US threatens to ban Venezuelan oil imports in major blow to struggling South American economy

There is already runaway inflation and a shortage of food and medicines in Venezuela

US Secretary of State Rex Tillerson speaks during a news conference in Buenos Aires, Argentina, 4 February 2018. (AP Photo/Sebastian Pani)

Secretary of State Rex Tillerson said the US could sanction or ban Venezuelan oil imports, possibly crippling the country’s economy.

The US may cut off the last real source of income for the South American country in political upheaval with President Nicolas Maduro at the helm.

Speaking in Argentina, Mr Tillerson said: "Obviously sanctioning the oil, or in effect prohibiting the oil to be sold in the US... is something we continue to consider” in order to pressure Mr Maduro to restore the country’s Constitution and hold free and fair elections.

The former Exxon CEO also said banning exports of oil to Venezuela is also a possibility.

The US is currently imposing fairly harsh sanctions on Venezuela - the US’ third-largest oil supplier - at the moment, including its state-owned oil company PDVSA.

Governments around the world have criticised Mr Maduro for not allowing a democratic transition to a new administration and the skyrocketing prices on basic goods as well as a dire shortage of food and medicines.

Part of the oil problem is that the US sends light crude oil to Venezuela to be mixed with heavy crude oil. It is then sent back to the US as a new product.

US oil refineries could be forced to buy that amount of oil elsewhere, with the danger that gas prices could increase.

"We're looking at how to mitigate... the impacts on U.S. business interests," Mr Tillerson noted.

Oil appears to be one of the few avenues the US could use to put pressure on Mr Maduro short of what experts said would be a disastrous military intervention.

As CNN Money reported: “Venezuelan [oil] production has been falling fast since 2014, but the country still pumped 1.7 million barrels a day in December, according to industry estimates.”

But, sanctions could make it worse for the general population.

Mr Tillerson acknowledged that the “situation is becoming quite dire in Venezuela...Is it a step that might bring this to an end, to a more rapid end? Because not doing anything to bring this to an end is also asking the Venezuelan people to suffer for a much longer time.”

Amid Venezuela's socialist economic crisis, some of the country’s 30 million citizens were travelling to nearby Caribbean islands in search of goods, employment, and services that were either unavailable or expensive in the country.

Early last month, Mr Maduro placed a ban on travel to the Caribbean islands Curacao, Bonaire, and Aruba in an attempt to stop the smuggling of Venezuelan goods.

He has said he thinks Venezuela's heavy subsidies for consumer goods - like fuel - have led to years of contraband going to neighbouring nations.

Despite the humanitarian concerns, no countries have proffered armed conflict as a solution except the US.

There have been some economic measures from the EU and neighbouring countries, but they have done nothing to stem Mr Maduro’s political power.

Just one month ahead of a September dinner on the sidelines of the United Nations General Assembly, Mr Trump said there were "many options for Venezuela, including a possible military option, if necessary.”

Mr Maduro used that to rally support to his side and American diplomats in the region scrambled to allay fears and tensions, according to Business Insider.

According to the International Monetary Fund (IMF), inflation could increase up to 13,000 per cent in 2018.