Financial Sanctions and Democratic Backsliding

On March 8, 2015, President Barack Obama signed Executive Order 13692, imposing targeted sanctions on eleven senior current or former Venezuelan officials, citing corruption and human rights violations (White House, 2015). Later that year, the opposition coalition won a decisive victory in the parliamentary elections of December 6, 2015, securing a two-thirds supermajority in the National Assembly for the first time since Hugo Chávez came to power seventeen years earlier. However, the pro-government Supreme Court of Justice (TSJ) swiftly blocked four opposition deputies from Amazonas state from taking office, citing alleged irregularities in the electoral process that it claimed affected the validity of the vote in that region (TSJ, 2015, 2016a). By excluding these deputies, the ruling deprived the opposition of the qualified majority needed to override presidential vetoes, appoint or remove key officials, and pass constitutional reforms independently. In April 2016, the TSJ formally declared the National Assembly in contempt and nullified its legislative powers (TSJ, 2016b). Later that year, when the opposition launched a recall referendum effort to remove Maduro, the TSJ and National Electoral Council (CNE) suspended the process (BBC News, 2016).

By March 2017, the TSJ escalated its attack on the legislature, dissolving the National Assembly entirely (TSJ, 2017). This decision triggered a massive wave of protests throughout the country. Heavy repression from security forces left 157 people dead, 2000 people injured and more than 5000 imprisoned (Llorens, Reference Llorens, país and venezuela2018). Moreover, President Maduro called elections for a parallel Constitutional Assembly (ANC), tasked with drafting a new constitution. The ANC election, which was called for without meeting the necessary constitutional requirements, was held on July 30, 2017, amid nationwide protests and international condemnation (TalCual Digital, 2019).

In response, the Trump administration issued Executive Order 13808 on August 25, 2017, imposing financial sanctions that barred the Venezuelan government and its state-owned oil company (PDVSA) from issuing new bonds in United States’ markets or trading existing bonds there, effectively preventing both entities from refinancing their external debt (U.S. Treasury, 2017). These were financial sanctions and did not prohibit oil trade between the United States and Venezuela. Soon after, the European Union imposed its own targeted sanctions (EU Council Decision, 2017). Another significant development was the formation of the Grupo de Lima, a multilateral coalition of Latin American countries and Canada, established in August 2017 in response to the ANC with the explicit purpose of coordinating diplomatic pressure to restore democratic order in Venezuela. Following this, later in November 2017, Nicolas Maduro appointed Manuel Quevedo, a high-ranking official of the National Guard to head PDVSA, effectively militarizing the oil company. He was president of PDVSA and Minister of Oil until 2020.

Constitutional Crisis and “Oil” Sanctions

Despite widespread international rejection, the Maduro regime proceeded with presidential elections on May 20, 2018, which were broadly denounced as fraudulent due to bans on opposition candidates, electoral manipulation, and widespread irregularities. The elections had the lowest turnout for a presidential election in the history of Venezuela, regardless of the source: 46.1% according to the Venezuelan Electoral Council (Venezuelan Electoral Council, 2021), 25.1% according to the Mesa de la Unidad Democrática,Footnote ⁸ 17.3% according to independent pollsters (HuffPost, 2018). Considering that the essential tenets of credible, transparent, and inclusive elections were violated in the electoral process, the international democratic community rejected the process and did not recognize its results, including the European Union (Parliament, 2018), the Organization of American States (Organization of American States, 2021), the Grupo de Lima (Grupo de Lima, 2018), as well as the United States (Reuters, 2018). Only a handful of countries – including China, Cuba, Iran, Russia, Syria, and Turkey – recognized the election result (Infobae, 2018).

When Maduro’s second term formally expired on January 10, 2019, the opposition-led National Assembly, pursuant to its authority under the Venezuelan constitution to fill a vacancy in the presidency, appointed the President of the legislative body, Juan Guaidó, as the Interim President of Venezuela. On February 5 the National Assembly passed the Statute Governing the Transition to Democracy to reestablish the Validity of the Constitution of the Bolivarian Republic of Venezuela, a bill that “governs the installation of a provisional Government and the call to free elections,” and “establishes the election of new rectors of the National Electoral Council, new magistrates of the Supreme Tribunal of Justice and new representatives of the Citizen Power” (Asamblea Nacional, 2019).

On January 23, the United States recognized Juan Guaidó as Interim President of Venezuela (U.S. Department of State, 2019). Canada followed shortly (Global Affairs Canada, 2019) as well as more than half of the twenty-eight European Union countries, including Germany, France, Spain, and the United Kingdom (BBC News, 2019a).

On January 28 2019, the US Treasury’s Office of Foreign Assets Control (OFAC) designated PDVSA under Executive Order 13850, freezing its assets under the US jurisdiction and prohibiting its citizens from engaging in transactions with PDVSA. The measure effectively banned imports of Venezuelan crude into the United States and restricted the export of refined products and diluents critical for processing heavy crude (U.S. Department of the Treasury).

In parallel, OFAC issued General License 8, which allowed Chevron, Halliburton, Schlumberger, Baker Hughes, and Weatherford International to continue “ordinary and necessary” activities with PDVSA to preserve assets and maintain operations. This authorization, repeatedly renewed through 2019, essentially permitted United States’ firms to sustain the status quo of existing contracts but not to expand or modify them (Hernández, Reference Ignacio Hernández2022).

By the end of February 2019, thirty-six countries had recognized Juan Guaidó as Interim President, a figure that grew to more than fifty by the end of that year (Foreign Policy, 2019). That same month, Venezuela suffered a series of nationwide blackouts, including the longest power outage in the country’s history, which left most of the population without electricity for nearly a week and caused persistent supply disruptions for months afterward (Reuters, 2019; BBC News, 2019b).Footnote ⁹

Amid worsening conditions, Juan Guaidó and other opposition leaders attempted to rally military support for a transition of power on April 30, 2019, but the effort failed and forced many opposition figures into exile (BBC News, 2019c). Later that year, on August 5, 2019, the Trump administration issued Executive Order 13884, imposing a comprehensive embargo that effectively froze all Venezuelan government assets under US jurisdiction, blocked the Central Bank of Venezuela’s access to dollars, and prohibited nearly all transactions with officials of the Maduro regime (White House, 2019).

