoral roadmap with media access for all parties, international election monitoring, and a commitment that any and all opposition leaders would be able to run as candidates in the 2024 Presidential election.

US officials charge that Maduro has broken this understanding by maintaining a 2015 ban on opposition leader Maria Corina Machado preventing her from running for office and, after Machado decisively won the opposition primary held on 22 October, by seeking to have the primary result declared invalid, thus aiming to remove Maduro’s prime challenger in 2024 from the political process. The regime faces a “snapback” of US sanctions after the end of November if it does not allow Machado to run as a candidate. ?

Secondly, the dictatorship has also organised a referendum, to be held on 3rd December, on whether Venezuela should annexe Essequibo, an oil-rich area which makes up two-thirds of the area of neighbouring Guyana. Any military action to seize this region by Venezuela after the referendum would likely trigger, at the very least, an end to the US-Venezuela engagement, with no possibility that sanctions would be relaxed for the foreseeable future.

The reimposition or boosting of sanctions triggered by both or either of these processes would affect US oil companies such as Chevron which have recently begun to resume operations in Venezuela, European oil companies such as Eni and Repsol, oil traders, and middlemen, who have begun to resume operations in the country.

However, GeoCompass believes that full “snapback” of US sanctions is unlikely at this juncture and that even if the Essequibo referendum result is in favour annexation – a likely prospect – the regime would not mount any military operation to implement this before the 2024 Presidential election.

No Full “Snapback” of US sanctions

Full “snapback” of US sanctions over Machado’s candidacy is unlikely because both the US government and the Maduro regime benefit from continued engagement.

The Biden Administration’s Venezuela policy is to use sanctions waivers as incentives to prod Maduro’s government to hold more free and fair Presidential elections in 2024. This policy is a response to the failure of the Trump Administration’s application of “maximum pressure” sanctions on Venezuela in 2019, which failed to cause the collapse of the Maduro regime.

Instead, the Biden Administration’s end-goal is to manoeuvre Maduro into agreeing to an election process which he could lose, resulting in his replacement with a government led by the Venezuelan opposition. This policy of “democracy promotion” is linked to the competition between the United States, and Russia and China. Maduro’s regime has developed strong links to both states and Trump’s sanctions pushed Venezuela further into the arms of this nascent anti-American bloc, as Maduro’s government came to rely further on China as a customer for oil the United States would no longer buy, and on Iran to transport it and provide technical assistance.

The Biden Administration believes that an opposition-led government would lessen Venezuela’s dependence on these states, and thus reduce the influence of “malign actors” in the Western hemisphere – a traditional focus of US security concerns. An opposition-led government would also be more legitimate internationally and more likely to spur larger and much needed investments in Venezuela’s decaying oil industry, producing a boosted supply which, over the long term, would not be hostage to Russian actions in Eastern Europe or an increasingly turbulent Middle East. A full snapback would mean the end of any US leverage on the regime and a return to Trump’s failed policy, leaving the geopolitical problem that Venezuela poses for the US in Latin America unresolved.

The Maduro regime also benefits from engagement with the US. The regime’s economic mismanagement and US sanctions have devastated Venezuela’s economy. Although the situation is now improving, the country’s economy is still only one-third of its size before this decline. The Maduro regime has been able to sidestep some US sanctions by selling oil to China at a 50% discount, but selling oil to the US market at full price through sanctions relaxation would boost the Venezuelan economy, which might improve the stability of his regime over the long run. In addition, Maduro also needs a 2024 Presidential election that can at least be made to appear to be legitimate, to access more of the investment required to repair the oil sector.

Therefore, a solution will be found that allows the two sides to continue their engagement without full snapback. Juan Gonzalez, Senior Director of Western Hemisphere Affairs at the National Security Council, pointed out the difficulty of fully closing off Venezuela’s oil sector in an interview given on 20 October and also noted debates within the Biden Administration over whether sanctions snapback would involve full snapback or a “more targeted approach”.

While Gonzalez and Assistant Secretary for Western Hemisphere Affairs Brian Nichols have taken a harder line after Maduro’s attempt to undermine Machado’s candidacy, and Venezuelan officials have stated that Venezuela will not comply with US demands to drop the ban on Machado, these statements represent a mixture of posturing for domestic audiences and negotiating positions.

