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Will Trump’s Venezuela Sanctions Hit U.S. Gasoline Supply?

When the Trump administration announced sanctions on the Venezuelan oil industry last week, it set in motion a situation that could lead to higher gas prices for Americans. So far, gas prices in the United States have not risen noticeably based on the sanctions. However, the administration’s new policies will, undoubtedly, mean a disruption in a portion of the country’s gasoline supplies . The ultimate impact on Americans’ wallets is yet to be determined.

The sanctions disincentivize Venezuela and its national oil company, PdVSA, from continuing to operate its Citgo subsidiary. In recent months, Venezuela has been exporting about 500,000 barrels of crude oil per day to the U.S. (The number had been higher before Venezuela’s oil production capabilities floundered under the weight of mismanagement and poor finances). In January, those exports dropped to just 355,000 barrels per day.

The new sanctions mean that the money PdVSA makes when the Citgo subsidiary buys its oil must stay in the U.S. in an account to be released to a new Venezuelan government without Maduro. Moreover, the profits earned by Citgo must stay in the U.S. so Maduro’s government cannot benefit from them. Therefore, there is no reason for Venezuela to continue to send oil to the U.S. and little incentive for Venezuela to continue operating Citgo.

There is a considerable risk that Citgo will halt—or at least drastically cut back—its operations. Oil will stop coming from Venezuela and refineries may slow or even halt operations entirely. Citgo gas stations, which are franchised but have contracts to purchase Citgo gas, will be forced to buy and sell something else. The overall supply of gasoline in the U.S. will be strained.

There is a more optimistic perspective to consider. Patrick DeHaan, the Head of Petroleum Analysis at GasBuddy, is not nearly as concerned. He says that GasBuddy has not “seen anything extraordinary concerning prices at Citgo stations yet.” DeHaan explains that, “even if there was a full cut of oil imports from Venezuela, I believe Citgo could acquire oil from other sources before their gasoline supply takes a hit.”

The fate of Citgo and its refineries is an important question to consider as the impasse in Venezuela drags on . It is a subsidiary of PdVSA but also employs almost 3,500 people in the United States. There are Citgo stations in 30 states plus the District of Columbia. Even if the U.S. and other countries now recognize Juan Guiado as the president of Venezuela instead of Nicolas Maduro, Maduro’s people still control PdVSA. Citgo is owned directly by PdVSA, not the Venezuelan government.

Will the U.S. go so far as take ownership (and control) of Citgo away from the Maduro-aligned PdVSA and put it under the authority of Guiado and his allies? Such a move could be legally questionable and complicated. If it happened, would the Citgo employees listen to the Guaido-led bosses? Moreover, do Guaido’s allies know anything about running a downstream oil business, or will they bring in exiled Venezuelan oil personnel to make the decisions?

The only certainty is that with every day that Maduro clings to power, the risks to Citgo and the U.S. gasoline supply grow.
Source: Forbes

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