Donald Trump slaps new sanctions on Venezuelan government, state oil firm

US President has signed an executive order that prohibits dealings in new debt from the Venezuelan government or its state oil company.

Pic courtesy: Reuters

Washington/Caracas: US President Donald Trump signed an executive order that prohibits dealings in new debt from the Venezuelan government or its state oil company in an effort to halt financing that fuels President Nicolas Maduro`s "dictatorship," the White House said on Friday.

The order is Washington`s biggest sanctions blow to date against Maduro and is intended to punish his leftist government for what Trump has called an erosion of democracy in the oil-rich country, already reeling from an economic crisis.

"These measures are carefully calibrated to deny the Maduro dictatorship a critical source of financing to maintain its illegitimate rule, protect the United States financial system from complicity in Venezuela`s corruption and in the impoverishment of the Venezuelan people," the White House said in a statement. 

Banning trades on new bonds will make it tricky for Venezuela`s ailing state-run company PDVSA to refinance its heavy debt burden. Investors had expected that it would seek to ease upcoming payments through such an operation, which usually requires new paper be issued.

That could push the cash-strapped company closer to a possible default, or bolster its reliance on key allies China and Russia, which have already lent Caracas billions of dollars. 

However, the order protects holders of most existing Venezuelan government and PDVSA bonds, who were relieved the sanctions did not go further. Venezuelan and PDVSA bonds were trading broadly higher on Friday afternoon.

Venezuela`s foreign minister said on Friday that the United States was trying to foment a humanitarian crisis in the country.

The sanctions are "uncivilized politics," and Venezuela is "a victim of fake news" that exaggerates the extent of its economic crisis, Foreign Minister Jorge Arreaza said at the United Nations in New York. 

Venezuela`s Information Ministry, Oil Ministry, and PDVSA did not immediately respond to a request for further comment. 

The sanctions heap fresh pressure on PDVSA, the financial engine of Maduro`s government, which is already struggling due to low global oil prices, mismanagement, allegations of corruption and brain drain.

Washington last month sanctioned PDVSA`s finance vice president Simon Zerpa, complicating some of the company`s operations as Americans are now banned from doing business with him.

Trump has so far spared Venezuela from broader sanctions against its vital oil industry, but officials have said such actions are under consideration.

Amid fears that a ban on oil exports could aggravate food shortages and sentence Venezuela`s roughly 30 million people to famine, opposition politicians applauded the targeted sanctions. 

"These sanctions are not against Venezuela, but rather the corrupt people who seek to sell the nation`s assets at a discount," said opposition lawmaker and economist Angel Alvarado. 

Venezuela has for months struggled to find financing because of PDVSA`s cash flow problems and corruption scandals have led financial institutions to tread cautiously, regardless of sanctions.

Russia and its state oil company Rosneft have emerged as an increasingly important source of financing for PDVSA, according to a Reuters report. 

On at least two occasions, the Venezuelan government has used Russian cash to avoid imminent defaults on payments to bondholders, a high-level PDVSA official told Reuters.

Trump`s order allows the US Treasury to provide licenses for dealings in select existing Venezuelan debt and many commercial and humanitarian transactions, including those for commercial trade and petroleum trade as well as for transactions involving only PDVSA`s US unit, Citgo Petroleum.