Venezuela: Looking at Economic Sanctions Through a Maritime Lens

Maduro was inaugurated for a contested and controversial second term on January 10, 2019.
Maduro was inaugurated for a contested and controversial second term on January 10, 2019.

Published Apr 13, 2019 9:04 PM by Alejandro Guzmán Woodroffe

The multidisciplinary nature of the maritime industry allows understanding international events from a global perspective. More important, it also enables the possibility of visualizing international conflicts through the lens of international maritime law and maritime private actors. The development of economic sanctions across the world, and more recently, in the western hemisphere, is one of those topics that should be approached from the maritime outlook and, of course, from the international law sphere. 

The increasing application of economic sanctions has a vital role in the avoidance of the use of force in response to international wrongful acts and therefore, it has become a significant mechanism for a number of states that individually or collectively are seeking to impose certain international norms or conducts. Nevertheless, co-active economic measures also have a direct impact on private businesses throughout the entire maritime supply chain. Limitations vary from the goods operators are allowed to carry, to the ports the vessels can visit, the liability brokers might face, the possible reputation damages insurers confront and the financial consequences in commodity markets. 

To this day, there are sanctions placed on several states such as Cuba, Russia, North Korea, Iran, Syria and the newest in the club, Venezuela. On January 23, the president of the Venezuelan congress, Juan Guaidó, was sworn in front of thousands as interim president of Venezuela until both democratic and fair elections were held. Almost immediately, the United States and 60 more countries including the United Kingdom, Japan, and France, officially recognize Guaido's interim administration. 

However, due to the significance repression and hostile policies applied by Nicolás Maduro to retain power, the U.S Treasury imposed sanctions on April 5 on 35 vessels and three maritime operators that carried oil to the most important political partner of Maduro’s regime, the communist island of Cuba.  The decision came after U.S. President Donald Trump barred international customer from buying Venezuelan oil and banned operators from shipping oil from Venezuela to Cuba.  

On April 11, in their monthly report, the Organization of Petroleum Exporting Countries (OPEC) released a surprising figure about Venezuela's oil exports in March. The South American country told to the OPEC that it pumped 960,000 barrels per day during the entire month which represents a drop of around 500,000 barrels per day in comparison to February. 

Oil production in Venezuela has been declining for years. In fact, in 1998, when Hugo Chavez was elected as President, PDVSA was pumping around 3,000,000 barrels per day. Overall, Venezuela's oil industry has decreased by 80 percent in the last 20 years. 

Neither the United States or Venezuela have ratified the United Nations Convention on the Law of the Sea (UNCLOS), so if there is anything regarding any type of sanctions, neither of the countries is obliged to act under the terms of UNCLOS. On the other, Venezuela and Cuba have a bilateral agreement based on oil transactions which force both countries to keep the trade on. What are the legal implications for breaching the economic sanctions imposed by the United States Treasury? 

Any breach under the current sanctions regime could have enormous consequences for States flagging a vessel transporting oil. Moreover, the magnitude of legal disputes and controversies would lead to a reputational crisis for operators, delay of ships or in the worst-case scenario, detainment of vessels which will result in huge financial losses for the operators. 

Additionally, financiers, banks and insurers are being cautious when sanctioned countries are involved. In fact, the biggest companies in the industry are including exclusions and cancellation clauses in case of any situation related to sanction breaching. For instance, Steamship Mutual recently published an advisory opinion warning PDVSA about the future of operations due to the detention of the blacklisting of the Greek vessel The Andrianna.

As events continue to unfold, the economic collapse of the Venezuelan oil industry is still on the horizon, and the expectations of more sanctions rise. However, the maritime industry will continue to function as a fertile field for neutral geopolitical analysis. 

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.