New Venezuelan opposition candidate may give US sanction relief options: analysts

Several Venezuelan opposition parties have put their support behind a new candidate, Corina Yoris, to run against President Nicolás Maduro, a move that some analysts say could prompt the US to consider extending at least some oil sanctions relief in the runup to Venezuela's presidential election in July.

"It's definitely possible that the selection of a new candidate and some other partial concessions could lead to a temporary or partial sanctions relief extension as the US looks to incentivize the Maduro government to allow a fairer election," said Rachel Ziemba, senior advisor at political risk consultancy Horizon Engage.

Options for sanctions might include a short-term extension of a few more months, or allowing some energy trade but not investment, Ziemba said. "But to do so would require some willingness from Maduro to allow a real opposition candidate to run," she said.

US concerns

The US in October issued General License 44, which authorized transactions related to oil and gas, after an agreement in Barbados between Maduro and the political opposition to hold fair presidential elections in 2024.

But after the leading opposition candidate María Corina Machado was disqualified in January, the US warned it would snap back sanctions when GL44 expires April 18, unless Maduro changes course and allows all presidential candidates to compete in the election.

US officials also have raised concerns about recent arrests of Machado allies and staff, but they still seem open to sanctions relief options.

"What I would say on sanctions relief is we're still willing to consider sanctions relief on the Maduro regime and on Venezuela if they meet their obligations that they made in the fall in Barbados," National Security Council spokesperson John Kirby said March 22.

If the current license is maintained, Venezuelan crude production is expected to rise from current levels of around 770,000 b/d to under 850,000 b/d as limited upstream investment increase supply capacity through 2025, said Nick Blanco, an analyst with S&P Global Commodity Insights.

"We are assuming that GL44 is maintained only because we do not have a clear signal one way or the other," he said.

If GL44 is cancelled, Venezuelan production and trade would quickly feel the impact, Blanco said. "Less barrels would flow to the US, and revert to China, the main consumer of Venezuelan crude during the peak of sanctions," he said.

While Chevron would likely still be allowed to produce and export crude under a prior license, it could be blocked from investing in upstream production, Blanco said. "This would cancel all on going drilling and reverse production increases seen in the last months quite quickly," he said. "Venezuela would likely have to revert to purchasing diluent from Iran, which it needs to produce and blend its heavy crudes."

Market assumptions

Ziemba argued that the markets already are assuming at least a partial snapback on April 18. "So any meaningful concessions would be a pleasant surprise," she said.

It is unlikely that the US will extend GL44 in its current form, said David Goldwyn, chairman of the Atlantic Council Global Energy Center's Energy Advisory Group

"But the US will have the ability to fashion a new general license which deprives the Maduro regime of revenue, while not punishing the domestic population and driving further migration to the US," he said.

The market impacts of the candidacy announcement will be minimal, Goldwyn said. Actual flows will not be impacted until April 25, and even then, major impacts will be on US refiners and exporters of diluent, he said.

"The key risks here are geopolitical; a return to the pre-GL44 status quo would primarily punish Venezuelan citizens, aggravate illegal migration, reintroduce Iranian suppliers to Venezuela and ensure discounted oil to China," Goldwyn said.

The ball is in the court of the government of Venezuela to see if Yoris will be accepted as a candidate, Ziemba said. Maduro is likely to use administrative restrictions to block a candidate that is popular, she said.

There is so much support behind Yoris that it is hard to see the Maduro government allowing her to run, said Fernando Ferreira, director of geopolitical risk service at the Rapidan Energy Group. "Even if they allow it for now, there have been so many violations of the Barbados agreement that it will be hard for the Biden administration not to reimpose some sanctions," he said.

The deadline to register as a presidential candidate is March 25. But Yoris, who has the backing of Machado, alleges that she has been blocked from accessing the computer system to register. Maduro formalized his registration to run for a third six-year term on March 25.

Opposition group Mesa de la Unidad Democrática has requested the National Electoral Council to extend the deadline for three days due to the computer issues.