COVID and Relief of Sanctions

The onset of the COVID-19 pandemic in 2020 further deepened Venezuela’s economic crisis. From 2020 onward, sanctions expanded to include third-country intermediaries that helped market Venezuelan crude. In April 2020, with the issuance of General License 8F, permissions previously granted to maintain the status quo were significantly curtailed: Chevron and others were restricted to the limited rights of minority shareholders in joint ventures, barred from financing PDVSA’s share of investments, distributing dividends (even in crude), or receiving oil in payment of debt. Companies could still cover basic costs such as local taxes, utilities, and salaries, but new investment and debt arrangements were prohibited. These restrictions shifted the burden of financing entirely to PDVSA, which lacked the capacity to sustain capital expenditures, and were subsequently reiterated in renewed licenses through 2022 (BBC News, 2019c).

In April, the United States’ Department of Justice indicted Nicolás Maduro and senior officials on charges of narco-terrorism and corruption, offering a reward of up to $15 million for information leading to Maduro’s arrest (U.S. DOJ, 2020). In June, the Treasury imposed additional sanctions designating four shipping companies for operating vessels that transported Iranian oil products to Venezuela in violation of sanctions and embargoes, attempting to cut off critical gasoline imports essential to the country’s economy (U.S. Treasury, 2020). These measures marked the final phase of the Trump administration’s “maximum pressure” strategy: Imposing sanctions on nearly every economic sector in the expectation that mounting constraints would either force a democratic transition or provide leverage for negotiations.

Amid tightening sanctions and worsening economic conditions, the Venezuelan government organized elections for a new National Assembly on December 6, 2020. Major opposition parties and leaders boycotted the vote, denouncing it as illegitimate due to restrictions on political participation, lack of electoral guarantees, and manipulation by the pro-government National Electoral Council (CNE). In its final report, the European External Action Service (EEAS) concluded that the process failed to meet international democratic standards and reaffirmed that the 2015-elected National Assembly remained the only legitimate parliamentary body (European Council, 2020). Following the vote, the United States also rejected the results and reaffirmed its support for the opposition-led Assembly (U.S. Department of State, 2020). In 2021, Venezuela continued to face severe humanitarian hardship and renewed political tensions. Early that year, the European Union announced that it would no longer formally recognize opposition leader Juan Guaidó as Venezuela’s interim president, though it reiterated that Nicolás Maduro’s 2018 reelection remained illegitimate (Euronews, 2021). In November, regional elections were held, marking the opposition’s return to electoral participation after years of boycotts. Despite this reengagement, independent observers and opposition figures reported widespread irregularities and structural advantages for pro-government candidates (European Union Election Observation Mission, 2021). The year closed with initial steps toward renewed negotiations between the opposition and the government, first mediated by Norway and later culminating in the Barbados Agreement framework.

In October 2022, the Biden administration offered a limited relaxation of sanctions by granting Chevron Corporation a specific license to resume restricted oil production and export operations in Venezuela, under clear conditions tied to political concessions. This was the first significant easing of sanctions since they were imposed in 2017 and 2019. Through General License No.41, Chevron was authorized to produce oil but not to pay taxes or royalties directly to the Maduro government, aiming to ensure funds were ring-fenced for debt repayment and humanitarian uses (U.S. Treasury, 2022). In return, the Maduro administration agreed to allow the opposition to hold primary elections to select its leadership and ultimately enable the candidacy of María Corina Machado for the 2024 presidential election.

Throughout 2023, diplomatic tensions continued, marked by a cycle of temporary concessions and renewed repression. In October, the United States temporarily lifted key sanctions on Venezuela’s oil, gas, and gold sectors after the signing of the Barbados Agreement, making this relief conditional on Nicolás Maduro’s commitments to release political prisoners and allow internationally monitored free and fair elections. This easing took the form of General License No.44, which authorized to resume certain transactions with PDVSA and the Venezuelan mining sector for a limited period (U.S. Treasury, 2023). However, by November Maduro’s government backtracked on these commitments when security forces arrested multiple members of opposition leader María Corina Machado’s campaign team, drawing condemnation from the United States and the European Union for undermining the agreed electoral guarantees.

In December 2023, the United States warned that it would reimpose sanctions if the Maduro regime failed to fulfill its commitments under the Barbados Agreement, highlighting the fragility of the diplomatic framework and Maduro’s ongoing reluctance to implement meaningful democratic reforms. Ultimately, General License No.44 expired in April 2024 after the regime failed to meet its core conditions, which included allowing free and fair elections and respecting opposition candidates’ right to run. Instead, authorities upheld a ban preventing María Corina Machado from standing as a presidential candidate, and subsequently barred her chosen substitute, Corina Yoris, from registering as well (U.S. Department of State, 2024). Under mounting domestic and international pressure, Maduro eventually conceded by permitting opposition figure Edmundo González Urrutia to stand as a unity candidate – but this sequence of obstructions triggered the wind-down and nonrenewal of the license (U.S. Treasury, 2024).

Presidential Elections and Return of Sanctions

The political situation deteriorated significantly in 2024. After Nicolás Maduro failed to fulfill his commitments under the Barbados Agreement, the United States reinstated sanctions on Venezuela’s vital oil and gas sector in April 2024, restoring financial pressure on PDVSA and associated state revenues (U.S. Treasury, 2024). In July, the presidential election was marred by widespread allegations of fraud, voter intimidation, and ballot manipulation. Despite independently corroborated evidence indicating that opposition candidate Edmundo González Urrutia won by a significant margin – with estimates suggesting he secured around 70% of the vote – Maduro refused to acknowledge defeat and declared himself the winner (U.S. Mission to the OAS, 2024; U.S. Department of State, 2024). The outcome was swiftly rejected by international election observers, the European Union, the United States, and multiple Latin American governments, all of whom cited severe irregularities and the absence of democratic guarantees (European External Action Service, 2024).

Scope of This Literature Review

The scope of this review is deliberately focused on contributions that meet two specific criteria. First, we concentrate on studies analyzing the impact of sanctions on Venezuela following their implementation in 2017. While the broader sanctions literature includes numerous cross-country analyses and studies of other sanctioned regimes, we consider only those that advance Venezuela-specific analyses. This targeted approach allows us to assess the evidence base regarding this particular case, which has been the subject of scholarly and policy debate.

