When you’re president, cheap gas is good politics.
President Trump understand this. It’s why he promised to make gas prices even lower during the campaign and why he celebrated earlier this summer when gas prices hit their lowest level in more than a decade over the July 4 holiday weekend. Now Trump faces a dilemma: He wants to be a tough world leader who cracks down on foes like Venezuela, but that could cause gas prices to jump in the United States.
Trump is no fan of Venezuelan President Nicolás Maduro. He’s called Maduro a “bad leader” and a “dictator.” Trump is one of many world leaders who vowed “strong and swift economic actions” if Maduro went ahead with a “sham” election over the weekend to grab more power by replacing the Venezuelan legislature with a body more loyal to him. Maduro held the vote anyway, calling Trump a “bandit.”
The White House is feeling the pressure to act. The most obvious way to hurt Maduro is to hit the heart of Venezuela’s economy: Oil.
But American sanctions on Venezuelan oil could backfire. Venezuela supplies 10 percent of America’s oil, according to the U.S. Energy Information Administration, making it the third largest U.S. supplier behind Canada and Saudi Arabia.
Going hard after Venezuela would probably cause gas prices to rise in the United States, at least in the short run. Philip Verleger, an energy economist who runs consulting firm PKVerleger LLC, predicts oil prices could spike $10 if Trump does a full ban on Venezuelan oil.
“Prices would go up like a rocket,” says Verleger. “Gas prices in the U.S. would go up 25 or 30 cents a gallon within a couple of weeks.”
American oil refiners would have to find new suppliers. The average price of regular gas in the United States is now $2.31 a gallon, according to the EIA. That’s about the same as when Trump took office. Any action now could send oil prices higher during the popular holiday travel month of August.
“Somebody in White House probably recognizes the last thing this president needs right now is to p‑‑‑ off people who live paycheck to paycheck and voted him in,” says Tom Kloza, global head of energy analysis at Oil Price Information Service.
Still, Republican Sens. John McCain of Arizona and Marco Rubio of Florida have been urging Trump to hit Venezuela hard after Sunday’s vote. They want Trump to do a lot more than the sanctions the United States imposed last week on 13 prominent Venezuelans with ties to Maduro’s government. McCain tweeted Sunday, “We stand with the people of Venezuela today, who deserve democracy — not sham elections and Maduro’s repression.”
There’s a humanitarian crisis in Venezuela. People are literally starving. The country has one of the world’s worst economies, and there’s hardly any food in supermarkets. Things are so bad people are rationing toothpaste and toilet paper. More and more Venezuelans are protesting against Maduro, even though he has threatened them with a decade in jail, if not more. Over 120 protesters have died in the past four months. Another 10 were reported dead as clashes erupted Sunday during the vote.
The most dramatic action Trump could take is to halt all imports of Venezuelan oil to the United States. However, the president understands that’s bad politics at home to rise gas prices. Most of the major oil companies have been lobbying the White House not to go that far.
“Trump will not start with a blanket sanction on Venezuelan oil,” says Francisco Monaldi, a Latin American energy expert at Rice University’s Baker Institute for Public Policy. “Oil refiners have lobbied heavily in Washington not to get the full ban on Venezuelan oil imports.”
If Trump did go for the full-blown ban on Venezuelan oil, he could mitigate the impacts by releasing oil from America’s reserves. The U.S. has a large Strategic Petroleum Reserve (SPR) to handle situations just like this, notes Verleger.
Option B is to restrict the flow of light crude oil from the United States to Venezuela.
Venezuela’s oil companies mix U.S. light with Venezuela’s heavy crude and then export it globally. The United States sends about 100,000 barrels a day to Venezuela, according to the EIA. Trump could disrupt Venezuela’s state-run oil company by cutting off some of its light crude supply. Oil experts predict that U.S. companies could adopt quickly and send their light crude elsewhere instead of Venezuela. This move is unlikely to have much, if any, impact on gas prices. It’s a lot less severe than cutting off the 750,000 barrels of Venezuelan oil coming to the United States daily.
The final option is to try to target more of Maduro’s inner circle. The Trump administration could place additional sanctions on government officials and executives at Venezuela’s state-run oil company, forbidding them from traveling to the United States or using American bank accounts. It would be similar to what the United States did to several prominent Russians in 2014 in retaliation for Russia invading Ukraine.
For all his bluster, Maduro has much to lose if the United States strikes back with more sanctions. The country is heavily in debt and is struggling to pay back what it already owes. It is supposed to pay about $3.5 billion back to creditors later this year. Any U.S. sanctions would be a “significant blow,” predicts Monaldi. Even the relatively measured imposition of option B — an export ban of U.S. light crude to Venezuela — may be the hit that leads Venezuela to default, he warns.
The Venezuelan people are pawns in the middle of another global fight over oil. The less money Venezuela has, the more its people are likely to go hungry. Already, Venezuelans are trying to flee to other countries in South America and beyond. As the situation has worsened, Maduro has sought help from China and Russia. Maduro has borrowed money from them in exchange for cheap oil. Any U.S. sanctions will only drive Venezuela further into China and Russia’s arms.
For Trump, Venezuela is a test of how tough he wants to get on the world stage against anti-American dictators — and how much he is willing to let U.S. companies — and consumers — take a hit to send a message.