(Bloomberg) — The prospect of a U.S. blockade of crude oil imports from Venezuela has ignited fierce lobbying in Washington pitting domestic energy producers such as oil tycoon Harold Hamm, who favor a get-tough approach, against refiners that depend on those supplies.

Hamm said hitting Venezuelan President Nicolas Maduro where it counts would deter the socialist leader’s moves to undermine democracy and consolidate power. In an interview, the  Continental Resources, Inc. chief executive officer urged President Donald Trump to block the oil, a vital source of revenue for Venezuela.

“If the president wants to make an immediate impact on Venezuela to stop these human rights abuses and restore the situation, he’s got the ability to,” said Hamm, speaking as head of the Domestic Energy Producers Alliance, whose members include producers, oilfield service companies and independent oil and gas associations.

Opposing the ban are refiners such as Chevron Corp., Phillips 66, and Valero Energy Corp., which have warned that choking off shipments of Venezuelan crude would starve refineries designed to process the country’s heavy oil, leaving them searching for alternative supplies and driving up gasoline prices.  

The stakes are high for both countries. Venezuela is the third-biggest supplier of oil imports to the U.S. — more than 270 million barrels worth about $10 billion last year — and that trade is a major source of revenue for the South American country.

Hamm was a vocal supporter of Trump’s presidential bid, eventually agreeing to advise him on energy policy. Trump, in turn, repeatedly lavished praise on Hamm, during campaign stops in front of industry-heavy audiences in North Dakota and Pennsylvania.

When it is unified, the oil industry is a lobbying powerhouse in Washington, leaning on allies in the top ranks of the Trump administration as well as on Capitol Hill to advance its policy priorities. Oil and gas interests rank fourth among industry lobbying, with $64 million spent through the first six months of 2017, according to the not-for-profit Center for Responsive Politics, which analyzes lobbying and campaign finance data. 

Refiners have been pressing their case with the Trump administration since June, as the White House considers ways to pressure Maduro and discourage a rewrite of Venezuela’s constitution. On Wednesday, the Trump administration froze the assets of eight Venezuelans, building on previous sanctions against 13 people associated with the Maduro regime.

White House officials have prepared a menu of possible additional sanctions against Venezuela but are divided over whether — and when — to take actions that could exacerbate the country’s deteriorating humanitarian and economic situation. The progressive approach envisioned by administration officials includes blocking exports of U.S. oil to Venezuela followed by limits on oilfield service firms doing business in the country and, finally, restricting imports of Venezuelan crude to the U.S. Those restrictions could be phased in gradually.

The prospect has inspired frantic appeals by companies that spent billions optimizing at least 20 different refineries to process heavy crude from the country. The leading refining trade group, the American Fuel and Petrochemical Manufacturers, sent two letters to Trump last month warning that a blockade would destabilize crude markets, causing an increase in oil prices as refiners scramble to replace Venezuelan supplies with ill-fitting, higher-cost substitutes and leading to bigger gasoline bills for consumers.

Sanctions may not even work as intended, as Venezuela finds other outlets for its crude beyond the U.S., said AFPM President Chet Thompson.

“We think that the United States could take this action, and it won’t have the desired effect, but it will have the unintended consequences of hurting consumers and refiners,” Thompson said in an interview. “This is more than just a passing concern.”

“Folks have spent many billions of dollars over the last several years to really optimize around Venezuelan crude, so any disruption of it could be a really big deal,” Thompson said.

Besides Venezuelan-owned Citgo Petroleum Corp., the refiners most dependent on Venezuelan crude are Valero, Phillips 66, Chevron and PBF Energy Inc. They are also the most active in lobbying against a crude import ban, according to accounts by four people familiar with the activity.


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