Consider this the flip side of an old axiom. Donald Trump can’t join ’em, so he’s going to try beating them instead.
It might take a lot more than Venezuela to beat the Strait of Hormuz’ oil distribution capacity, but at least it pushes in the right direction. Trump has lifted most sanctions on their oil sales, especially to American producers, the Associated Press reports. This shift also aligns with Trump’s broader plans to help boost Venezuela’s economy, but keeps a tight leash on the revenues:
U.S. companies will be allowed to do business with Venezuela’s state-owned oil and gas company after the Treasury Department eased sanctions, with some limitations, on Wednesday as the Trump administration looks for ways to boost world oil supplies during the Iran war.
The Treasury issued a broad authorization allowing Petróleos de Venezuela S.A, or PDVSA, to directly sell Venezuelan oil to U.S. companies and on global markets, a massive shift after Washington for years had largely blocked dealings with Venezuela’s government and its oil sector.
Will that offset the difficulties in the Strait of Hormuz? Hardly. The normal capacity through the Strait is roughly twenty million barrels a day, supplying close to 25% of the world’s oil demand. Venezuela’s output peaked at three million barrels a day before the Chavistas took over, and has declined to well below a third of that in recent years. Venezuela could ramp up its capacity and put at least a dent in the demand, but it will take time to revitalize an industrial sector that Hugo Chavez and Nicolas Maduro looted over the last two decades.
Revitalization could take longer than expected, too. Under the terms of this new order, the US will control all revenues from these sales, to ensure that we maintain control of the oil trade and the direction the Delcy Rodriguez government takes:
Payments cannot go directly to sanctioned Venezuelan entities such as PDVSA, but must be sent instead to a special U.S.-controlled account. In other words, the U.S. will allow the oil trade but will control the cash flow.
Additionally, deals involving Russia, Iran, North Korea, Cuba and some Chinese entities will not be allowed. Transactions involving Venezuelan debt or bonds will not be allowed.
The license is expected to give a massive boost to Venezuela’s oil-dependent economy and help encourage companies that have been apprehensive to invest. The decision is part of the Trump administration’s phased-in plan to turn around Venezuela. But critics of the acting Venezuelan government argue that the move rewards Venezuela’s leadership -– all loyal to Maduro and the ruling party -– while repression, corruption and human rights abuses continue.
American control of revenue distribution would allow Trump to address those concerns. The restrictions on sales from Venezuela allows Trump to redirect the pain of Hormuz paralysis to its biggest beneficiaries, too. This is clearly a move to alleviate the impact of the war on energy prices in the US and for certain US allies, not to fully replace the Gulf states as a significant source of oil for the global markets in the long run. Presumably, the biggest clients of these new exports will be American refiners.
Trump’s other move, anticipated since last week, makes that motive even clearer:
President Trump on Wednesday issued a 60-day waiver of the Jones Act, a move aimed at lowering energy prices by letting foreign ships move fuel between U.S. ports.
The 100-year-old law requires goods shipped between American ports to be carried on ships that are U.S.-built, -flagged and -crewed, and also limits the number of tankers domestic shippers can use.
“President Trump’s decision to issue a 60-day Jones Act waiver is just another step to mitigate the short-term disruptions to the oil market as the U.S. military continues meeting the objectives of Operation Epic Fury,” White House press secretary Karoline Leavitt said in a post on social media. “This action will allow vital resources like oil, natural gas, fertilizer and coal to flow freely to U.S. ports for sixty days, and the Administration remains committed to continuing to strengthen our critical supply chains.”
The US usually requires these materials to come into port only on US-flagged, US-built, and US-owned merchant ships. During most of its run, the impact on oil prices from the Jones Act was negligible because we produced our own oil and it was dirt cheap on global markets. In recent years, studies have shown that it adds at least ten cents a gallon to the price of gasoline, not to mention its impact on the other commodities cited in this new order.
Like the addition of previously blocked Venezuelan crude to global markets, the Jones Act waiver is not a complete solution, but it does provide incremental improvement in the current conflict. It may also make it difficult to reimpose its protectionist regulation later, especially if global oil market prices remain elevated, as Barron’s points out:
Short-term waivers in the past have been issued mainly in response to hurricanes, he said. “Whether such a waiver even works to ease fuel prices depends on the fact and circumstances.”
The fact the Trump administration is considering a waiver is a “big deal,” Capital Alpha Partners co-founder James Lucier said in a note Friday. He added that the obvious reason would be to reduce gasoline prices “perhaps by ten cents per gallon or so.”
“We find it truly extraordinary that the White House would grant a broad waiver covering so many fuel types, and fertilizer too, for 30 days,” Lucier added. “Once the genie is out of the bottle, and a Jones Act waiver is shown to reduce gasoline costs, we think the centuries-long untouchability of the Jones Act and its predecessors will be diminished.”
Will Trump want to add a dime to a gallon of gas at the end of sixty days? Color me skeptical on that point. He can’t kill the Jones Act unilaterally, but he can keep waiving it indefinitely, and will likely do so … at least until the price of oil returns to the $60-a-barrel range. That may take a lot longer than sixty days, even if the regime in Iran collapses.
Editor’s Note: For decades, former presidents have been all talk and no action. Now, Donald Trump is eliminating the threat from Iran once and for all.
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