The political right has monopolised the conversation about Venezuela in print and on TV. Its case is well rehearsed and follows the party line of the United States that President Maduro is a cruel illegitimate dictator and his corrupt government has mismanaged the economy to sink the country into a humanitarian disaster. The left has countered this by defending the gains of the Chavista revolution and attributes the current situation to the steep fall of oil prices and the US sanctions.

This confrontation was well captured by Andrew Neil’s This Week political review when Ken Livingstone valiantly defended the gains of the Chavez revolution whilst Andrew Neil put the opposite case with the assistance of Alan Johnson and Esther McVey.  Regrettably Ken Livingstone was rinsed by Neil because he could not answer how the sanctions had affected Venezuela or which sanctions were imposed when, whereas Neil with his selective briefing notes pointed out the oil sanctions were recent and reinforced the US line on mismanagement by the Maduro government. Kenan Malik in The Observer  castigated Livingstone for ‘bullshitting’. This was instructive to those on the left – if we are going to defend Venezuela, then we need to be armed with facts and be well briefed.

The starkest glimpse of US sanctions policy is Eisenhower’s memorandum in the 1960s, that stated “a line of action which, while as adroit and inconspicuous as possible, makes the greatest inroads in denying money and supplies to Cuba, to decrease monetary and real wages, to bring about hunger, desperation and overthrow of government.”

Over the last four decades, with the micro-electronics revolution, the world economy has become more integrated. With the dollar as a reserve currency and a monopoly over the world financial system through bank credit and clearance, the US is the nerve centre of monetary power in global commerce. Jack Lew, the  the former Treasury Secretary during the Obama Administration, declared that “economic sanctions have become a powerful force in service of clear and coordinated foreign policy objectives—smart power for situations where diplomacy alone is insufficient, but military force is not the right response. They must remain a powerful option for decades to come.”

The legal cover for intensifying economic warfare on Venezuela began with the passage of the Venezuela Defense of Human Rights and Civil Society Act passed by  the US Congress on 18th December 2014. The Act directed the President to block assets and apply exclusion sanctions to any person, including current and former Venezuelan government officials who are involved in violating human rights, curtailing civil freedoms and hindering democracy in the country. The Act was extended further from the end of 2016 to 2019 under the Trump administration which intensified sanctions on Venezuela.

Within three months of this enactment, on March 8 2015, the Obama administration issued the new Executive Order 13692,  declaring a national emergency with respect to the unusual and extraordinary threat to the national security and foreign policy of the United States posed by Venezuela. It also empowered the Treasury Department to set in place surveillance of Venezuela’s financial transactions in the United States. Even though the executive order deceptively stated that there was no intent to target the people and the economy of Venezuela, by blocking the personal and business accounts of seven Venezuelan officials, it fired the first shots for the imposing constraints on Venezuelan individuals and businesses operating in the US financial system.

Concurrently the major financial rating agencies ranked  Venezuela as a high risk country akin to countries in armed conflicts in spite of the fact that the Venezuelan government had been making regular debt repayments. This aimed to push the country towards default by preventing debt restructuring , creating disincentives for international investments and provided a pretext for impounding Venezuelan assets.

The banks and financial institutions took their cue, and they stopped extending credit to Venezuela state and institutions. Over the following year well into 2016, Venezuela accounts were shut down by the major US banks. Banks across Europe followed suit. This diminished the capacity of Venezuela to make payments in dollars and added costs when making payments by other means. Russian firms and Chinese banks also baulked at carrying out contracts because of the pressure from the US securities and exchange commission.

The hammer blow was struck by Trump on August 25, 2017 by the issue of Executive Order 13808 which prohibited new financial dealings with the Venezuelan government and its oil company Petroleos de Venezuela, S.A. (PdVSA). In the following twelve months, there was a dramatic decline in oil production. The loss of credit prevented PdVSA from obtaining finance for investing in or maintaining the oil industry infrastructure.

Perhaps even more important was a letter of guidance issued by the Financial Crimes Enforcement Network (FinCen) on September 20, 2017, warning financial institutions that “all Venezuelan government agencies and bodies, including SOEs (State Owned Enterprises) appear vulnerable to public corruption and money laundering” and `red-flagging’ several transactions originating from Venezuela as potentially criminal. Fearing that it was too risky to participate in money laundering inadvertently, many financial institutions proceeded to close Venezuelan accounts. Venezuelan payments to creditors got stuck in the payment chain, with financial institutions refusing to process wires coming from Venezuelan public sector institutions.