Second, we limit our focus to quantitative contributions that employ methodological frameworks to estimate the causal effects of these sanctions. These studies share a common feature: They attempt to construct “counterfactual” benchmarks – estimates of what would have happened to economic and development outcomes in the absence of sanctions – to isolate the sanctions’ impact from other factors affecting Venezuela’s economy. This approach distinguishes the literature we review from a broader set of policy notes, legal analyses, and opinion pieces that discuss Venezuela sanctions from normative or descriptive perspectives without attempting to estimate causal effects through quantitative, causal approximations.

It should be noted that the literature that meets these criteria varies in terms of methodological rigor and publication status. As of the writing of this Element, only one paper in this list has undergone peer review in an academic journal. Other contributions exist as academic working papers, policy analyses, or opinion pieces released by think tanks, media outlets, or individual researchers. This variation in publication status requires careful consideration when assessing the robustness and reliability of findings across the literature. Finally, while several other articles and books quote or reintroduce the arguments and findings presented in the contributions discussed next, we limit our focus to the main sources of the analytic findings used to weigh on the debate of Venezuelan sanctions as collective punishment.Footnote ¹⁰

Summary of the Literature

Table 1 outlines the contributions providing quantitative evidence in favor of the view that US sanctions on Venezuela worked as a tool for collective punishment, while Table 2 outlines contributions providing evidence rejecting that view.

Table 1Studies supporting the “sanctions as collective punishment” viewpoint

Table 1 Long description

The table has five columns. Across the entries, the works are mostly policy analyses and working papers, with one journal article and one opinion article. The studies generally argue that sanctions, especially the 2017 financial sanctions and later sanctions, contributed to oil production losses, reduced public revenue, economic contraction, import shortages, humanitarian harm, and increased migration. Specific claims in the summaries include those sanctions accelerated Venezuela’s collapse after oil production fell, caused large annual oil-revenue losses, were associated with major humanitarian costs, including an estimate of 40,000 deaths in 2017 to 2018, and contributed to mass emigration by worsening living conditions and potentially strengthening authoritarian rule. The table presents works the authors classify as supporting the position that sanctions on Venezuela functioned as a form of collective punishment by imposing broad harms on the population. The table contains eight entries.

Row 1. Crude Realities: Understanding Venezuela’s Economic Collapse.

The summary says that the study identifies Venezuela’s economic collapse as resulting from a decline in oil production, and that this decline accelerated after the 2017 financial sanctions. It compares Venezuelan and Colombian oil production trends and argues that sanctions contributed to Venezuela’s economic deterioration.

Row 2. Punishing Civilians: United States Sanctions on Venezuela.

The summary says that the piece argues sanctions caused major humanitarian effects, including a claim of 40,000 deaths in 2017 to 2018. It also says sanctions prevented debt restructuring and contributed to the collapse of oil production, thereby cutting off imports of essential goods.

Row 3. Sanctions and the Venezuelan Economy: What the Data Say.

The summary states that the study uses synthetic control methods and cross-country comparisons to estimate that the financial sanctions caused losses of $16.9 billion per year in oil revenue.

Row 4. Impacto de las Sanciones Financieras y Petroleras sobre la Economía Venezolana.

The summary says that oil production in Venezuela after the 2017 sanctions performed worse than projected pre-treatment trends. The emphasis here is on underperformance in oil output after sanctions were imposed.

Row 5. Sanctions and Imports of Essential Goods: A Closer Look at the Equipo Anova (2021) Results.

The summary says that this work critiques the findings of Equipo Anova (2021). According to the summary, it argues that Equipo Anova’s conclusion that sanctions improved imports was driven by data errors and methodological flaws. The row concludes that the paper finds no evidence that sanctions improved imports of essential goods.

Row 6. Sanctions and Oil Production: Evidence from Venezuela’s Orinoco Basin.

The summary says the article uses firm-level data to show that the 2017 financial sanctions caused larger oil production losses among firms that had access to credit before sanctions were imposed. It estimates that sanctions explain about half of the production losses, with an economic impact of $6.2 billion annually.

Row 7. Why Economic Sanctions Backfire: The Role of Emigration in the Venezuelan Case.

The summary says the paper examines how sanctions may strengthen authoritarian regimes by encouraging emigration among political opposition supporters. Using the Venezuelan case, it argues that opponents of the regime were more likely to migrate after sanctions were imposed.

Row 8. Sanctions and Venezuelan Migration.

The summary says the paper analyzes the relationship between sanctions and Venezuelan emigration flows. It argues that by worsening economic conditions, sanctions contributed to the mass exodus of Venezuelans, which in turn created humanitarian and policy challenges in receiving countries. Overall, the table presents a body of literature that links sanctions to multiple categories of negative impacts.

Are Claims of Sanctions as “Collective Punishment” on Venezuelans Warranted by This Evidence?

The papers discussed earlier account for the causal quantitative literature on the effects of sanctions on the Venezuelan economy. We first described an initial set of studies documenting effects of sanctions on oil production, and how those studies were contested on different grounds. We then discussed how there is a dearth of evidence that sanctions worsened access to imported essential goods and developmental outcomes, including mortality and migration. Interestingly, there is evidence in favor of the view that the collapse in imports stopped after the 2017 sanctions, and started to recover after the 2019 sanctions. We believe this point is key: Even if oil production was indeed affected by sanctions, the lack of evidence that sanctions led to a collapse in essential imports, and the evidence that import access actually improved after sanctions, constitutes a fundamental and logical breakdown of the “causal chain” of the sanctions-as-collective-punishment argument.

An important challenge in the literature studying the effects of sanctions on oil production, imports, and other developmental outcomes is the difficulty of disentangling the continuation and worsening of pre-sanctions dynamics eroding the relevant outcomes from the potential effects of sanctions. As discussed in Hausmann and Muci (Reference Hausmann and Muci2019), Morales-Arilla (Reference Morales-Arilla2019), and Bahar et al. (Reference Bahar, Bustos, Morales-Arilla and Santos2019), oil production, essential imports, and developmental outcomes were all in accelerating downward trends before the imposition of financial sanctions in 2017. As these articles argue, it is extremely difficult to conceive a sensible counterfactual for any of the relevant outcomes because no country other than Venezuela has experienced a comparable collapse. In the absence of a plausible counterfactual for what would have happened to Venezuela in any of these outcomes had sanctions not been enacted, plausible causal effects of sanctions cannot be estimated.

