Which government will U.S. recognize?

The Trump administration’s decision to park $500 million of Venezuela’s oil revenues in Qatar after the US captured former President Nicolas Maduro raises fundamental questions about the future of the South American nation.

Among them: When will the transition of power occur, who will ultimately rule Venezuela and who will control the country’s vast resources?

For now, the administration is co-operating closely with the remnants of the Maduro regime under the leadership of interim President Delsey Rodriguez.

The problem is that the US does not officially recognize the government that Rodriguez leads. During his first term in office, President Donald Trump recognized the opposition-led National Assembly, elected in 2015, as the sole legitimate representative of the Venezuelan people.

Trump issued an executive order on January 9 that requires the proceeds from Venezuelan oil sales to be deposited into a US Treasury Department account. The presidential order states that the money is the sovereign property of the Venezuelan government and is being held by the United States.

But it is not clear which Venezuelan government the order is referring to.

Once the money arrives in the US, in theory it should be under the control of the opposition National Assembly because of Trump’s 2019 endorsement, said Scott Anderson, an international law expert who previously worked at the State Department and the US Embassy in Baghdad under President Barack Obama.

This creates potential problems for the administration’s cooperation with Rodriguez. It has agreed to send 50 million barrels of crude oil to America. The Trump administration is controlling the sale of those barrels. Energy Secretary Chris Wright said the arrangement would continue indefinitely to maintain influence over Caracas to implement reforms.

Meanwhile, Democrats are questioning whether the arrangement is legal.

Secretary of State Marco Rubio told Congress that the decision was made to keep the money in Qatar until the issue of government recognition is resolved. Qatar recognizes the Maduro regime as the legitimate government of Venezuela, allowing the US to avoid the issue in the short term.

“We have an issue we’re working on on recognition,” Rubio told the Senate Foreign Relations Committee on January 28.

The Secretary of State said, “You have to recognize a government, but we do not recognize this government.” “We recognize the 2015 National Assembly, so we have to find some creative way legally to meet that standard.”

A Trump administration official told CNBC that an account has been set up at the Treasury Department for the Venezuelan government and that “future revenues from the sale of Venezuelan natural resources will come in and out of the account.” The official said the initial $500 million in revenue earmarked in Qatar has been transferred to Venezuela.

Anderson, who recently published a legal analysis of the plan, said the Trump administration would likely have to make an arrangement with the 2015 National Assembly on how the oil money would be spent.

Anderson said, “In principle the Rodriguez government has no objection to how any Venezuelan money is spent in the United States.”

Rubio told the Senate that the US had established a “respectful and productive” line of communication with Rodriguez. He said U.S. cooperation with Rodriguez is a pragmatic approach to what he described as a “transition and stabilization” phase in Venezuela.

The Secretary of State said a written agreement has been reached with the Rodriguez government on oil sales.

“We’re just accepting the reality, and you have to work with the people who are in charge of elements of the government,” Rubio told the Senate.

The US goal is to ultimately move away from Venezuela’s current system, Rubio said. The Secretary of State said, “This is not the final situation we want.”

Democrats raise questions about legality

Rubio said Caracas would present a budget that the US would review and then lift sanctions to distribute oil revenues to Venezuela from the blocked account. The US will tell Caracas what the money cannot be used for, he said.

Rubio said an audit process would be established to ensure the money is spent appropriately. He said the Export-Import Bank of the United States could play that role, although nothing has been decided yet.

Rubio called this arrangement a short-term mechanism, not a permanent solution. “I understand it’s new, but in the short term we can make the best of it,” he said.

A Trump administration official told CNBC that the US “continues to work toward a long-term solution to ensure that oil revenues can flow and can be used to support the Venezuelan people and economic stability.”

In the long term, Rubio said, the US plans to help create a normal oil industry in Venezuela, where companies take crude directly to the global market without any middlemen.

Democrats in Congress are questioning the validity of the current system. Rep. Sean Casten, D-Ill., and a dozen other lawmakers warned U.S. oil companies in a Jan. 28 letter that they face legal risks if they participate in Venezuelan oil sales under the current arrangement.

Casten said the Trump administration has not provided Congress with full details of the legal authority it provides, the International Emergency Economic Powers Act, to cover the oil sales program.

Under the IEEPA, the President can seize a foreign country’s property only during armed hostilities or in response to a U.S. attack. Democrats have questioned how the IEEPA could apply when Rubio has made clear that the U.S. is not at war with Venezuela.

The Secretary of State tells the Senate that the US is not seizing Venezuelan assets.

“The money never comes into our hands,” Rubio said. “We only control the distribution of wealth. We do not control the actual wealth.”