(Reuters) – U.S. President Donald Trump’s cancellation of licenses for foreign oil companies to operate in sanctioned Venezuela will reduce the dollars on offer in the country’s exchange market, stoking depreciation of the local bolivar currency and prices, analysts said on Thursday.
The cancellation on Wednesday is the latest economic challenge for Venezuelan President Nicolas Maduro, whose government for years has applied orthodox measures to tamp down formerly sky-high inflation, restricting credit, curbing public spending and until recently, holding the exchange rate steady.
“If oil licenses are suspended there is an impact – the fall in oil production and in the demand for services for the oil sector. There will be fewer royalties and taxes. It will affect the flow of foreign currency and there will be more devaluation,” said economist Jose Guerra of the Venezuelan Finance Observatory.
Since Trump first imposed sanctions on Venezuela’s energy sector in 2019, the U.S. has granted individual licenses to some oil companies that allow them to export the South American country’s oil to specific destinations.
In late 2022, President Joe Biden’s administration granted an automatically renewable license to Chevron to expand operations in Venezuela and resume exports to the U.S. with the goal of recovering up to $3 billion in debt.
Trump announced the reversal of the key license to Chevron, accusing Maduro of failing to make progress on electoral reforms and migrant returns.
Electoral authorities and Venezuela’s top court have backed Maduro’s victory in a July 2024 election, but the United States and other countries say the opposition was the rightful winner.
Uncertainty over the disputed Venezuelan election and Trump’s reelection caused a reduction in the offer of dollars on the market and the Venezuelan central bank allowed the currency to float. It has depreciated more than 30%.
Analysts say that 85% of the OPEC member’s income comes from crude exports.
Local analyst firm Ecoanalitica says oil income was about $15.4 billion in 2024 and 30% came from Chevron and other foreign partners of state energy company PDVSA, meaning a reduction of between $4 billion and $4.5 billion on the license cancellations.
Chevron contributed a third of dollars for the exchange market last year, equivalent to some $2.4 billion, according to local firm Sintesis Financiera. In 2023 it was $1.1 billion.
Venezuelan dollar bonds and those of PDVSA tumbled on the cancellation news, with Venezuela’s 2027 maturity down 2.25 cents, last bid at 19.75 cents on the dollar. The PDVSA 2020 dropped one cent to 92 cents on the dollar. The debt, all considered in default, was among the best performing across emerging markets in 2023 on hopes that the previous U.S. administration had opened up a path to a debt restructuring, but the hopes stalled last year after the contested presidential election.
Trump’s announcement may be a negotiating tactic, analysts at BancTrust & Co said in a Thursday note to clients.
“Going forward, while this may only be a threat to accelerate U.S. deportations of Venezuelan migrants, higher unpredictability will weigh on bond prices until a clearer picture emerges of how this negotiation will unfold.”
Chevron’s dollars were a relief for the Venezuelan central bank, which no longer had to offer the total amount of dollars for the exchange market. The oil producer also paid taxes and royalties.
Inflation, helped by the steady exchange rate, closed last year at 48%, according to Maduro. But more depreciation and the need to print more bolivars could take consumer price increases to 80%, according to Sintesis Financiera.
Private sector growth will be limited by the lack of exchange offer, said Luigi Pisella, the head of industrial association Conindustria.
“It will grow, but in a limited way,” Pisella said.
(Additional reporting by Rodrigo Campos in New York; Writing by Julia Symmes Cobb; Editing by Marguerita Choy)
