U.S. government officials are considering stepping up sanctions against Venezuela by targeting its vital oil industry, although an embargo against Venezuelan crude oil imports into the U.S. is off the table for now, people familiar with the deliberations say.
The measures could be announced as early as Monday, the people say, after a vote Sunday pushed by embattled Venezuelan President Nicolás Maduro to elect a special assembly that will rewrite the constitution. Venezuela's opposition is boycotting the vote, fearing the assembly could dissolve the opposition-controlled congress or postpone elections.
The Treasury Department didn't immediately respond to a request for comment on the potential sanctions.
The U.S. government levied sanctions on 13 high-ranking Venezuelan officials on Wednesday for alleged corruption, human-rights violations and undermining democracy in the South American country. While more sanctions against other individuals are also under consideration, on Friday, Vice President Mike Pence vowed "strong and swift economic actions" if the vote goes ahead.
The Venezuelan government has responded defiantly, dismissing sanctions and warnings from Washington. Mr. Maduro and his top aides have insisted the government would notch a triumph in Sunday's vote.
Observers say broader sanctions against Venezuela could accelerate an economic meltdown and push the cash-strapped country to the brink of default on its debts.
The toughest of possible sanctions -- an embargo on imports of Venezuelan oil -- isn't on the table right now, these people said, but could be considered later. Options being considered include a ban on sales of U.S. oil and refined products to Venezuela, and financial restrictions on the country's state oil firm, they said. Those measures are seen as potentially crippling for the Venezuelan government without being too disruptive for the U.S. economy. No final decision has been made, the people said.
"Even limited new US-imposed sanctions or discussions of broader sanctions could be a catalyst for Venezuela defaulting on its upcoming debt payments," Barclays said in a recent note to investors. Venezuela's oil industry supplies 95% of the country's hard currency.
"The dollars aren't there to pay for the food and medicine Venezuelans need," said Moisés Naím, a former trade and economy minister in Venezuela. He fears broad economic sanctions could trigger a humanitarian crisis while giving Mr. Maduro an excuse to blame the U.S. for the country's economic collapse.
U.S. refiners, including Valero Energy Corp., Phillips 66 and Chevron Corp., have lobbied strongly against a ban on Venezuelan oil imports, because refiners on the U.S. Gulf Coast rely on Venezuela for heavier grades of crude oil to convert into fuel.
Venezuela sells about 750,000 barrels a day to the U.S., mostly to Gulf Coast refiners. The rest of its oil exports generate little cash, as the oil is sent to China to pay debts or sold at deep discounts to Cuba and other Caribbean countries.
The most likely option, say the people familiar with U.S. discussions, is a ban on exports to Venezuela of refined petroleum products and lighter crude grades that Venezuela mixes with the heavy crude it then sells to the U.S. That could force Venezuela to import light crude at higher prices from distant places like Algeria or Nigeria, and deepen its steady oil output decline, says Francisco Monaldi, a Venezuela expert at Rice University.
Another option is to ban state oil company Petróleos de Venezuela from using the U.S. banking system and U.S. currency, the people say. Rep. Ileana Ros-Lehtinen, (R., Fla.), a senior Republican on the House Foreign Affairs Committee, urged the Trump administration on Sunday to levy sanctions against Venezuela's state oil company and prevent Mr. Maduro's government from being able to tap the U.S. financial system as an economic lifeline.
Such sanctions would stop U.S. firms from buying Venezuelan oil and make it difficult for any oil trader or firm to do so, pushing Venezuela into default, said Russ Dallen, a managing partner at investment bank Caracas Capital.
The U.S. could also ban U.S. companies from investing in Venezuela's energy sector, these people said. That would drive out oil-field service firms such as Halliburton Co. and Schlumberger Ltd., which provide key technology and expertise in oil drilling and production in a country which boasts larger oil reserves than Saudi Arabia.
U.S. refiners have begun preparing for any fallout from a possible embargo against Venezuelan oil. Marathon Petroleum Corp. and Valero said Thursday they will process more light and sweet crude oil in the next quarter, moving away from the heavy, sour grades produced by Venezuela and Middle Eastern countries.
Valero executives attributed the move to production cuts by the Organization of the Petroleum Exporting Countries and growing light crude production from U.S. shale basins, but people close to the company also described it as a preventive measure against a Venezuelan embargo.
"The way we view any potential sanctions is, it really just creates some inefficiencies in the crude market," said Michael Ciskowski, Valero's chief financial officer, in the company's earnings conference call.
U.S. refiners have warned an embargo would be disastrous. In a letter Thursday to President Donald Trump, the industry's top trade group said limits on U.S. imports of Venezuelan crude would destabilize oil markets and drive up the cost of gasoline for U.S. consumers.
"Sanctions on Venezuela's energy sector will likely harm U.S. businesses and consumers, while failing to address the very real issues in Venezuela," wrote Chet Thompson, president of American Fuel & Petrochemical Manufacturers.
Gulf Coast refineries are configured to process heavy crude and would be hardest hit if Venezuela went offline. Even if they reconfigured operations to handle more light crude, they would be unable to run at full capacity without replacing lost Venezuelan heavy oil, said Dylan White, an analyst at market research firm Genscape.
--Ian Talley contributed to this article.
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(END) Dow Jones Newswires
July 30, 2017 15:12 ET (19:12 GMT)