President Trump’s recent cancellation of oil licenses in Venezuela is expected to increase inflation and economic challenges. Analysts warn of a potential loss of up to $4.5 billion in oil income, impacting foreign currency availability. The volatility may lead to further depreciation of the bolivar and rising consumer prices, as the country relies heavily on oil exports for its income.

The recent cancellation of oil licenses by U.S. President Donald Trump is poised to exacerbate inflation in Venezuela. Analysts indicate that such a move could severely impact the country’s economy, particularly since up to 85% of Venezuela’s income is derived from crude oil exports. The ramifications may include a potential loss of $4.5 billion in oil revenue, thereby straining the bolivar and increasing local prices.

As the government faces this new economic hurdle, Venezuelan President Nicolas Maduro’s administration has previously relied on implementary measures to mitigate hyperinflation, including restricting credit and spending while maintaining a stable exchange rate. However, the suspension of oil operations may lead to decreased production and less demand for oil-related services, ultimately impacting foreign currency flow and exacerbating currency devaluation.

Since the implementation of sanctions on Venezuela’s energy sector in 2019, certain oil companies, including Chevron, had been granted licenses to operate under U.S. oversight. Recently, President Biden’s administration had extended a renewable license to Chevron, aimed at recovering debts, but Trump’s recent intervention has reversed this progress.

The claimed justification for Trump’s revocation is Maduro’s alleged failure to address electoral reforms and migrant return issues. Despite electoral authorities backing Maduro’s presidency, the Biden administration and several other nations maintain that there were irregularities in the electoral process.

The uncertainty stemming from the debated election outcome and Trump’s campaign talks has diminished the availability of dollars in the market, leading to further depreciation of the bolivar. Local analysts note that oil revenues are crucial to the Venezuelan economy, estimating that the country generated around $15.4 billion in oil income in 2024. A significant portion of this revenue, approximately $4 billion to $4.5 billion, is now at risk due to the cancellation of licenses.

Data illustrate that Chevron contributed roughly one-third of the dollars available in Venezuela’s exchange market, totaling around $2.4 billion in 2022 and decreasing to $1.1 billion in 2023. Following the cancellation news, Venezuelan bonds saw immediate declines, reflecting investor concerns regarding the stability and predictability of the situation.

Financial analysts suggest that Trump’s announcement could be part of a broader negotiation tactic, hinting at potential consequences for Venezuelan migrants to the U.S. As inflation previously stabilized to 48%, further depreciation of the bolivar could see consumer price inflation spike to as high as 80%.

The effect of the reduced currency supply on the private sector should not be underestimated, with experts indicating limited growth potential. Luigi Pisella, head of the industrial association Conindustria, remarked that while some growth could occur, it would remain constrained under the current conditions.

In summary, Trump’s cancellation of oil licenses represents a significant economic challenge for Venezuela, potentially heightening inflation and straining public finances. With a considerable portion of the country’s income reliant on crude exports, reduced oil revenues could lead to further currency devaluation. The unfolding situation remains precarious, driven by both domestic and international factors affecting Venezuela’s economy.

Original Source: www.tradingview.com

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