The U.S. government has announced plans to cancel permits that allow foreign partners of Venezuela's state oil company, PDVSA, to export Venezuelan oil and petroleum products. This decision, reported by Reuters, signals a significant shift in U.S. policy regarding Venezuelan oil imports, which have been a topic of debate amid ongoing sanctions against the country.
PDVSA, the Venezuelan state-owned company, holds a monopoly on oil production in Venezuela. Over the past few years, the administration of former President Joe Biden had issued permits to various companies, enabling them to import Venezuelan oil as exceptions to the sanctions imposed on the country. Notable companies that received these permits include Spain's Repsol, Italy's Eni, France's Maurel & Prom, India's Reliance Industries, and U.S. Global Oil Terminals.
However, the landscape changed dramatically when former President Donald Trump reinstated secondary duties on oil and gas purchases from Venezuela. Following this development, most of the companies that had previously imported Venezuelan oil have now suspended their operations. According to reports, the combination of these new duties and the cancellation of licenses is expected to lead to a significant reduction in Venezuelan oil exports in the coming months, following a decline that began in March.
In February, Venezuela had managed to export 910,000 barrels of oil and fuel per day, a slight increase from 867,000 barrels per day in January. However, the reintroduction of stringent measures akin to those seen during Trump’s first administration in 2020 is likely to exacerbate the already precarious situation for PDVSA, which has struggled with production and export levels in the past.
Historically, similar sanctions led to a sharp drop in Venezuelan oil production and forced PDVSA to rely on intermediaries to distribute its oil, particularly to China. This situation also resulted in the company forming agreements with Iran, which continue to influence its operations today. These intermediaries remain active partners in the oil trade with PDVSA.
Meanwhile, economist Glenn Hubbard recently outlined a new strategy in a column for The New York Times, suggesting that the U.S. could leverage secondary oil sanctions to benefit its own economy while simultaneously diverting Russian cash flow away from financing the ongoing war in Ukraine. Hubbard argues that Russia should be made to pay a fee for each delivery of oil and gas, which would create a new revenue stream for the U.S.
Despite ongoing negotiations between Russia and Ukraine regarding a ceasefire, President Vladimir Putin has shown little commitment to ending hostilities. Hubbard notes that the Kremlin has reacted skeptically to recent proposals from the U.S. to impose sanctions and tariffs on Russian imports, primarily because the U.S. imports very little from Russia.
Hubbard suggests that the U.S. administration should impose sanctions on any entity involved in the sale of Russian oil and gas globally. This would force Russia to pay a fee, termed the "Russian Universal Tariff," which would start low but increase each week without a peace agreement. This approach could potentially generate significant revenue for the U.S., with estimates suggesting a $20 per barrel fee could yield up to $120 million daily, totaling over $40 billion annually.
Currently, Russia exports approximately $500 million worth of crude oil and petroleum products daily, along with an additional $100 million in natural gas. The Kremlin has budgeted nearly $400 million per day for military expenses in 2025, linking its ability to finance military operations directly to the revenues generated from fossil fuel exports.
Hubbard emphasizes that every dollar collected from these tariffs is a dollar that Russia cannot utilize to fund its military efforts. Ideally, this economic pressure could compel Russia to engage in negotiations, or at the very least, provide the U.S. with substantial financial resources that could be used to support Ukraine.
Over the past three years, sanctions and public outcry, including some dock workers refusing to unload Russian oil tankers, have forced Russia to seek alternative buyers, often selling its oil at significant discounts. The average discount over the past year has been around $9 per barrel, peaking at $35 in April 2022. Despite these challenges, Russia has maintained its export volumes, ensuring a steady supply in the global oil market.
Hubbard's proposed combination of secondary sanctions and tariffs could put additional pressure on the Kremlin, threatening its most vital source of income. This strategy not only aims to stabilize the global oil market but also seeks to provide the U.S. with a stronger negotiating position. If Congress supports such measures, it could bolster the administration's efforts to curtail Russia's military funding and push for a peaceful resolution to the conflict.
As the situation evolves, the impact of these sanctions and tariffs on both Venezuelan and Russian oil exports will be closely monitored. The intertwining of economic policies and international relations continues to shape the global energy landscape, with significant implications for both U.S. foreign policy and the stability of oil markets worldwide.
