President Trump’s cancellation of oil licenses for foreign companies operating in Venezuela poses a serious economic threat, potentially causing up to $4.5 billion in lost oil revenue and aggravating inflation. This move decreases foreign currency availability, contributing to currency depreciation and rising prices, complicating an already precarious economic situation for the Maduro administration.
U.S. President Donald Trump’s recent cancellation of licenses allowing foreign oil companies to operate in sanctioned Venezuela is expected to further exacerbate the country’s inflation crisis. Venezuela’s government, which relies on crude oil for 85% of its income, faces a substantial economic challenge. Analysts estimate that this action could result in a significant loss, potentially amounting to $4.5 billion in oil revenue, through reduced foreign investment and production declines.
The cancellation of licenses will diminish the availability of foreign currency in Venezuela’s exchange market, which is crucial for stabilizing the local bolivar currency. Economist Jose Guerra emphasizes the adverse effects of the measure, highlighting reduced demand within the oil sector and corresponding declines in royalties and taxes. This shift is likely to facilitate increased currency devaluation and further inflationary pressures.
Since Trump initiated sanctions in 2019 against Venezuela’s energy sector, limited licenses have occasionally been granted to companies like Chevron, enabling them to export Venezuelan oil. However, Trump’s recent revocation of Chevron’s license, based on complaints about Venezuela’s political reforms, raises concerns about the future of U.S.-Venezuela relations and the country’s economic recovery.
The forthcoming Venezuelan elections and Trump’s reelection campaign add uncertainty, contributing to a decrease in dollar availability on the market. As a consequence, the bolivar has experienced a depreciation exceeding 30%. Analysts emphasize the strategic importance of oil revenues, projecting a significant drop in income due to the cancellation of operational licenses for foreign firms such as Chevron.
Local analysts calculated that Venezuela’s oil revenue was approximately $15.4 billion in 2024, with 30% attributed to partnerships with foreign companies like Chevron, making the potential revenue loss dire. Following the news of the license cancellations, Venezuelan dollar bonds saw a decrease in value, illustrating market concerns over the country’s economic future and its ability to manage existing debts.
Analysts at BancTrust & Co suggest that Trump’s announcement may be a bargaining strategy, possibly linked to immigration policies. They foresee that increased uncertainty could adversely impact bond prices until the outcome of ongoing negotiations is clearer. The reduced flow of dollars due to the canceled licenses will limit growth in the private sector, creating additional economic constraints.
Currently, inflation has been mitigated by a relatively steady exchange rate, closing at 48% last year. However, more bolivar circulation combined with currency depreciation may inflate consumer prices to 80%. The finance structure of the Venezuelan economy is jeopardized with limited exchange offers due to stricter U.S. controls, prompting fears of a stalled economic recovery until stability and clarity in policy emerge.
Trump’s cancellation of oil licenses presents a formidable challenge for Venezuela’s economy, threatening to diminish essential oil revenue and exacerbate inflation. The reliance on oil exports highlights the fragility of economic stability in Venezuela, underscoring the urgent need for strategic reforms and investment. Given these developments, how the government adapts to sustained currency devaluation and manages foreign relations will be critical to its recovery trajectory.
Original Source: www.tradingview.com
