When you're president, cheap gas is good politics.
President Trump understands this. It’s why he promised to make gas prices even lower during the campaign and why he celebrated when gas prices were the lowest in more than a decade for the July 4 holiday weekend. Now Trump faces a dilemma: He wants to get tough on foes like Venezuela, but that could cause gas prices to jump in the United States.
Trump is no fan of Venezuelan President Nicolás Maduro. He's called Maduro a “bad leader” and a “dictator.” Trump is one of many world leaders who vowed “strong and swift economic actions” if Maduro went ahead with a “sham” election over the weekend to grab more power by replacing the Venezuelan legislature with a body more loyal to him. Maduro held the vote anyway, calling Trump a “bandit.”
The most obvious way to hurt Maduro is to hit the heart of Venezuela's economy: Oil.
The White House debated stopping all sales of Venezuelan oil to the U.S., but it didn't go that far. On Monday, the Trump Administration put sanctions on Maduro, forbidding him from doing any business with Americans or anywhere in the U.S.
The president understands that it's bad politics at home to rise gas prices. Venezuela supplies 10 percent of America's oil imports, according to the U.S. Energy Information Administration, making it the third largest supplier behind Canada and Saudi Arabia. Philip Verleger, an energy economist who runs consulting firm PKVerleger LLC, predicts oil prices could spike $10 a barrel if Trump does a full ban on Venezuelan oil.
"Prices would go up like a rocket," says Verleger. "Gas prices in the U.S. would go up 25 or 30 cents a gallon within a couple of weeks."
The average price of regular gas in the United States is now $2.31 a gallon, according to the EIA. That's about the same as when Trump took office. Any action now could send oil prices higher during the popular holiday travel month of August.
“Somebody in White House probably recognizes the last thing this president needs right now is to anger people who live paycheck to paycheck and voted him in,” says Tom Kloza, global head of energy analysis at Oil Price Information Service.
Republican Sens. John McCain of Arizona and Marco Rubio of Florida were urging Trump to hit Venezuela hard after Sunday's vote. They want Trump to do a lot more than the sanctions the United States imposed last week on 13 prominent Venezuelans with ties to Maduro's government. McCain tweeted Sunday, “We stand with the people of Venezuela today, who deserve democracy — not sham elections and Maduro's repression.”
On Monday, Treasury Secretary Steve Mnuchin kept open the possibility of harsher actions. He said the White House will "consider additional sanctions."
There's a humanitarian crisis in Venezuela. People are literally starving. The country has one of the world's worst economies, and there’s hardly any food in supermarkets. Things are so bad people are rationing toothpaste and toilet paper. More and more Venezuelans are protesting against Maduro, even though he has threatened them with a decade in jail, if not more. Over 120 protesters have died in the past four months. Another 10 were reported dead as clashes erupted Sunday during the vote.
Francisco Monaldi, a Latin American energy expert at Rice University's Baker Institute for Public Policy, wasn't surprised that Trump didn't impose restrictions on Venezuelan oil on Monday.
“Oil refiners have lobbied heavily in Washington not to get the full ban on Venezuelan oil imports,” Monaldi said.
Option B is to restrict the flow of light crude oil from the United States to Venezuela.
Venezuela's oil companies mix U.S. light with Venezuela’s heavy crude and then export it globally. The United States sends about 100,000 barrels a day to Venezuela, according to the EIA. Trump could disrupt Venezuela's state-run oil company by cutting off some of its light crude supply. Oil experts predict that U.S. companies could adopt quickly and send their light crude elsewhere instead of Venezuela. This move is unlikely to have much, if any, impact on gas prices in America. It's a lot less severe than cutting off the 750,000 barrels of Venezuelan oil coming to the United States daily.
For all his bluster, Maduro has much to lose if the United States strikes back with more sanctions. The country is heavily in debt and is struggling to pay back what it already owes. It is supposed to pay about $3.5 billion back to creditors later this year. Any U.S. sanctions on oil would be a “significant blow” that could lead to default, Monaldi predicts.
For Trump, Venezuela is a test of how tough he wants to get on the world stage against anti-American dictators — and how much he is willing to let U.S. companies — and consumers — take a hit to send a message.