	Introduction

Venezuela continues to be in the throes of a deep political crisis under the authoritarian rule of President Nicolás Maduro. Underpinning the political crisis is an acute and increasingly unstable economic crisis. The 2014 collapse in oil prices hit Venezuela's economy hard. Venezuela's economy has contracted by 35% since 2013, a larger contraction than the United States experienced during the Great Depression in the 1930s. In addition, the crisis is marked by inflation, shortages of consumer goods, default on the government's debt obligations, and deteriorating living conditions with significant humanitarian consequences. The report also examines how the crisis affects U.S. economic interests, including U.S. investors' holdings of Venezuelan bonds, Venezuelan assets in the United States, U.S.-Venezuelan trade and direct investment, and possible future involvement of the International Monetary Fund (IMF) in the crisis. In November 2017, the government's increasingly dire fiscal situation came to a head, as the government announced it would seek to restructure its debt. Such legal challenges against the Venezuelan government could result in the seizure of Venezuela's overseas assets, such as CITGO, a subsidiary of Venezuela's state oil company, Petróleos de Venezuela, S.A. (PdVSA); oil shipments; and cash payments for oil exports. In August 2017, new U.S. sanctions exacerbated the government's precarious fiscal position. Any comprehensive restructuring of Venezuelan debt is expected to be a long and complex process, due to the following factors: 
the number of parties involved, including hundreds or even thousands of bondholders who are in the early stages of organizing, as well as China and Russia, whose lending to Venezuela may be driven in part by geopolitical considerations; legal challenges likely to be initiated by bondholders, which could take years to resolve and could result in the seizure of Venezuelan assets in the United States, including CITGO (owned by PdVSA), oil shipments, and cash payments for oil; differences in legal provisions in different bonds, including differences between the sovereign and PdVSA bonds; U.S. sanctions, which prohibit U.S. investors from accepting any new debt issued in a debt restructuring or from engaging with Vice President Tareck El Aissami and Economy Minister Simon Zerpa, who are leading the debt negotiations and subject to U.S. sanctions for drug-trafficking and corruption charges; and lack of any economic reform agenda in Venezuela to accompany the restructuring, such as an IMF program. In December 2017, the Economist Intelligence Unit projected that Venezuela's economy will contract by 11.9% in 2018 and 5.4% in 2019, a more significant contraction in economic growth than it or the IMF envisioned just two months prior. Venezuela's economic and broader political crisis, combined with low oil prices, has contributed to a contraction in U.S.-Venezuela trade, and some major U.S. firms operating in Venezuela have left or curtailed operations. The contraction in U.S.-Venezuela trade is more consequential for Venezuela than the United States. From the U.S. perspective, Venezuela is a relatively minor trading partner. However, in response to the political and economic instability, several large U.S. companies have left Venezuela, curtailed operations there, or restructured subsidiaries to minimize the exposure of parent companies. Bondholders

U.S. investors could face substantial losses if Venezuela suspends payment or seeks an aggressive restructuring of its debt. Venezuelan government and PdVSA dollar-denominated bonds were largely issued under New York law. CITGO Ownership

In 2016, PdVSA secured a $1.5 billion loan from the Russian state-oil company Rosneft. PdVSA used 49.9% of its shares in CITGO as collateral for the loan. Reportedly, Rosneft is negotiating to swap its collateral in CITGO for oilfield stakes and a fuel supply deal. Possible Future Economic Support for Venezuela

Congress is considering using nongovernmental organizations to provide humanitarian aid to Venezuela, including food and medicine, to address its humanitarian crisis. However, if the Maduro government or a new government in Venezuela engages in a significant reorientation of policy, U.S. policymakers might pursue options to provide broader economic support to rebuild Venezuela's economy. In addition to lifting sanctions that restrict Venezuela's access to the U.S. financial system, policymakers might explore how the international community, particularly the IMF, could provide an international financial assistance package, and whether debt incurred by the National Constituent Assembly, widely viewed as an illegitimate legislature, should be enforced. If there is no significant change in Venezuelan policies, the United States may reconsider its policy stance and potentially pursue harsher sanctions against the government.
Venezuela's Economic Crisis: Overview
Venezuela is facing a political crisis under the authoritarian rule of President Nicolás Maduro, who appears to have continued to consolidate power over the political opposition in recent months. Underpinning Venezuela's political crisis is an economic crisis. Venezuela is a major oil producer and exporter, and the 2014 crash in oil prices, combined with years of economic mismanagement, hit Venezuela's economy hard. Venezuela's economy has contracted by 35% since 2013, a larger contraction than the United States experienced during the Great Depression. Venezuela is struggling with inflation, shortages of food and medicine, substantial budget deficits, and deteriorating living conditions with significant humanitarian consequences.
In response to the Maduro regime's increasingly undemocratic actions, the Trump Administration imposed sanctions restricting Venezuela's access to U.S. financial markets in August 2017, increasing fiscal pressure on the government. In November 2017, the Venezuelan government announced it would seek to restructure its debt. The government and the state-oil company, Petróleos de Venezuela, S.A. (PdVSA), subsequently missed key bond payments, leading credit rating agencies to issue default notices. Debt restructuring is expected to be a long and complex process, and it is unclear whether Venezuela will make coming debt repayments. The outlook for the economy is bleak; the Economist Intelligence Unit forecasts the Venezuelan economy will contract by 11.9% in 2018.
Implications for U.S. Economic Interests
The political crisis in Venezuela and low oil prices have contributed to a contraction in U.S.-Venezuela trade. Venezuela is a relatively minor trading partner of the United States; the contraction in bilateral trade is more consequential for Venezuela, for which the United States is its largest trading partner. In response to the political and economic instability, several large U.S. companies have left Venezuela or curtailed operations there.
U.S. investors holding Venezuelan and PdVSA bonds could face substantial losses if Venezuela suspends payment or seeks an aggressive restructuring of its debt. Bondholders are in the early stages of organizing to enter restructuring negotiations and/or pursue legal challenges against the Venezuelan government. Venezuelan dollar-denominated bonds were issued under New York law, and bondholder lawsuits seeking repayment would take place in U.S. courts. Legal challenges could result in the seizure of Venezuela's assets in the United States, such as CITGO (whose parent company is PdVSA), oil exports, and cash payments for oil exports.
Venezuela's precarious fiscal position also raises concerns for U.S. energy security. In 2016, Venezuela's state oil company PdVSA secured a loan from the Russian state-oil company Rosneft. PdVSA used 49.9% of its shares in CITGO as collateral. If PdVSA defaults on its Rosneft loan, it is not clear whether Venezuela's portion of CITGO ownership would be transferred to Rosneft. Reportedly, Rosneft is negotiating to swap its collateral in CITGO for other PdVSA assets.
Looking Ahead
Congress is considering providing humanitarian aid to Venezuela through nongovernmental organizations. If the Maduro government or a new government in Venezuela engages in a significant reorientation of policy, U.S. policymakers may be interested in providing broader economic support to rebuild Venezuela's economy. Policymakers might explore how the international community, particularly the International Monetary Fund (IMF), could provide an international financial assistance package, and whether debt incurred by the National Constituent Assembly, widely viewed as an illegitimate legislature, should be enforced. If the Maduro regime stays in power and does not reorient its policies, the United States may revisit its policies and potentially pursue harsher sanctions.
For additional information on Venezuela from CRS, see CRS Report R44841, Venezuela: Background and U.S. Policy; CRS In Focus IF10230, Venezuela: Political and Economic Crisis and U.S. Policy; and CRS In Focus IF10715, Venezuela: Overview of U.S. Sanctions.