Perhaps most importantly, economic sanctions do not occur in a vacuum, but they are often triggered by meaningful political events and are surrounded by consequential economic events and policy choices. The financial sanctions of 2017 and the oil sanctions of 2019 are no exception. As discussed in the timeline of events, the 2017 sanctions were preceded by the curtailing of legislative prerogatives, the prohibition of a recall referendum in 2016, and by the brutal repression of massive protests and the usurpation of legislative authorities by the Asamblea Nacional Constituyente (ANC). Indeed, it was the unconstitutional creation of the ANC which triggered the 2017 sanctions, along with other diplomatic interventions like the Grupo de Lima. Finally, they were soon followed by the government’s decision to cede managerial control of the oil industry to the Armed Forces, a decision that has been discussed as greatly disruptive for operations in the sector.

Following the imposition of the 2017 financial sanctions, the executive board of PDVSA was restructured and replaced by high-ranking military officials. Reuters (2018a) documents the rise of Manuel Quevedo, a Major General in the Venezuelan National Guard, as president of PDVSA, and his appointment as the Oil Minister of the country. This report from Reuters shows how, a year after his appointment, Quevedo had- from the perspective of industry experts- implemented corrosive reforms which were expected to cause erosions in production. In light of financial sanctions, the constitutional shocks experienced in the country, and the military takeover of the oil industry, all events which may have had an important effects on the oil industry, it is difficult to parse out their specific effects in order to establish causal claims.

This problem of multiple concurrent treatments also plagued the rollout of the 2019 oil sanctions, which were triggered by the start of the constitutional crisis in late January, and were soon followed by the massive blackouts of early March. Independently, each of these concurrent treatments could have plausibly had consequential negative effects on Venezuelan economic and development outcomes in the absence of others. How do we know that the synthetic control findings in Rodríguez (Reference Rodríguez2019) were not a consequence of worsening of pre-sanctions dynamics, or of any of these concurrent events? In Rodríguez (Reference Rodríguez2022c), beyond the lack of parallel pre-treatment trends, which already renders the methodological assumptions of the paper implausible, how do we know that firms with pre-sanctions credit access were not disproportionately exposed to the institutional and operational effects of the Constitutional Assembly and of military control shocks over the oil sector? The fact that all these consequential events occurred in such proximity makes it hard to identify independent causal effects on outcomes that could plausibly be eroded by any of them.

This criticism is even more relevant for Idrobo (Reference Idrobo2024), who argues that sanctions helped stabilize the Maduro regime by inducing regime opponents to migrate. As a matter of fact, the finding that opposition individuals were more likely to migrate after the start of the Venezuelan economic crisis has been identified in other recent contributions to the migration literature (Cabra-Ruiz et al., Reference Cabra-Ruiz, Rozo and Sviatschi2024; Morales-Arilla et al., Reference Morales-Arilla, Martin and Morales2025). Idrobo (Reference Idrobo2024) uses individual records and local aggregates of formal labor force participation at a yearly level to proxy for migration. This first methodological decision is already problematic, as people may drop from the formal labor force for economic reasons other than migration. Most importantly, other papers in the literature on migration are careful not to conclude that opponents’ exit was driven by a particular separate component of the complex and intertwined political and economic events that plagued Venezuela after 2014.

The reason is that the result could be explained by any of all the meaningful concurrent events. For example, the last year of Idrobo’s (Reference Idrobo2024) pre-treatment period is 2016, a year when the opposition-led legislature was prevented from enacting any laws, and when the opposition was not allowed to pursue a constitutionally enshrined recall referendum on Nicolás Maduro. Moreover, 2017 started with an effort to illegalize the opposition-controlled legislature, which triggered massive opposition protests that were heavily repressed, and which induced the creation of the Asamblea Nacional Constituyente, which took over supraconstitutional powers in the hand of the regime. Even if economic events like sanctions, and changing living conditions had no effect on migration outcomes, these strictly political factors could plausibly explain the observed political gradient in migration.

Moreover, it is the evolution of these political events which “triggered” the imposition of sanctions, and these political events could have their own effects of the economy, along with those of other concurrent events within the same year (i.e. sanctions), the military takeover of the oil sector, among others. Moreover, as migration choices are often planned months ahead, it is perfectly possible that the flows observed in 2017 were the result of choices induced by pre-sanctions economic erosion, which accounts for the bulk of the collapse of the Venezuelan economy. It is expected for regime opponents to choose to “exit” in response to the same degree of economic duress (Hirschman, Reference Hirschman1970), but even if the results in Idrobo (Reference Idrobo2024) were driven by the worsening economic conditions and not by the targeted political discrimination and repression that they were being subjected to, claiming that the outmigration of opponents beginning in 2017 is a causal effect of sanctions relies on the implausible assumption that the prior economic trends had no effect on post-2017 migration, and that consequential concurrent events had no economic impacts.

That opponents may have chosen to leave as a response to the same pre-sanctions economic shock or to the economic effects of consequential concurrent events is compounded by the possibility of favoritism in the policy responses to said shocks and events. For instance, if Maduro’s response to the economic crisis was to discriminate in favor of its supporters and against opponents (Morales-Arilla, Reference Morales-Arilla2022; Morales-Arilla and Abbott, Reference Morales-Arilla and Abbott2024, Morales-Arilla and Traettino, Reference Morales-Arilla and Traettino2024), then the pre-sanctions macroeconomic collapse might have had a disproportionately harsh effect on the living standards of regime opponents. This adds the possibility of favoritism to the set of potential explanations for opponent migration that are not related to sanctions.

The assumptions that Idrobo (Reference Idrobo2024) needs to make to conclude that his findings are a consequence of the 2017 sanctions are not only implausible, but also untestable, given the low (yearly) frequency in his data. It is especially hard to interpret the 2017 increases in outmigration in opposition-leaning areas as a result of sanctions because the data does not allow us to observe migration choices in the narrow window between sanctions and other consequential treatments. This concern is also relevant for Zambrano et al. (Reference Zambrano, Hernández and Escalante2021), who try to estimate effects of the 2017 sanctions on oil production and essential imports by performing a regression discontinuity specification on monthly data. In our view, the most interesting result of that article is not to show a discontinuous increase in imports at the time that sanctions were first enacted, but to show that the import collapse that the country was experiencing stopped with the 2017 financial sanctions.