While there may be some threats or imposition of more targeted sanctions to pressure Maduro, the easing of oil sanctions will likely not be rolled back. Instead, the two governments will negotiate a face-saving solution that will allow economic engagement to continue.

No military action in Essequibo

Military action by the Maduro regime to seize Guyana’s Essequibo region from Venezuela is unlikely before the 2024 election. The referendum on annexation of the region which the regime called for 3rd December is an attempt to provide Maduro with a patriotic issue to stand on in the 2024 election, rather than a short-term prelude to invasion. ?

Venezuela’s dispute with Guyana over who should be sovereign over the area is long-standing, and intensified after 2018, when the region was discovered to hold approximately 11 billion barrels of oil. This discovery made Guyana the holder of the world’s largest oil reserves per capita. Seizure of the area would provide a huge long-term economic boost to Venezuela.

However, the timing of the referendum highlights its connection to Venezuela’s domestic politics. Although the National Assembly agreed to a referendum in September, no clear timeline was set out for it. The Supreme Court agreed to the referendum on 23rd October – one day after Machado’s primary win.

Annexation of Essequibo will be popular with Venezuela’s population and provides an issue which the Maduro regime can use to mobilize Venezuelans in its favour. In the short run, holding the referendum provides a distraction from the controversy surrounding the regime’s treatment of Machado – something she has pointed out – and its current diplomacy with the United States. Over the medium-term, the issue is an electoral asset for Maduro. The regime’s propaganda on the issue links the United States Southern Command (SOUTHCOM), ExxonMobil, and opposition politicians as forces working to block Venezuela’s claim to the region. This allows him to run against the United States in the 2024 election, while providing a concrete issue that he can use to paint opposition candidates as puppets of a foreign power.

The “referendum simulation” which the regime held on 20 November was likely aimed at both objectives: it sought to draw attention away from the opposition primary and its fallout, while allowing the regime to gauge the issue’s traction for 2024.

The issue’s popularity means that it is difficult for the opposition to counter. While Machado has been critical of the Maduro regime’s approach, she has been reduced to arguing that the referendum should be suspended – rather than cancelled – as it may prejudice Venezuela’s legal claim to the territory at the International Court of Justice.

Military action by Maduro to seize the region is not impossible, considering the rise in states using military action to seize territory since the end of the COVID-19 pandemic. This includes Russia’s invasion of Ukraine and Azerbaijan’s seizure of Nagorno-Karabakh, while the future status of Gaza is currently unclear, and fears persist of a Chinese military operation to seize Taiwan.

However, Maduro will not want to face the consequences which such military action will provoke. While the US is currently expending time, commitment, and resources to support Ukraine, Israel and, to a lesser extent, Taiwan, an action which sets a precedent for the violent redrawing of borders in Latin America will rapidly focus it on the Western Hemisphere. This is the core zone for US security: if the United States faces too large a degree of instability in its home region, this will damage both its ability to project its power into other regions, and its credibility. Other powers will become less likely to believe that the United States will support or counter them if they perceive that it cannot or will not enforce its hegemony in Latin America.

The United States has recently signalled its support of Guyana in the dispute by sending two delegations of military officers to advise the government and further signals of support are likely if Maduro continues his current approach. A Venezuelan invasion would end the Biden Administration’s current policy of political engagement and change through elections in favour of a much harsher policy that would erode the stability of the Maduro regime.

For Maduro, strongly expressing Venezuela’s claim may be useful in electoral terms, but using force to realise it will not. Therefore, while the regime will continue to use strong rhetoric on this issue, it will not invade until at least after the 2024 election. Even if Maduro wins this election, an invasion is still unlikely.

Future Outlook

It is still far too soon to make any reliable forecasts regarding Venezuela’s 2024 election. Both the Biden Administration and the Maduro regime will remain focused on it. Biden seeks to engineer a freer and more fair election which Maduro loses. Maduro seeks to engineer an election which can be argued to be legitimate but maintains the regime in power.

Thus, future rounds of diplomatic conflict and negotiation between the two governments are inevitable, with the Biden Administration’s policy of re-evaluating its sanctions every six months providing an approximate timetable for these conflicts.

Possible future issues of contention include but are not limited to: equal access to the media for all parties; the role of domestic election monitoring NGOs; and US democracy promotion aid to civil society groups and parties.

Anyone with an economic or financial interest in Venezuela had better prepare for a bumpy ride.