Lift the Siege

In August 2021, as the Covid pandemic raged, the IMF decided to offer a financial lifeline to developing countries. It distributed $650 billion worth of Special Drawing Rights (SDRs), a highly effective financial instrument that can easily be converted to hard currency. States throughout the Global South were able to use these internationally recognized assets to purchase essential imports—including vaccines and other public health goods—as well as to boost their economies and supplement their foreign reserves. Yet one Latin American country, in a situation of acute economic distress, was prevented from accessing this vital resource. 

Flash forward to January 2026, and that same country has now suffered a criminal assault by the US military. Its president and first lady have been kidnapped, bundled onto a plane, and locked in a New York jail, where they await trial on vague and dubious charges including “narcoterrorism.” In the aftermath of this attack, the nation is looking down the barrel of a debilitating blockade, threats of further military intervention, and a possible US takeover of its oil industry. 

However, in a strange but potentially hopeful twist, officials in the Trump administration have now begun to discuss the removal of sanctions targeting the oil sector and the unfreezing of the country’s SDRs, in spite of the fact that the chavista government—under the leadership of former vice president Delcy Rodríguez—is still intact. The implications could be significant. If oil revenue is allowed to flow back to banks in Caracas, this could lay the foundations for an economic recovery that would save many lives over the long term. And if billions of dollars worth of SDRs are released to Venezuela, this could provide immediate economic relief and help to ease the ongoing humanitarian crisis. What to make of this apparent reversal on Washington’s part?

Sanctions were initially imposed under the Obama administration, through an executive order which declared, with no elaboration, that Venezuela posed an “unusual and extraordinary threat” to national security. The Trump administration then used the Obama order to institute broad economic sanctions between 2017 and 2019 as part of a “maximum pressure” policy aimed at ousting President Nicolás Maduro. This involved sanctioning the central bank, seizing its overseas assets, prohibiting borrowing in US financial markets, and targeting the most crucial pillar of the economy: the oil sector. 

Even before the sanctions began to bite, Venezuela’s economy had been experiencing serious difficulties due to a fall in oil prices and misguided government policies. The US’s economic war dramatically exacerbated the situation, leading to the deepest depression in history outside of wartime. The first year of Trump’s sanctions took tens of thousands of lives, and the following two claimed many more. There was a marked increase in undernourishment and mortality,  particularly among infants. Living standards plummeted and millions migrated to neighboring countries. 

Maduro, however, remained firmly in place. So in early 2019, hardline Venezuelan opposition leaders, in coordination with Marco Rubio and senior administration officials John Bolton and Mike Pompeo, got Trump’s approval for a new plan to topple the president. Juan Guaidó, who had recently assumed the role of rotating president of the national parliament, declared himself Venezuela’s rightful ruler despite having no national mandate. He was immediately recognized by the US, followed by Latin America’s right-wing governments and most European states. 

Within days, diplomatic relations between the US and Venezuela were severed. Guaidó and his allies were granted access to billions of dollars of Venezuelan state assets held in the US. The Trump administration worked to cut off the Maduro government’s relations with a range of international organizations, such as the Inter-American Development Bank, and succeeded in getting the Organization of American States to impart member state status to the Guaido “government.”  Tougher US sanctions were also issued against Venezuela’s oil sector, while Bolton and other officials made barely veiled threats of military intervention and called on Venezuelan troops to rebel. 

Amid these dramatic developments, it mostly went unnoticed that the IMF had suspended relations with Venezuela due to “lack of clarity” about the country’s leadership. Because a majority voting share within the institution—consisting mainly of the US and European states—now no longer recognized the Venezuelan authorities, the Fund followed suit and withdrew its own recognition. 

At first, Maduro showed scant interest in reengaging with the institution; Venezuela had minimal relations with the Fund since the early 2000s and no lending program since 1997. Yet this changed when the IMF Board of Governors decided to issue an unprecedented quantity  of SDRs to its members. That allocation, as our colleagues Andrés Araúz and Kevin Cashman have shown, provided developing countries with much-needed liquidity to help cope with the economic fallout of Covid: 42 exchanged their SDRs for hard currency, others used them to pay off debt to the IMF, and at least 69 used them for fiscal purposes. 

For Venezuela, the allocation amounted to 3.568 billion SDRs, the equivalent of $5.1 billion at the time. Few countries needed it more. During short-lived negotiations between the Venezuelan government and opposition that September, both sides agreed that accessing the SDR allocation was a top priority. But the resources remained embargoed, and the economy continued its downward spiral. 

Today, under Trump II, the unfreezing of Venezuela’s SDRs is back on the table, as is the possibility of a major IMF loan. Why? Because US Treasury Secretary Scott Bessent said so. He has told reporters that the Trump administration is not only “de-sanctioning the oil that’s going to be sold,” and has met with the heads of the IMF and World Bank to push for restored relations. Needless to say, Washington’s motives are far from pure; Trump is fixated on reviving the country’s ailing oil sector so that it can be handed over to US companies. Yet this will require, among other things, a return to economic stability for the nation as a whole, hence the administration’s apparent willingness to break with the erstwhile maximal pressure strategy, at least for now. 

Throughout the history of the IMF, the US Treasury has generally got its way, thanks to its veto power over key decisions and the tendency of Western allies to defer to Washington on questions of Fund policy. In this case, it looked for a moment like things might unfold differently. To allow Venezuela to reengage with the IMF, a majority within the Fund would need to support the recognition of Venezuela’s state authorities. European countries were reportedly hesitant to go along with this diktat on account of Trump’s threats to take over Greenland. But now that Trump is touting a Greenland deal with the Europeans, this prospect seems to have passed. 

If the nearly $5 billion of SDRs is released, it could help Venezuela’s central bank to fight inflation, which has soared following the US attack and oil blockade, and avert more hyperinflation. They could also be used to purchase urgent necessities like food and medicine, setting the country on a path to reconstruction and creating more auspicious conditions for dialogue between its key political actors. In the midst of this unprecedented attack on its sovereignty, Venezuela might, paradoxically, be able to breathe for the first time in years. 

Yet for this to happen, Venezuela must also be allowed to restructure and reschedule its crushing external debt, which ballooned following the country’s economic collapse. Here the danger is that Washington and international creditors pressure Caracas to use its SDRs to immediately begin paying off foreign debt. Trump may also try to channel the entirety of the oil revenue to billionaire buddies rather than allowing it to flow back into the country. It remains unclear which route the White House will take. But the rest of us must be clear in calling for an end to the sanctions regime and the freezing of Venezuela’s SDRs: policies which have brought nothing but misery to the Venezuelan people, and instability to both the country and the region.