Finally, as discussed in Bahar et al. (Reference Bahar, Bustos, Morales-Arilla and Santos2019), there are no reasons to expect for financial sanctions to trigger immediate effects on oil production or other economic outcomes, as financial markets were effectively closed to the government and PDVSA by the time that sanctions were approved. Indeed, Idrobo (Reference Idrobo2024) claims that “sanctions and general economic decay effectively exported a significant part of the political opposition,” and that the Venezuelan refugee wave “was partly a consequence of the economic sanctions.” Unfortunately, the paper does not separate the specific effects of sanctions from those of the “general economic decay” - the majority of which preceded sanctions - from the concurrent harassment of the political opposition, from the potential favoritism in regime responses to the economic crisis, and from the economic effects of consequential concurrent shocks to the economy. Without adequately addressing these, we cannot reject the null hypothesis that the part of the effect that is determined specifically by sanctions is zero without relying on implausible assumptions.

In sum, there are three key critiques on the empirical literature arguing that sanctions worked as a “collective punishment” on Venezuelans. First, the literature fails to identify negative causal effects on imports and on development outcomes. Second, the literature does not separately identify the effects of sanctions from worsening pre-sanctions economic trends. Finally, the literature does not identify the effects of sanctions from those of meaningful concurrent treatments. Having failed to overcome these critiques, we believe the claim that sanctions eroded Venezuelans’ living standards is not warranted by the causal quantitative literature. In the following four sections, we introduce original evidence warranting further skepticism on that view.

The Architecture and Consequences of Foreign Exchange Controls

CADIVI (Commission for the Administration of Foreign Exchange) was established by Presidential Decree No. 2302 on February 5, 2003, designed to prevent capital flight and preserve foreign reserves during a period of political instability following a two-month oil strike (Banco Central de Venezuela, 2003). The system set multiple official exchange rates - typically far below market rates, and required government approval for all foreign currency purchases (Norton Rose Fulbright,Reference Fulbright2014). The Bank for International Settlements documented how this created a centralized currency allocation process in which “the Central Bank of Venezuela fixed a monthly allocation of foreign currency to be administered by CADIVI, purchases foreign currency from residents, and sells foreign currency to the public and private sectors subject to approval from CADIVI” (Bank for International Settlements, 2005).

The system created immediate arbitrage opportunities. With official rates often 50–90% below black-market rates, those with access to “official” dollars could generate enormous profits on the spot. The system enabled “$1,000 to be turned into $1 million in a matter of days” (Adam Smith Institute, 2024). This gap between official and parallel rates became the foundation for systematic rent-seeking behavior throughout the economy. The subsidy implicit in cheap official dollars created powerful incentives for importers to manipulate their transactions. Since foreign currency was priced below market rates, “an entire industry of non-productive ghost companies cropped up to lobby the government for subsidized dollars (to resell them on the black market for an immediate profit)” (Economics Observatory, 2024). Early in the process, analysts observed that “many genuine businesses also specialized away from productive activities towards securing cheap dollars” (Fletcher, Reference Fletcher2004).

This was carried out through several well-documented mechanisms. According to US State Department investment climate reports, importers would systematically manipulate the system: “Firms often wait 180-270 days to receive dollars, or never receive them, despite having their applications approved,” creating powerful incentives for corruption and overpricing (U.S. Department of State, 2015). Court documents from United States’ corruption prosecutions reveal that shell companies would issue fraudulent invoices for non-existent or overpriced goods, while transfer pricing manipulation allowed related companies to set artificial prices for intra-company transactions (United States Department of Justice, 2020). The government’s limited oversight capacity, combined with the technical complexity of verifying international prices across thousands of products, made this manipulation relatively easy. Import licenses became more valuable than an actual import business, leading to the emergence of what economists called “briefcase importers” who existed solely to capture foreign exchange subsidies.

The discretionary nature of foreign exchange allocation transformed CADIVI and its successors into systematic corruption mechanisms throughout their sixteen-year existence. According to Transparencia Venezuela, a prominent anti-corruption organization, President Nicolás Maduro himself admitted the extent of the problem in 2014, creating a presidential commission to investigate how the exchange control system had been breached, with corruption costs estimated at $25 billion by the former Minister of Planning (Transparencia Venezuela, 2021). FinCEN, the United States Treasury’s Financial Crimes Enforcement Network, issued a comprehensive advisory in September 2020 documenting the systematic nature of Venezuelan corruption, specifically highlighting how “Venezuelan officials manipulated currency exchange rates and restricted access to U.S. dollars” to extract rents from the economy (Financial Crimes Enforcement Network, 2020). The advisory noted that even when dollars were allocated through official channels, the aforementioned delays created additional opportunities for corruption and favoritism (Financial Crimes Enforcement Network, 2020). Federal court documents from multiple prosecutions reveal the industrial scale of the corruption. Venezuelan officials converted “$40 million in PDVSA funds into approximately $600 million through currency manipulation” (United States Department of Justice, 2020). These prosecutions demonstrate how access to subsidized foreign currency became a form of political patronage distributed to reward loyalty.

The most spectacular example of systematic corruption was the case of Alejandro “El Tuerto” Andrade, Hugo Chávez’s bodyguard-later-turned-National Treasurer. Andrade admitted to receiving over $1 billion in bribes from coconspirators in exchange for using his position as Venezuelan national treasurer to select them to conduct currency exchange transactions at favorable rates (United States Department of Justice, 2019). He received cash as well as private jets, yachts, cars, homes, champion horses, and high-end watches from his accomplices (U.S. Department of the Treasury, 2019b). Records show that Andrade accumulated $304 million while squandering opulence in South Florida, but this was just part of a money laundering scheme involving more than $1 billion in bribes (Itempnews Project, 2022). For reference, the construction firm Odebrecht admitted to paying $788 million in bribes across twelve countries in the Lava Jato case, the largest corruption scandal in Latin American history and “largest foreign bribery case in history” (United States Department of Justice, 2016).

