U.S. Sanctions on Venezuela’s Oil Exports Won’t Work

By | 2017-09-27T12:03:08+00:00 September 27th, 2017|
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President Donald Trump is considering imposing sanctions on Venezuela by blocking the country’s oil from U.S. ports, Axios reports. Likewise, U.N. Ambassador Nikki Haley criticized the regime of Nicolas Maduro, and confirmed that oil sanctions “are not off the table.” This represents a marked escalation: last month President Trump advocated a more finely targeted approach by limiting Venezuela’s access to U.S. financial institutions; now oil is a target. This is regrettable: sanctions on Venezuelan oil would likely do more harm than good and would punish the wrong people.

Without question, Venezuela is a horrible place to live, and the socialist government is to blame. Corruption, incompetence, and ideological fervor in Caracas has transformed South America’s richest economy into a poverty-stricken backwater. Against all the odds, the socialist government has managed to create starvation in a land of rich soils and year-round growing seasons—people are literally breaking into zoos and eating zebras to survive. Likewise, they have impoverished a nation that sits on the world’s largest oil reserves: not even Saudi Arabia’s brutal despots are this inept.

Nevertheless, imposing sanctions on Venezuelan oil is a bad idea. Sanctions are generally ineffective if imposed on fungible goods, meaning that such goods are completely interchangeable on international markets. Oil is a fungible good. Therefore, aside from the initial logistical disruption, boycotting Venezuelan oil would likely have little impact on the country’s exports. Venezuela will simply sell more to Europe, China, and South America, while we buy more oil from Saudi Arabia or other less-than-friendly regimes. Remember, Europeans do not condemn Venezuela’s socialist dictatorship, and China is actively courting South Americans as allies and trading partners. Without Europe and China on board, an oil embargo would have little chance at success.

But for the sake of argument, assume the sanctions are effective and what remains of Venezuela’s economy is completely ruined by America’s import ban. Would it matter? Venezuela’s ruling class is insulated from the general population and cares little about their wellbeing. Fact is that most autocrats would rather let millions starve to death than relinquish their power—we have seen this before in Iraq, Iran, North Korea, Cuba, and the Soviet Union. Venezuela is no different: brutal street battles have been fought, people are starving, and still, the government continues trying to manifest its socialist utopia. Sanctioning Venezuelan oil will not impact the government aristocracy; it would simply impoverish ordinary people who are already on our side.

Consider another recent example: our sanctions on Syria caused starvation, and contributed to the rise of ISIS, but had literally zero impact on the welfare of Bashar al-Assad, or the rest of the ruling elite. Sanctions made Syrians poorer, not the nation’s ruling class. The same was true in Cuba and Iran. Worth reading is a recent report from the Foundation for Economic Education: it looks at the impact of sanctions in the Balkans and finds that sanctions do not work, they just further concentrate power in the hands of the ruling class.

Broader political ramifications are also worth considering. Economics and politics are intertwined: when we attack a regime with economic sanctions, we unwittingly play into their political narrative, thus strengthening the regime. Simply put: sanctions will empower Maduro’s socialist regime. Consider the case in the former Soviet Union. Every time America engaged in economic warfare against the USSR, no matter how much damage it did, we gave credence to the Soviet government’s narrative: the United States is an evil empire trying to destroy the USSR and harm its people. We played right into their hands. And of course, the same thing happened in North Korea and Cuba—the political strength of their regimes was intimately tied to their economic hardship. The same will be true in Venezuela: sanctions will unite Venezuelans against a foreign “enemy,” and this will do more harm than good.

Finally, sanctions can be counterproductive because they limit the organic spread of Western values. Western values terrify dictatorships. Why? Because freedom is natural. Desirable. It spreads all by itself. This is why authoritarian regimes expend great time and energy to scrub the internet of Western influences—they do not want their people “getting any ideas.” These values do not just spread through popular culture, they spread through commercial connections. When we do business with foreigners, we give them a glimpse of what it is like in America. They experience a little bit of freedom and wealth. The spread of free markets, and the riches they generate, is what ultimately opened up China, and it is what continues to reduce the power of the Communist Party.

By imposing sanctions, we end up helping dictators. We do their dirty work for them. If we want to liberalize Venezuela, the best way to do it would be to increase our connection with them, not restrict it.

Clearly the desire is strong to do something about the crisis in Venezuela—no one wants to sit on his hands and ignore human suffering. But we should be skeptical about the efficacy of sanctions, and foreign intervention in general. Sanctions have a poor track record.

Given that Venezuela will collapse with or without America’s involvement, we must take extra care to ensure we do not strengthen the regime by accident. Sometimes doing nothing is the best choice—even if it feels wrong.

About the Author:

Spencer P. Morrison
Spencer P. Morrison is a writer and author of Bobbins, Not Gold. He is the editor-in-chief of the National Economics Editorial. Follow him on Twitter @SPMorrison_.