Mubasher: The US may target Venezuela's oil industry after the country's upcoming snap presidential election, amidst an already tightening market, oil experts warned.
The International Energy Agency (IEA) on Wednesday warned that Venezuelan crude could suffer direct sanctions after the presidential vote, which is widely anticipated to be rigged.
Venezuela's oil exporting troubles have exacerbated ahead of the election, where Nicholas Maduro prepares for a second term, despite the unprecedentedly worsening economic and social crisis.
"Maduro will win as the election is rigged and it won't be fair. The more important question is how the U.S. will react after the official results," Tamas Varga, analyst at PVM Oil Associates, told CNBC in a phone interview Tuesday.The country’s state oil company, PDVSA, is struggling with mounting problems after it ceded its storage assets and refineries in the Caribbean to US-based ConocoPhillips, leading to an output drop of 1 million barrels per day (bpd).
The US and other countries in the Americas have criticised the embattled country’s upcoming election, considering it a sham.
Sanctions against Venezuela would lead to a major setback to the Maduro administration which relies heavily on oil sales to decelerate worsening economic situation, having the US already imposed far-reaching economic sanctions against the country.
If US refineries were restricted from purchasing Venezuelan crudes, the crisis-torn country will suffer, Varga told CNBC.
Oil traders could see the US imposing direct sanctions against the Latin American country after the vote, the analyst said when asked about the possible sanctions, adding that US President Donald Trump “likes playing hardball, he isn't fainthearted and he is not afraid to punish countries."
In February, US secretary of state Rex Tillerson said that the White House would continue to weigh prohibiting Venezuela's oil from being sold in the country.
Venezuela’s output dropped to about 1.4 million bpd in recent months, with a substantial fall of 40% since 2015.
Analysts expect sanctions on Venezuelan oil will push crude prices higher.
By 12:14 pm GMT, US Nymex crude dropped 0.42% to $71.01 pb, while Brent futures plunged 0.85% to 77.76.