Venezuela oil sanctions more likely as Tillerson tours region

KINGSTON, Jamaica (Bloomberg) -- U.S. Secretary of State Rex Tillerson signaled the U.S. is closer to imposing sanctions on Venezuela’s oil sector, raising the pressure on President Nicolas Maduro as his talks with opposition leaders remained at an impasse.

Wrapping up a tour of Latin America and the Caribbean that focused on unifying the region against Venezuela, Tillerson said he has President Donald Trump’s backing for tougher restrictions against Maduro’s government. Tillerson said that while no final decision has been made, mitigating the impact of potential sanctions was high on his agenda during a stop Wednesday in Jamaica.

“I don’t want to get into specifics because we’re going to undertake a very quick study to see if there are some things that the U.S. could easily do with our rich energy endowment, with the infrastructure that we already have available what could we do to perhaps soften any impact of that,” Tillerson said at a news conference in Kingston. “There’s great unanimity in the region and certainly in the hemisphere that we all want to see some progress on this situation in Venezuela which only gets worse day by day.”

The consideration of sanctions represents a shift for Tillerson, who argued against them as chief executive of ExxonMobil Corp. But he also tangled with Venezuelan officials after the government of late President Hugo Chavez nationalized his company’s assets in the country, which has the world’s largest oil reserves.

Trump is “very supportive, he said, ‘Yeah, I know you haven’t been in favor of that in the past,’ and I said, ‘Well, I think things have changed,’” Tillerson said earlier to reporters en route to Kingston from Bogota. “So we’re going to do this work, take it to him and let him make the decision.”

Oil posted the biggest decline in more than two months Wednesday as record crude production from U.S. fields reignited worries that supplies will swamp demand. West Texas Intermediate for March delivery fell $1.61 to $61.78 at 3:14 p.m. New York time.

Under Chavez, Venezuela won allies by providing cheap financing for the purchase of the country’s oil, helping cash-strapped Caribbean nations and allies including Cuba and Nicaragua circumvent rising energy costs. The strategy, part of what Chavez and his successor Maduro called “21st Century Socialism,” began to crumble as global oil prices collapsed and Venezuelan government spending continued unabated.

Political talks

In recent years, Venezuela’s economic crisis has only deepened, with hyperinflation following the creation of a vast black market for dollars and basic goods like food and medicine, which are in critically short supply. The latest talks between Maduro’s government and the opposition, hosted by the Dominican Republic, broke down again on Wednesday.

A key concern for the U.S. ahead of any sanctions move has been how to mitigate the impact of possible oil restrictions, not just on Caribbean nations but also on U.S. refiners who import heavy Venezuelan crude.

Tillerson said the U.S., Mexico and Canada had agreed during his stop in Mexico City last week to establish a working group that would look at ways to mitigate the damage caused by such restrictions. Asked if sanctions were a certainty, he said, “I don’t want to say it’s a sure thing because I want to do the work.”

Jamaican Prime Minister Andrew Holness suggested the region is already moving on following years of dependence on subsidized Venezuelan oil.

U.S. exports

“We now don’t hardly import oil from Venezuela,” Holness said alongside Tillerson in Kingston. “With the new dynamics in the global trade and energy and the United States is becoming a net exporter of energy resources, Jamaica can in this new paradigm benefit from that.”

As part of its campaign to raise pressure on Maduro after accusations of electoral abuses and human-rights violations, the Trump administration has already imposed sanctions on more than a dozen top officials -- including the president himself.

Maduro and top Venezuelan figures have pushed back on U.S. efforts to isolate the country, calling it part of an orchestrated campaign to overthrow his regime.

“Venezuela won’t be threatened by anything, not by one Rex Tillerson or a thousand of him,” Maduro said Feb. 5 while in a press conference with OPEC Secretary General Mohammad Barkindo. “If United Stated decides to sanction oil, our ships will go to other places and we will continue to sell.”