When the US first announced its recognition of Juan Guaidó as president of Venezuela on January 23, the decision was met largely with applause within the foreign policy establishment. It seemed like nobody bothered to think about what, practically and economically, the decision would mean. Since Trump’s election, and his increasingly threatening rhetoric in relation to Venezuela, there has been wide agreement that a full-scale oil embargo would be terrible, both for Venezuela and the US. Yet somehow hardly anyone realized that by recognizing Guaidó, the US was de facto putting an oil embargo in place. Once again we turn to Rodríguez who, for what it’s worth, has been publicly supportive of the decision to recognize Guaidó and wrote the following on January 28, a day before the most recently announced sanctions:
By giving it the legal authority to invoice Venezuelan oil, the decision to recognize the Guaidó administration, therefore, would have the same implications for bilateral trade of an oil embargo. Applied by the countries that provide for nearly three-fourths of Venezuela’s imports, the decisions can be expected to have a significant effect on the country’s capacity both to produce oil and import goods. As a result, we expect Venezuela’s oil production to decline by 640tbd to 508tbd in 2019 (a fall of 55.7%), as opposed to our prior forecast of 1,070tbd. Exports will fall to USD 13.5bn (USD 12.3bn from oil), nearly half our previous estimate of USD 23.8bn. Imports of goods will decline to USD 7.0bn, a 40.3% decline (we expect the entrance of some humanitarian aid as well as the default on payments of all debt to cushion the fall). Venezuela’s economy is highly import dependent, as illustrated by the strong empirical correlation between import and GDP growth. As a result of the additional import crunch, we expect Venezuela’s economy to contract by 26.4%, as opposed to our previous forecast of 11.7%.