Trump's Oil License Cancellation Likely to Fuel Venezuela's Inflation

President Donald Trump's decision to cancel Chevron's oil license in Venezuela is expected to have significant economic consequences for the South American country, particularly in terms of inflation. The move, announced on Wednesday, aims to pressure President Nicolás Maduro's government to make progress on electoral reforms and migrant returns. However, the cancellation of the license is likely to exacerbate Venezuela's economic crisis, which has already seen the country experience the largest decline in living standards outside war, revolution, or the collapse of the state.

Chevron's license allowed the company to export about 240,000 barrels per day of crude from its Venezuelan operations, over a quarter of the country's entire oil output. Ending the license means Chevron will no longer be able to export Venezuelan crude, and if Venezuela's state oil company PDVSA exports oil previously exported by Chevron, U.S. refineries will be unable to buy it due to U.S. sanctions. This will lead to a significant reduction in Venezuela's oil exports and production, further straining the country's economy.

The reduction in oil revenue will have a direct impact on Venezuela's fiscal situation, as oil accounts for more than half of its fiscal revenue. This could lead to a decrease in government spending, which could in turn lead to a decrease in the money supply. However, if the government tries to maintain spending by printing more money, this could lead to an increase in inflation. Venezuela's inflation rate was already projected to reach 1,000,000% in 2019, and the revocation of Chevron's license could exacerbate this problem.

The reduction in oil exports could also lead to a reduction in Venezuela's access to foreign currency, making it more difficult for the country to import goods. This could lead to shortages and further increase inflation. The combination of reduced oil revenue, increased inflation, and reduced access to foreign currency could lead to a further deterioration in Venezuela's economic stability, making it more difficult for the country to recover.

The cancellation of Chevron's license is also likely to have geopolitical implications, affecting the dynamics between the U.S., Venezuela, and other regional players. The move is a continuation of Trump's "maximum pressure" policy against Maduro's government, aiming to force regime change. However, Venezuela's Vice President Delcy Rodriguez criticized the move, stating that it would "drive migration from 2017 to 2021 with the widely known consequences." This suggests that Venezuela may retaliate or escalate tensions with the U.S.

The U.S. government does not recognize Maduro as Venezuela's president, instead backing opposition leader Juan Guaidó. This move could strengthen Guaidó's position and embolden the opposition, potentially leading to further political instability in Venezuela. The move could also strain relations with other regional players, such as Russia and China, which have been supporting Maduro's government. Russia and China may view the move as an attempt to undermine their influence in the region and could potentially increase their support for Venezuela in response.

In conclusion, Trump's decision to cancel Chevron's oil license in Venezuela is likely to have significant economic consequences for the country, particularly in terms of inflation. The reduction in oil revenue, increased inflation, and reduced access to foreign currency could lead to a further deterioration in Venezuela's economic stability. The move is also likely to have geopolitical implications, affecting the dynamics between the U.S., Venezuela, and other regional players. It is crucial for the U.S. to consider these implications and work with regional partners to manage the potential fallout from this move.