Beyond corruption, the scandal at the Productora y Distribuidora Venezolana de Alimentos (PDVAL), also known as the Pudreval scandal, exemplifies how these incentives generated massive waste in food imports. The scandal involved “the finding of tons of rotten food supplies in mid 2010 imported during Hugo Chávez’s government through subsidies of state-owned enterprise PDVAL” (Valery, Reference Valery2010). Venezuelan authorities documented that between 130,000 and 170,000 tons of food supplies were affected, with the political opposition calculating this could have fed 17 million Venezuelans for a month (Agencia EFE, 2010). The fact that PDVAL imported more food than it was able to distribute was not incompetence but rational behavior under the incentive structure created by the exchange controls. State companies faced soft budget constraints as losses were covered by oil revenues. Managers could profit personally from inflated contracts while facing minimal consequences for waste. There were many other similar cases of excess imports of deliberately substandard products at inflated prices to maximize foreign currency arbitrage (Reuters, 2011).

Reinhart and Santos (Reference Reinhart and Santos2016), based on the balance of payments published by the Venezuelan Central Bank, estimated that capital flight during the first eight years of the exchange control system (2003–2011) totaled $133.2 billion, equivalent to an average of 9–17% of Venezuelan GDP. As the authors conclude, the control was not imposed to put a halt to the capital flight but rather to decide who was allowed to fly.

In the long term, perhaps the most devastating economic consequence of exchange controls was the systematic destruction of Venezuela’s productive capacity. Subsidized imports made it cheaper to import almost everything than to produce domestically, with the result that “many genuine businesses also specialized away from productive activities towards securing cheap dollars” (Economics Observatory, 2024). This “hamstrung domestic production, making the country extremely reliant on imports, even for products that Venezuela had previously exported, such as rice” (Fletcher, Reference Fletcher2004). Industries that had operated for decades simply closed rather than compete with subsidized imports. World Bank data shows that manufacturing’s contribution to GDP declined from approximately 16% in the early 2000s to just 12% by 2014, with the sector experiencing severe difficulties amid lack of investment (World Bank, 2024). The agricultural sector was particularly devastated. According to FAO statistics, Venezuela’s agricultural self-sufficiency declined dramatically, with the country importing about two-thirds of its food needs by the 2010s (Food and Agriculture Organization, 2024).

The exchange control system became a primary driver of Venezuela’s hyperinflation and food scarcity. Multiple exchange rates created parallel markets with wildly different prices for the same goods. By late 2018, the central exchange rate through the state-controlled DICOM auction system was 63.81 Sovereign Bolivars (VES) to 1 USD, while the black-market exchange rate was 171.34 VES to 1 USD - making life nearly three times more expensive without access to the official exchange rate (Adam Smith Institute, 2024). Corruption in subsidized food imports reached new heights at this time with the CLAP food distribution program (U.S. Department of the Treasury, 2019a). United States’ Treasury officials determined that “Venezuelan officials pocketed 70% of the proceeds allocated to import programs destined to alleviate hunger in Venezuela” (The Washington Post, 2018). Colombian authorities seized 25,200 CLAP boxes containing about 400 tons of decomposing food destined for the Venezuelan public (El Tiempo, 2018).

The cumulative impact over sixteen years of exchange controls was catastrophic. The Economics Observatory calculated that “Venezuela lost an estimated $300 billion to corruption through its foreign currency system and other schemes” between the early 2000s and mid 2010s. When oil prices collapsed from $100 to $40 per barrel in 2014, “Venezuela was drastically unprepared” due to aggressive pro-cyclical fiscal policy and lack of savings, exacerbated by the massive resource misallocation caused by exchange controls (Economics Observatory, 2024). The sixteen-year persistence of this system, from CADIVI’s establishment in 2003 through DICOM’s elimination in May 2019, demonstrates how entrenched rent-seeking interests can perpetuate economically destructive policies. The corruption was not peripheral but central to the system’s operation. From the Pudreval food scandal to the CLAP program theft, from ghost companies importing nothing to systematic overpricing of real imports, the exchange control regime became a mechanism for wholesale looting of national resources.

The Long Process of Dismantling Foreign Exchange Controls

The first meaningful step toward dismantling foreign exchange controls came with the establishment of the DICOM foreign currency auction system. Unlike previous exchange mechanisms, DICOM represented a fundamental shift toward market-based pricing while maintaining Central Bank oversight. The new system allowed private parties to buy and sell foreign currency through auctions administered by the Central Bank of Venezuela (Norton Rose Fulbright, Reference Fulbright2017). The DICOM system immediately revealed the extent of currency overvaluation that had accumulated under the previous controls at official rates. The initial DICOM range between 1800 and 2200 bolivars per dollar represented “at least a 60 percent” devaluation from the previous SIMADI rate (Reuters, 2017b). This marked the beginning of a series of massive devaluations.

Weekly auctions sold approximately $30.3 million – a relatively low amount, indicating that while more flexible than its predecessors, the system still failed to meet market demand for foreign currency (Reuters, 2017a). A more crucial step toward dismantling the multitier system occurred in January 2018, when the heavily subsidized DIPRO exchange rate of 10 bolivars per dollar was eliminated (Reuters, 2018b). The unification of exchange rates at the DICOM level was accompanied by dramatic devaluations. Moreover, in August 2018, money exchange operations between private parties were legalized, effectively decriminalizing the parallel market for foreign currency (Reuters, 2018c). The decision effectively legalized what had become the de facto currency market for most Venezuelan economic activity.

By 2019, the exchange control system faced multiple pressures that made its continuation impossible. Sanctions had severely constrained the Central Bank’s ability to operate international transactions, forcing the institution to resort to increasingly primitive methods. Reuters reported that “Venezuela’s central bank has begun using piles of cash rather than electronic transfer to sell foreign exchange to local banks” (Reuters, 2019a). As a result, the DICOM’s volumes had fallen to negligible levels. According to Central Bank data, the monetary authority had sold just $32 million through DICOM in the first months of 2019, compared to the billions needed to meet market demand (Reuters, 2019b). The system had essentially ceased functioning as a meaningful source of foreign currency for the Venezuelan economy.

The formal end of Venezuela’s exchange control system came with a Central Bank resolution dated May 2, 2019, which created “exchange tables” (mesas de cambio) to be operated by Venezuelan banks (Venezuelanalysis, 2019). The central bank stopped offering any foreign currency for sale through DICOM by the end of April, following US sanctions on the institution (Reuters, 2019b). This formally marked the end of sixteen years of exchange controls in Venezuela.

