Sanctions and oil production : evidence from Venezuela's Orinoco Basin

We use the differential access to credit of oil firms in Venezuela's Orinoco Basin to identify the economic effects of financial and oil sanctions on firm output. Using a panel of monthly firm-level oil production from 2008-2020, we provide difference-in-differences estimates showing that financial and oil sanctions led to large oil production losses among firms that had access to international credit prior to sanctions. The estimated effects explain around half of the output drop experienced in those firms since the adoption of sanctions, for a total loss of around USD 6.2bn a year at current oil prices. We also argue that by impeding the government from extending special financing arrangements to other firms in the area, sanctions precluded the adoption of policy decisions that could have stabilized production at pre-sanctions levels.