The US has been engineering the collapse of the  Venezuelan currency, the Bolivar, for years, firstly by preventing the inflow of dollars to Venezuela and secondly by facilitating the outflow of dollars. The shortage of dollars drives up the value of the dollar and pushes down the value of the Bolivar. The prices of imported goods (medicines, critical food commodities, business commodities, spare parts) rise rapidly. Domestic businesses cut back on production leading to mass layoffs and lower wages which in turn led to collapse of consumption. For several years, US policy has been to ensure that US businesses in Venezuela repatriate their dollars back to the US or divert them to their subsidiaries elsewhere. It has also encouraged richer Venezuelans to bank their dollars in Miami or to invest them in financial vehicles set up in Colombia. With a shortage of dollars, the black market thrives.The manipulation of exchange rate by publication of pernicious exchange rate not grounded on factual purchase and sale transactions using a website in DolarToday based in Miami, has been used to artificially drive up inflation levels since 2010. Taking all this together, not only the foreign exchange market is affected but also the price levels in the economy, leading to the loss of purchasing power and distorting production and the marketing of commodities.

Venezuela is a gold producer and exporter. Gold is a substitute for the dollar and to stop Venezuela using its gold reserves, in November 2018, the US imposed sanctions on the gold sector of the Venezuelan economy. The Bank of England was asked and complied by freezing Venezuelan gold deposit worth $1.2bn. Countries like Abu Dhabi where gold is traded globally have been asked to stop trading Venezuelan gold.

On 28th January 2019, the Trump administration imposed further wide ranging and stringent sanctions on the oil sector of Venezuela which exported $12 bn of crude oil and oil products to the US in 2018. US companies are prohibited from buying and selling any oil products from and to Venezuelan PdVSA or any entities it has a majority stake in. At a single stroke, this move deprived Venezuela of a major source of foreign exchange revenue leaving it at risk of not being able to import vital food and medicines.

Venezuela does not have any capacity to refine the oil it produces to enable it to have economic independence. The oil refineries owned by the state-owned CITGO Petroleum Corporation are in the southern US gulf coast. This leaves it at the mercy of US oil companies and the US government. The recent seizure of CITGO by the US blocked assets worth $7 billion deprived the government of dollars which could be used to import food and medicines. Furthermore Venezuelan crude requires diluents such as Naphtha which the PdVSA imported from Houston based subsidiaries of the Indian Reliance Industries. This has now been halted.

The cruelest move in all this is the deliberate blocking import of vital medicines and equipment that are a matter of life and death for many patients in Venezuela. In July 2017, Citibank refused to process Venezuela payments for the import of 300,000 insulin doses. In October 2017, the entry of vaccines to the country was delayed for four months because the US blockade made it impossible to make payments in the Bank Swiss UBS. In November 2017, to tackle a malaria outbreak, Venezuela made a payment to purchase primaquine and chloroquine, to the BSN laboratory Medical in Colombia. The Colombian government blocked the dispatch of tai-malarial drugs. In the same month, the European company Euroclear, founded by JP Morgan, seized $1.65 billion that were destined for the purchase of food and medicine. The following year in May 2018, the payment of $9 million was blocked for the acquisition of supplies for dialysis equipment.

According to a Latin American Geopolitical Strategic Centre (CELAG) study,  US economic war on Venezuela since Maduro’s April 2013 election through 2017 cost the country $350 billion in lost production of goods and services. If Maduro had received international financing from the IMF, Venezuelan GDP growth from 2013–17 would have exceeded Argentina’s.

This hidden war of monetary imperialism has seriously damaged Venezuela’s economy. The shortage of essential food commodities and medicines has led an economist aligned to the opposition, Francisco Rodriguez to call for a oil-for- food programme similar to that for Iraq in 1990s. Readers may recall that sanctions on Iraq led to an estimated death of a 500,000 infants.

The economic warfare on Venezuela is worse than what was done to Iraq and a portent of the shape of things to come for those countries which are in US cross-hairs, such as Cuba, Nicaragua and Iran unless countervailing forces develop to contain US hubris. The unity and the resistance of the working class, the rural classes and the military against the oligarchy backed by the US will determine the outcome of this struggle. International solidarity in challenging the corporate media’s narrative for regime change and the Tory government’s sanctions policy is vital in this struggle.

First publishes in Labour Briefing March 29 2019 https://labourbriefing.squarespace.com/blog/2019/3/29/the-hidden-economic-war-on-venezuela