Venezuela’s Downward Spiral
December 29, 2017
Petroleos de Venezuela (PDVSA) is indicative of the state of Venezuela. The once thriving company, which is responsible for exploration of the world’s largest proven reserves of oil and gas, is on the brink of collapse. Major General Manuel Quevedo, a loyal follower of President Maduro, who has no known energy sector experience is now leading the company. Critics are viewing the appointment as a safeguard against a military coup for Mr. Maduro, who gutted PDVSA of top talent through arrests and firings as he tightens his grip on power. Before the purge, oil facilities were and still are crumbling, production has plummeted, and Venezuela owes billions to Russia and China, which has South American governments and the United States concerned about geopolitical stability in the region.
The failures at PDVSA and the Maduro administration are both symptom and cause of the nation’s economic spiral, since Venezuela relies overwhelmingly on oil and gas sales for their economic well-being. Energy prices are now in recovery from the 2014 oil crash, but Venezuela continues to get worse.
A decade ago, Venezuela was the richest country in South America and aspired to be the nexus of a diplomatic and trade alliance bringing together major players in the western hemisphere. But now isolated, broke, and with Maduro regarded as a left-leaning despot in a region that has “shifted politically to the right,” Venezuela is looking to China and Russia for assistance. Beijing and Moscow have sought for decades to assert greater influence in America’s western backyard and Maduro and his broken country have given them the perfect opening.
The rift with the U.S. worsened recently when Todd D. Robinson, a career diplomat who was recently ambassador to Guatemala and is now the ambassador to Venezuela, said in an introductory video posted online that “he would look for opportunities to help bring democracy and prosperity to Venezuela.” This was seen as American heavy-handedness by Delcy Rodriguez, President of Venezuela’s controversial National Constituent Assembly, who rebuked Ambassador Robinson by saying, “he had arrived to our country on the wrong foot.”
There are dangers to country’s meddling in Venezuela’s inner workings. In the words of Juan Gonzales, former White House and State Department official in the Obama administration:
“Marginalizing the Venezuelan kleptocracy is important, but total isolation will cede the ability of regional leaders to shape political events on the ground to actors outside the region.”
This isolation by South America neighbors and western hemisphere countries has consequences. According to statistics from the National Assembly, inflation in November was up 57% – anything above 50% is considered hyperinflation – and the undeniable shortages of food, medicine, and public services are now driving emigration, robbing the country of valuable citizens.
As diplomatic affairs turn sour in the region, Maduro is making increased overtures to Russia and China. Maduro visited Russia in October and thanked President Vladimir Putin for, “all the support, political and diplomatic, in difficult times which we are living through.” This gesture to Putin landed Maduro a lifeline by “restructuring $3.1 billion in debt.” In early December, Maduro met with Igor I. Sechin, chief executive officer of Russia’s state-run oil giant Rosneft, and negotiated in a position of weakness the right to new ventures and two offshore gas fields in Venezuela.
Historically, China has taken a longer term view on countries like Venezuela that are rich in natural resources. China is the world’s largest energy consumer and Venezuela will continue to be seen as a national and geopolitical priority for them to secure additional oil and natural gas. They will see their investments in Venezuela as risky, but have a higher tolerance for the opportunity and vulnerability to manipulate Maduro, his government, and the country’s resources to their advantage. This is the perfect opportunity to lend billions, which China has done; and then with PDVSA falling behind on debt payments, this gives China and/or Russia an opening to scoop up precious Venezuelan energy and land assets for pennies on the dollar. It’s a perfect storm of opportunity for China and Russia to gain geopolitical influence over the United States, Canada, Central America, and Mexico.
Russia and China have played the biggest role keeping Maduro’s crumbling regime afloat. In mid-September, Evan Ellis, senior associate at the Center for Strategic International Studies and professor at the U.S. Army War College, appeared for a hearing before the US Congress’ Western Hemisphere subcommittee of the Foreign Affairs Committee, and emphasized that “Russia and China, in pursuit of their commercial and strategic interests in Venezuela, have provided capital, goods, services, and political backing that has indirectly enabled the populist regime to ignore and ultimately destroy the mechanisms of democratic accountability.”
The downfall of Venezuela and the empty shell that is now PDVSA will have rippling geopolitical consequences that will be felt in Washington, Caracas, and eventually Moscow and Beijing as well. Since energy is the driving force of modern societies, expect Russia and China’s grip on Venezuela to tighten. What the western hemisphere and South American nations in particular do to counter these moves is unclear at this time and anyone’s guess leading into 2018.
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