World Economy

Venezuela's bad relationship with the United States just got worse

Tareck El Aissami, vice president of Venezuela, attends a swearing in ceremony for the new board of directors of Petroleos de Venezuela SA (PDVSA), Venezuela's state oil company, in Caracas, Venezuela, on Tuesday, Jan. 31, 2017.
Carlos Becerra | Bloomberg | Getty Images

Venezuela and the United States haven't had the best relationship recently. This week, it got worse.

The Treasury Department blacklisted Venezuelan Vice President Tareck El Aissami on Monday, saying he oversaw or "partially owned" narcotics shipments of more than 1,000 kilograms (2,204 pounds) from Venezuela, some of which ended up in Mexico and the U.S.

"On the one hand, it's a drop in the ocean, because it won't change what's happening on the ground," said Dany Bahar, fellow at Brookings. "On the other hand, it would represent a shift to a more realistic approach toward what's happening in Venezuela."

"By sanctioning the vice president, the U.S. government is acknowledging that the Venezuelan government has drug dealers at the highest ranks of government," he said.

Newly minted Treasury Secretary Steve Mnuchin said in a Tuesday news conference the government had frozen "tens of millions of dollars" worth of assets belonging to El Aissami and Samark Jose Lopez Bello, El Aissami's primary frontman.

Secretary of the Treasury Steven Mnuchin speaks during the White House daily press briefing at the James Brady Press Briefing Room February 14, 2017 at the White House in Washington, DC.
Getty Images

"Relations between the U.S. and Venezuela have been on ice," said Monica DeBolle, senior fellow at the Peterson Institute for International Economics. "For now, this will keep those relations on ice."

Venezuela's relationship with the U.S. has been hostile since the late 1990s, when communist authoritarian Hugo Chavez became president, and it has remained so throughout Nicolas Maduro's presidency. Maduro, a former bus driver, succeeded Chavez following his death in 2013 and blamed President Barack Obama for his Venezuela's descent into economic chaos.

The new sanctions are the first test of how the relationship between the countries evolves under President Donald Trump. Maduro has treaded carefully with Trump since his election.

Maduro blasted the Republican as a "thief" and "bandit" during the U.S. election campaign, but he later cooled his rhetoric and said Trump "won't be worse than Obama."

The situation in Venezuela is now unraveling very fast. It's going to implode. The one thing that puzzles people is that it's taking this long.
Monica DeBolle
senior fellow, Peterson Institute for International Economics

The Treasury's decision to sanction El Aissami could not have come at a worse time, as Venezuela deals with a massive shortage of basic goods and a spiraling economy.

Venezuela's inflation rate last year reached a staggering 800 percent. Its violent crime rate is one of the worst on earth.

"There is a big lack of food and medicine in Venezuela," said Brookings' Bahar. "People are dying from very curable illnesses."

The country's economic troubles have been accentuated by a massive drop in crude oil prices, Venezuela's main export. U.S. crude prices have fallen more than 40 percent since October 2014, despite a sharp rebound from their 2016 lows.

US crude since October 2014

Source: FactSet

Venezuela has also experienced trouble shipping its crude oil to two of its main trade partners: China and Russia. Reuters reported last week that PDVSA, Venezuela's state-run oil company, has fallen months behind on shipments of crude and fuel under oil-for-loan deals with the two nations.

"The situation in Venezuela is now unraveling very fast," said Peterson's DeBolle. "It's going to implode. The one thing that puzzles people is that it's taking this long."

Wake-up call for Colombia and Brazil

While the United States' decision to sanction Venezuela's El Aissami may further erode relations between the two nations, it may also serve as a wake-up call for Colombia and Brazil.

Peterson's DeBolle said the sanctions could pressure Colombia and Brazil to increase security along their respective borders with Venezuela. "I think that may have been the intended impact from this," she said of the new U.S. sanctions, adding that Brazil and Colombia are close allies with the U.S.

Thousands of Venezuelans have crossed the border into Colombia, looking for food and medicine, while the Venezuelan-Brazilian border is notorious for drug trafficking.

"The Brazilian government has been very reluctant in taking a strong stance against Venezuela because that's just how they operate," said DeBolle. "Venezuela is a key point of instability in the region. At some point, countries there will have to come together to find a solution."

—Reuters contributed to this report.