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What is the outlook for Venezuela’s economy following U.S. sanctions relief?


The U.S. and Venezuela reach a deal:
In October, the U.S. issued a six-month license allowing transactions in Venezuela’s energy sector and with Venezuela’s national gold company, and reduced trading restrictions on the debt of the Venezuelan state oil company (PDVSA). This came after the Maduro administration and the Venezuelan political opposition agreed to hold elections in H2 2024.

Our GDP outlook improves:
Over the last month, our panelists have raised their forecasts for 2024 GDP growth by 0.4 percentage points in light of the deal. Our Consensus is now for a 3.7% economic expansion next year, which would mark one of the fastest rates in Latin America. But it’s important to put this figure in context: Even at the end of 2024, the economy will be only around a third of its decade-ago size, following seven straight years of contractions from 2014 to 2020. Moreover, years of underinvestment and mismanagement mean that oil production will remain a fraction of its pre-crisis level of nearly 3 million barrels per day (mbpd); the Energy Information Administration expects output to only rise from 0.7 to 0.9 mbpd over the next 12 months in light of sanctions relief. And other features of the economic landscape remain bleak: Our panelists expect triple-digit inflation to persist until 2025 due to the lack of confidence in the local currency.

Sanctions rollback is on the cards:
Just two weeks after the U.S. agreed to ease restrictions on Venezuela, the Venezuelan Supreme Court annulled the results of the opposition’s primary elections, which were won by María Corina Machado with an overwhelming majority of votes. This runs the risk of a snapback of sanctions in the near term, given that sanctions relief is conditional on fair elections taking place. Regardless of the Supreme Court ruling, it is hard to imagine the Maduro regime voluntarily ceding control to the opposition: As a result, relations with the U.S. will remain testy and the economy dysfunctional over our forecast horizon to 2028.

Insight from our analysts

On recent political developments, EIU analysts said:

“The TSJ’s move is a puzzling one, given that the US has made it clear that it will reimpose sanctions if Ms Machado is barred from running, and particularly because the sanctions relief has only been in place for a few days and has therefore not yet provided any significant economic benefits. We therefore think that the regime is testing the waters and that it will fully or partly reverse the ruling, depending on the US’s response. Even if the ruling is reversed, however, we expect the regime to eventually break its roadmap commitments once the six-month period of sanctions relief is over.”  

On oil production, EIA analysts said:

“Ventures operated by ENI, Repsol, and Maurel & Prom could increase production by an additional 50,000 b/d in the near term, […]. As a result, we asses that these ventures could raise Venezuela’s total output to about 900,000 b/d by the end of 2024. Further increases in Venezuela’s crude oil production will take longer. Much of Venezuela’s crude oil production capacity and infrastructure has suffered from prolonged lack of access to capital and regular maintenance The potential for further growth remains highly uncertain at this time because significant new investment would be required for additional production.” 

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