Venezuela: Frozen funds, elections, and the cooling of sanctions

Sources in Venezuela believe an announcement is likely within weeks or even days that will allow the movement of nearly USD3.2 billion in funds frozen by the US to a UN-managed trust which will be used for humanitarian purposes and protected by OFAC. While the US has also pushed for a clear election timetable, it is understood the entire deal is contingent on the removal of sanctions that would allow oil companies to expand work in the country.

Our tip off comes after several media outlets speculated the negotiations involving the funds, which have been frozen since 2019, were close to ending. One of the terms for unfreezing the funds is thought to be the US financial enforcement authority OFAC protecting the trust, guaranteeing that creditors cannot pursue the USD3.2 billion allocated for humanitarian purposes in court.

It also understood the Maduro administration may sign an agreement regarding general elections and the upcoming opposition primaries. The US reportedly wants some sort of guarantee that the results of a general election, in theory scheduled for 2024, will be respected.

However, the elephant in the room is what this means for US sanctions. Multiple sources within the negotiations made it clear the entire agreement was contingent on the US loosening some sanctions. This makes the reduction of some US sanctions highly likely. Sources expect an expansion of the licenses held by the US’ Chevron and European oilers Eni and Repsol to be a starting point.

We have been discussing the negotiations with Raúl Stolk of Caracas Chronicles over the past few months. He made it clear that while negotiations were ongoing, the parties would not meet in Mexico until there was a deal to sign.

It would not be surprising if the deal was announced very soon. The US midterms are over, and Thanksgiving, a major US holiday and a period of Congressional recess, would make an excellent time to bury such a controversial political decision in the US.

Another layer is the pending winter energy crisis in Europe due to the ongoing war in Ukraine. The EU has to date largely backed the US in its aggressive sanctions against Venezuela, but rising energy prices have placed increasing pressure on European governments to do what they can to drive costs down. The US recognizes the EU and other allies need to secure access to additional oil and gas supplies, further incentivizing the loosening of some energy-related sanctions.

Southern Pulse’s take

While this deal may be a short-term win for an authoritarian leader, over 10 years of increasingly strict sanctions and widespread diplomatic isolation have failed to see the Maduro administration lose its grip on power. A new path forward is needed to break the stalemate.

We anticipate this announcement will be the beginning of an even broader loosening of sanctions, given the apparent willingness of all parties to come to the negotiation table. However, it is worth noting that this is not the first time Chavistas (or Maduristas) and the opposition come together for a negotiation. “Will this time be different?” is just one question in a laundry list of others: What does this mean for the UN-led investigation looking into the Maduro regime committing crimes against humanity? What does this mean for the de facto opposition leader Juan Guaidó? Does this mean “Venezuela se arregló”?

As we stated earlier this year, Venezuela is not “fixed,” but life may get a little less difficult for everyday people and businesses that jumped ship over 10 years ago may consider reopening if this is the start of something much bigger.

Whether it’s Venezuela or elsewhere in Latin America, Southern Pulse has the experience, network, and relationships to simplify this challenging region with honest, direct answers to your most complicated questions. Want to learn more? Let’s chat.

Image credit — Map of Venezuela: Southern Pulse

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Southern Pulse

Southern Pulse provides strategic advisory services to help businesses operate successfully in Latin America.