Documenting Welfare Benefits of Eliminating Exchange Controls

One of the main consequences of foreign exchange controls was the overpricing of Venezuelan imports. Overpriced imports were welfare reducing for macro, micro, institutional, and productive reasons. At a macro level, overpricing meant that Venezuela was losing foreign currency reserves at rates inconsistent with the goods that were being channeled into the country. At a micro level, overpricing led to insensibly high levels of wasteful imports, only noisily correlating with domestic demand. Institutionally, the overpricing opportunities led to corruption levels orders of magnitude beyond any regional benchmark. Finally, overpricing incentivized Venezuelan firms to redeploy their capabilities from production toward activities that eased their access to subsidized foreign currency.

To measure the levels of overpricing of Venezuelan imports, we leveraged customs data from Colombia, whose Customs and Tax Agency (Direccion de Impuestos y Aduanas Nacionales, DIAN) publishes transaction-level exports data between 2001 and 2024. This data allows us to observe the freight on board (FOB) prices of each Colombian export transaction during this period. Chiefly, we can also observe the specific product category of the exported good, the tax ID of the exporting company, the date of the transaction, and the destination country of all Colombian exports during this period. With these data, we can compare the export price differences of transactions of the same product, by the same firm during the same week, whenever the goods were being imported by Venezuela or when they were being imported by a different country.

We make this comparison separately for each year available in the data to estimate yearly average import overpricing rates. Figure 17 shows these estimates between 2001 and 2024, capturing two years before the start of foreign exchange controls, sixteen years of controls, and five years after the end of exchange controls. Overprice estimates are indistinguishable from zero until 2003, but they start growing immediately after, reaching 14% between 2008 and 2012. However, average overprices start to grow aggressively with the onset of the economic crisis, and peak at a whopping 96% in 2016. Overprices subside slightly in 2017, the year DICOM and financial sanctions were first enacted, reaching 78%. Overpricing, which averaged 49% in 2018, collapsed to 8% by 2019 with the end of foreign exchange controls. By 2021, overpricing had essentially disappeared. Additional details about our methods and estimates are in the Technical appendix for Case Study 4.

Figure 17

Yearly Venezuelan import overprice estimates

Note: Figure shows yearly estimates of overpricing of Colombian exports to Venezuela in comparison to other importer countries between 2001 and 2024. Each point represents the coefficient from a year-specific regression following Equation 4. Log FOB prices are estimated as a function of a Venezuelan-importer indicator variable, controlling for firm-product-week fixed effects. The coefficient captures the average percent price difference when the same Colombian exporter sells the same product during the same week to Venezuela versus other countries. Dark and light gray vertical lines capture 90% and 95% confidence intervals. Observations are weighted by transaction value.

Source: Colombia’s Dirección de Impuestos y Aduanas Nacionales (DIAN) transaction-level export data. Authors’ calculations.

These results highlight several issues. As discussed earlier, the bulk of the collapse of the Venezuelan economy and of Venezuelan imports occurred between 2013 and 2016, before the enactment of the first financial sanctions of 2017. Far from eliminating import inefficiencies to address the ensuing crisis, the response of the Maduro regime seemed to aggravate overpricing imbalances in favor of well-connected importers. The growth in overpricing between 2013 and 2016 suggests that the import collapse during this period, usually measured in dollar terms, was probably steeper, if considered in terms of available imported items. Most importantly, average overprice levels dovetail with the evolution of foreign exchange controls, which were enacted in 2003, relaxed in 2017, and fully removed in 2019. Chiefly, the subsiding of overprice levels in 2017, and their collapse in 2019, coincide with the enactment of the 2017 and 2019 sanctions.

Sanctions and the Unraveling of Economic Controls

The evidence presented in this Element suggests that the collapse of Venezuela’s economy predated the imposition of sanctions. Most of the aggregates analyzed indicate that Venezuela hit rock bottom in 2016. By the end of that year, well ahead of the 2017 financial sanctions, the country had already experienced over 85% of the total GDP and import contraction that would eventually characterize its crisis. That context was further aggravated by the onset of hyperinflation, which, according to the Central Bank, officially began in December 2017, when monthly inflation surpassed the 50% threshold (55.6%).Footnote ²⁵ Faced with a deepening collapse compounded by financial sanctions and hyperinflation, the government would eventually initiate a fundamental shift in economic policy, dismantling - at times de facto, at times de jure - the system of controls that had prevailed for more than fifteen years.

In late January 2018, the Convenio Cambiario $N^{\circ }39$ unified the exchange rates legally recognized by the government. In August 2018, the Constitutional Assembly proclaimed a year earlier as a parallel legislative body published a decree regarding “the annulment (derogatoria) of the exchange control and all illicit activities associated.”Footnote ²⁶

On its motivation section, the decree announces the beginning of “a new regulatory framework whereby private agents can perform transactions in foreign currency in between them, with legal origin, without any limits other than those imposed by the law.” Further to that, Articles 1 and 2 justify the elimination of the fifteen-year standing exchange control, “with the purpose of giving private agents, individual and firms, foreign and nationals, the amplest guarantee in the development of their activities within the socioeconomic model of the country.”Footnote ²⁷ Such language marked a profound departure from one of the core pillars of Chavismo’s economic doctrine: its reliance on the monopoly and administration of foreign exchange as an instrument of political leverage and economic control.

Later that month, on August 17, 2018, Nicolas Maduro launched the “Program for Recovery, Growth and Economic Prosperity,” an aggressive policy package aimed at curbing down inflation and stabilizing the economy. The policy package included a massive devaluation of the domestic currency, an increase in the Value Added Tax from 12% to 16%, and the announcement of the “activation” of 300 currency exchange offices (casas de cambio) across the country. Maduro also declared that deposits in foreign currency, as well as corresponding debit cards, would be introduced in the Venezuelan banking system, effectively normalizing dollar accounts for domestic use. Ironically, although the announcement was stressed to be aimed at “destroying the criminal dollar and the fixing and dollarizing of prices,” what followed was a de facto dollarization of the economy.

