Two economic facts and one ambiguity

The only reason American international sanctions work is because they are enforced by the American government against Americans and American companies. I should say this is the “main reason” because American sanctions are also enforced, albeit more indirectly, against people and organizations in friendly countries. Sanctions resemble protectionism, even if they may be invoked for reasons other (good or bad) than to support prices and profits or wages of American producers—reasons such as national security or resistance to foreign tyranny. Like sanctions, for example, a “tariff against China” only works because it is enforced by the American government against Americans who want to buy Chinese goods. (See my earlier post “American Ban: Why Foreigners Comply,” October 1, 2019.)

That is provided by another example The Wall Street Journal (“Chevron faces tough task to restart Venezuela’s damaged oil fields,” Oct. 6, 2022):

Chevron wrote down its Venezuelan assets in 2020, taking a $2.6 billion charge, months after the Trump administration extended sanctions that bar US companies from drilling, transporting or selling Venezuelan crude.

This logic is not well understood by common people. Governments and certain special interests do not go out of their way to explain this.

In Chevron’s own words, the story suggests that the company may benefit most from pandering to Venezuela’s tyrannical state: “Chevron has been operating in Venezuela for nearly a century and has developed close ties to the leftist government that rules there. More than two decades.” But other American producers interested in Venezuelan oil have suffered.

Incidentally, the dire state of oil production in Venezuela provides a good and useful, if extreme, example of industrial policy.

In otherwise instructive reports, an accompanying image caption is also provided WSJ The story does not exactly contribute to increasing economic literacy:

As oil prices rise, oil companies are no longer motivated to drill.

They may not be more motivated to drill for new, more expensive oil as prices rise other Factors work in the other direction and compensate for higher cost benefits. but Other things being equal, producers are certainly less motivated, and prices have not yet risen enough to motivate them. Ceteris paribus, high price is the only factor that can effectively motivate them to drill more.

Leave a Reply

Your email address will not be published.