FAQ

The Humanitarian Oil Agreement is a humanitarian exception to U.S. sanctions on the Venezuelan oil industry. Its goal is to assure that these sanctions do not affect the most vulnerable Venezuelans, protecting their capacity to import food and other essentials. As a consequence of U.S. oil sanctions imposed in January 2019, Venezuela has been unable to export oil to the U.S., resulting in the loss of approximately 400tbd in oil sales, with an estimated value of USD 7.9bn. Under the Humanitarian Oil Agreement, Venezuela would have access to that market as long as the revenues generated by those exports are destined exclusively to the purchase of essential goods, managed under international supervision and whose distribution in the country would be carried in a depoliticized manner.

The Oil-for-Food program implemented in Iraq between 1996 and 2003 suffered from deep flaws in oversight that led to significant graft. Given that Iraq was ruled by Saddam Hussein, there were no other internal actors that he was required to agree with. In Venezuela, where political power is divided and contested, an agreement involving the different sides of the political conflict is needed. This demands a design that allows for greater control and internal and external oversight than in the Iraqi program. The Humanitarian Oil Agreement is designed to be implemented with the participation of both sides of Venezuela’s political conflict, under strong oversight institutions and the supervision of the international community.

The Humanitarian Oil Agreement requires the approval of three different entities: the U.S. government, the Juan Guaidó administration and the Nicolás Maduro administration. The Maduro administration today manages oil production in Venezuela while the Guaidó administration has control over the country’s foreign bank accounts; therefore, cooperation of both is necessary to implement the program. The U.S. government would have to implement a humanitarian exception to its oil sanctions. International organizations such as the United Nations would be needed for the implementation of the program. Other countries and political actors may help in its execution.

The Humanitarian Oil Agreement is designed to prevent the deepening of the humanitarian crisis given the lack of a resolution to the political conflict. A democratic solution to the crisis would be preferable to everyone, but we have to accept the fact that, even if this solution is achieved, it may take longer than we want. In the meantime, there are urgent problems that require immediate attention. The solution to these problems can’t be made to depend on a political transition of indeterminate timing.

Evidence shows that authoritarian regimes may actually benefit from economic crises. In the context of increasing scarcity of food and essential goods, a government that controls their distribution ends up having great power vis-a-cis civil society. Depoliticized distribution of basic goods, which is the basis for the Humanitarian Oil Agreement, allows Venezuelans to collect these products without any political conditioning. By depoliticizing the distribution of essentials, citizens are free to express their political preferences without fearing political retaliation.

Food and essentials would be distributed through humanitarian aid agencies under the supervision of international bodies. An Administrative Board comprised of experienced professionals in humanitarian aid, selected by both sides of the political conflict, and with the participation of international bodies, will be in charge of implementing the distribution of goods. A combination of direct distribution and free market mechanisms would be applied to include the private sector.

Indeed, significant cases of corruption were identified in the context of the implementation of the Oil-for-Food program in Iraq between 1996 and 2003. A commission headed by former Federal Reserve Chairman Paul Volcker drafted an extensive report on the claims of corruption related to the system. This report identified diversion of funds reaching USD 1.7bn, or 3% or all oil sales conducted under the program. Despite these serious problems, evidence show systematic improvement in the caloric intake of the Iraqis following the implementation of the program. The Humanitarian Oil Agreement is designed to take into account all recommendations made by the Volcker Commission to minimize the risk of graft, correcting the mistakes of the Iraqi program. At the same time, it incorporates additional levels of oversight and external supervision that distinguish it from a simple oil-for-food program.

In 2019, Venezuela is projected to import USD 1.1bn in food and medicines. This is less than half of the imports of essentials registered in 2018, and less than a tenth of those of 2013. The Humanitarian Oil Agreement would allow to generate approximately USD 7.8 billion in additional export revenues. Even after deducting the necessary imports to secure incremental oil output, we estimate that the program would allow to increase supply of essential imported goods to approximately USD 7.0 billion, multiplying by more than six times the current availability.

Low import levels are reflected in the high prices of imported goods in the country. In the past, when there was a stricter price controls were enacted, they showed up in scarcity. Back then, goods were unavailable; today, people can find them, but can’t afford them. This is due to the fact that the government has liberalized prices, but has not solved the supply problem. An increase in supply of imported goods will lead prices to drop and make products more accessible to all Venezuelans.

No. The program makes sense precisely because there are oil sanctions. The program seeks to generate a humanitarian exception to oil sanctions in order to protect vulnerable Venezuelans from the collateral effects of these sanctions. But the main purpose of sanctions, which is to limit the regime’s access to funds, would continue to be achieved.