These changes were galvanized from a legal standpoint with the publication of Convenio Cambiario 1 on September 7, 2018, which reestablished “free convertibility along the national territory in a market organized and regulated to guarantee its optimal functioning” (Article 1).Footnote ²⁸ The departure from the long-standing exchange control is well captured in the wording of two articles that are noteworthy. Article 2 effectively eliminated the exchange control regime that had prevailed for fifteen consecutive years: “with the purpose of creating favorable conditions to the stability required for the functioning of the economy and the investment, free convertibility is reestablished along the national territory, thereby ceasing all restrictions to exchange rate operations.”Footnote ²⁹ Article 9 establishes that, to all legal purposes, the exchange rate “will fluctuate freely according to the supply and demand of individuals and businesses, through the System of Market Exchange.”Footnote ³⁰

In practice, Convenio Cambiario 1 enabled the private sector to buy and sell foreign currency privately, without going through the Venezuelan Central Bank, including the free disposition of up to 80% of the foreign currency generated via exports.Footnote ³¹ It also established that there will be a single market exchange rate, that would fluctuate as a result of the free exchange of currency carried by the private sector through the authorized intermediaries. At last, it also authorized individuals over eighteen and legal entities to maintain foreign-currency deposits in Venezuelan financial institutions, without any requirements other than the standard anti–money laundering regulations (Article 32). In May 2019, months after oil sanctions were first announced, a Central Bank resolution finally allowed private banks to open accounts in foreign currency, removing remaining elements of the country’s exchange control system (Reuters, 2019b).

These were not the only significant reforms introduced by the Venezuelan government under mounting external constraints. The liberalization of the foreign exchange regime rendered existing price controls, still formally maintained under the Organic Law of Just PricesFootnote ³² increasingly irrelevant. In the context of hyperinflation and free-floating depreciating currency, from a practical standpoint the government effectively lost the capacity to update regulated prices with the frequency needed to keep pace with real market conditions. As a result, while the formal framework of maximum prices and punitive enforcement remains on the legal framework, in practice it became unenforceable: Actual market prices routinely exceeded the official ceilings, as increasingly more transactions started to occur in foreign currency.

Another striking example of this policy reversal came in June 2020, when the government formally dismantled the subsidy to domestic gasoline. On June 1, 2020, President Nicolás Maduro announced a new pricing system that combined a limited subsidy with a market-based, dollar-denominated tier for private consumption - marking the first time in decades that Venezuelans paid near-international prices for fuel. As Maduro himself declared during the televised address unveiling the plan, Venezuela would “no longer give away gasoline” (Venezuela no va a regalar más gasolina), framing the shift as a necessary adjustment under severe constraints.Footnote ³³, Footnote ³⁴ The new structure allowed private individuals to purchase fuel at an unsubsidized rate of $0.50 per liter, while a subsidized quota was reserved for select users at a nominal price of $0.025 per liter, paid via local currency or foreign exchange. This partial liberalization stood in stark contrast to the decades-long policy of near-total fuel subsidization and underscored how external pressures and fiscal exhaustion compelled the government to retreat from one of its most iconic populist commitments.Footnote ³⁵

Crucially, this sweeping policy reversal did not reflect a change in convictions, but was rather imposed by necessity. It was not the product of ideological reorientation or paradigm shift but of material constraint. Regardless of intent, it is beyond dispute that these measures introduced elements of more efficient resource allocation and modestly improved the business climate within Venezuela’s heavily distorted economy. Several authors have persuasively argued that this reluctant liberalization was triggered by the financial sanctions imposed in August 2017 and further deepened by the broader sanctions targeting PDVSA in January 2019.

Palma (2020) is very explicit when it comes to the motivation behind the pivot toward market reforms observed from 2017 onward:

Zambrano et al., Reference Zambrano, Hernández and Escalante2021, in explaining the reasons behind their findings that the financial sanctions of August 2017 are associated with an increase in the value of monthly imports of food and medicine, argue that:

Perhaps the more convincing argument supporting the notion that partial economic liberalization came as a response to sanctions imposed by the United States comes from Nicolas Maduro himself:

Sanctions as External Constraints on Absolute Authority

The core proposition advanced in this Element is that sanctions reshaped the Venezuelan political and economic landscape not primarily by imposing material deprivation, but by limiting the regime’s capacity to exercise absolute discretion over key economic levers. The monopoly over the allocation of foreign exchange, the granting of import licenses, the provision of subsidize currency and credit, the capricious imposition, administration and sanctioning of maximum prices and profit margins - once instruments of patronage and control -became increasingly difficult to sustain. This loss of discretion, rather than furthering the economic collapse, induced a set of partial reforms that facilitated the reactivation of certain market mechanisms and mitigated further deterioration. While the evidence that sanctions did not cause Venezuela’s collapse is robust and consistent, the claim that they helped improve outcomes through these constraints remains tentative, supported by suggestive patterns that warrant further investigation.

This dynamic reframes the impact of sanctions away from the “collective punishment” paradigm and toward a framework in which external constraints disrupt rent-distribution channels and force partial policy adjustments. These reforms did not amount to a transition to a free market economy, but they did mark a substantive departure from prior controls and were followed by observable improvements in welfare-relevant indicators, including the stabilization of imports, the partial recovery of output, the reduction in markups on tradables, and the disappearance of black-market arbitrage margins.

The Venezuelan experience demonstrates that the impacts of sanctions are not always straightforward or unidirectional. Their consequences depend critically on the political economy context, the institutional architecture of control, and the endogenous responses they trigger. In Venezuela, sanctions did not operate as collective punishment or as a cause of further economic collapse – for which we find no supporting evidence. Rather, they appear to have constrained the regime’s authority in ways that compelled a reluctant unwinding of key pillars of its economic model.

From a policy perspective, this implies that the design of sanctions should pay closer attention to political economy dynamics–particularly how they interact with domestic institutions and reshape elite incentives. Sanctions that are broad enough to constrain discretionary fiscal authority yet carefully targeted to exacerbate internal contradictions–while still allowing humanitarian flows and preserving credible diplomatic channels–are more likely to yield leverage beyond mere symbolic condemnation. Without sanctions, or the credible threat of imposing or reimposing them, there is effectively no bargaining chip that can compel the Venezuelan regime to negotiate.

Sanctions, for all their costs, remain the only meaningful external lever because relief is the one concession the regime consistently demands. Absent this pressure, there is little incentive for substantive concessions. The Venezuelan case illustrates that sanctions did not cause further collapse but operated as an external constraint on authority that forced a reluctant regime to unwind long-standing pillars of its economic model. The reforms that followed, though partial and improvised, highlight a broader insight: Under certain conditions, sanctions may precipitate adaptive adjustments with nontrivial welfare effects.