February 4, 2019 | Policy Brief

The Administration Must Compete with Russia and China in Venezuela

February 4, 2019 | Policy Brief

The Administration Must Compete with Russia and China in Venezuela

After recognizing Juan Guaido last month as interim president of Venezuela, the Trump administration began to support the Guaido government through the amplification of sanctions against Nicolas Maduro’s regime and its enablers. By supporting Guaido through diplomacy and economic power, the United States is now directly competing with China and Russia, which continue to work to preserve the discredited Maduro regime.

In one of its most significant moves against Maduro thus far, the Treasury Department announced last week the designation of Venezuela’s national oil company, Petroleos de Venezuela, SA (PDVSA). Designating PDVSA is an attempt to cut Maduro off from his primary source of income in hard currency. But this action is unlikely to go unanswered. Given the sizeable investments by Russia and China in Venezuela’s energy sector, and Russia’s explicit warning to the United States not to intervene in Venezuela, it is likely that both will attempt to provide additional material support to the Maduro regime.

Now the administration should further recalibrate its efforts to compete against Russian and Chinese steps to bolster the Maduro regime. Specifically, the administration could look at ways to provide the interim government access to assets the U.S. previously blocked, as well as continuing to target Maduro and his cronies’ revenue streams.

To provide the interim government such assets in a timely manner, the United States could provide certified representatives of the interim government immediate access to some funds that are currently held in blocked accounts, specifically those accounts holding the proceeds of oil sales.

To continue targeting Maduro and his cronies while supporting the interim government, the administration could also redefine who is subject to sanctions. The administration revised the definition of the Government of Venezuela to cover additional figures associated with Maduro. But questions remain as to whether more revisions to that definition may be necessary make it clear that while companies are still prohibited from doing any business with – or releasing assets to – Maduro or his cronies, they can release assets to the interim government.

Likewise, the administration could expand the sanctions architecture against Maduro’s foreign allies and enablers. Currently, that architecture prohibits U.S. individuals and companies from participating in the sale or transfer of equity of Government of Venezuela-owned entities. This makes it more difficult for the Maduro regime to sell off state assets to keep itself afloat.

The United States could strengthen these existing sanctions by adding secondary sanctions, which would extend this prohibition to non-U.S. third parties, including agencies and instrumentalities of foreign states. This secondary sanctions exposure could extract a heavy price if Russia or China tried to purchase state-owned assets to keep the Maduro regime afloat.

The administration could also make additional use of those new secondary sanctions to push Russian or Chinese companies out of Venezuela. Taking the example of PDVSA or of the pro-Maduro media company, Globovision, the Treasury Department could mandate that companies incorporated in jurisdictions of countries that continue to recognize the Maduro regime that own or control significant Venezuelan government assets restore such assets to the Guaido government or a caretaker within a specified timeframe or be faced with the prospect of designation for sanctions or other remedial action by the United States.

In keeping with the PDVSA example, the administration could also target additional structurally significant entities in Venezuela by using sanctions to separate their Maduro-supporting owners from such assets.

The rapidly changing political environment requires the United States likewise to continue to update its sanctions architecture. Without it, the U.S. risks leaving its Venezuelan allies at the mercy of Maduro, Russia, and China.

Matthew Zweig is a senior fellow at the Foundation for Defense of Democracies and contributes to its Center on Economic and Financial Power (CEFP). Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington-based, nonpartisan research institute focusing on national security and foreign policy.


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