The United States is seeking to dislodge Venezuela’s energy influence in the Caribbean, capitalizing on the collapse in oil prices.
Vice President Joe Biden hosted the first ever Caribbean Energy Security Summit in Washington DC on January 26. The summit, attended by leaders of Caribbean nations, was intended to find cleaner and more affordable sources of energy. As island nations with few indigenous sources of energy (save natural gas in Trinidad and Tobago), many rely on costly oil and gas imports.
But beyond providing sustainable alternatives, the energy summit appears to be an attempt to peel off Caribbean nations from Venezuelan influence.
Since 2005, Venezuela has provided very generous support to ideological allies in the western hemisphere. Using its abundant oil reserves – Venezuela is sitting on an estimated 298 billion barrels of oil, according to the EIA, arguably the largest reserves in the world – the late President Hugo Chavez built a sphere of influence in Central America and the Caribbean. Related: Oil Export Ban Slowly Eroding
He setup PetroCaribe, a program in which Venezuela provides members oil at a cut rate and/or issues low-interest loans to purchase oil. The program was a godsend for countries like Cuba and Nicaragua, where imported petroleum strains government budgets. It also kept many Central American countries from growing too close to the United States.
However, Venezuela is now the one in trouble. Venezuela’s economy was not exactly growing like gangbusters when oil prices exceeded $100 per barrel. Now, with prices having dropped by half over the last six months, Venezuela is in dire straits. Its bonds are now trading at 40 cents on the dollar, and the markets are pegging the probability of a default at some point over the next five years at 97 percent.
Venezuelan President Nicolas Maduro flew to China in early January, looking for financial assistance. He ostensibly secured a $20 billion investment commitment from the Chinese government, although when looking at the fine print, some analysts believe the pledge was merely a rewording of a preexisting promise.
The beneficence provided by Venezuela to the Caribbean is costly – the program set the government back by $2.3 billion each year between 2011 and 2013. The Economist noted in an October 2014 article that the loan terms issued under PetroCaribe have been becoming increasingly onerous as Venezuela’s fiscal situation has worsened. Guatemala pulled out of the program in 2013 as a result.
Worse yet, many worry that PetroCaribe could be the one kicking out member countries soon, as Venezuela simply runs out of funds. PetroCaribe reserves the right to cancel agreements with just 30 days’ notice. That puts Caribbean nations – some of which depend on PetroCaribe for more than half of their oil imports – in a very precarious situation.
“It's absolutely the case that the economic situation has deteriorated for Venezuela and therefore the risk has gone up for all of these countries,” said David Goldwyn, a former State Department special and Nonresident Senior Fellow at The Atlantic Council, which co-hosted the energy summit.
Enter the United States. While the U.S. announced the Caribbean Energy Security Initiative back in June 2014, American officials are putting much greater weight on it now that oil prices have collapsed. “I just don't think it's going to be around much longer, or at least not in its full form,” said Peter Schechter, director of the Atlantic Council's Latin America Center. “We don't want our closest neighbors in the Caribbean to suddenly be surprised by a situation in which Venezuela is suddenly unable to provide oil,” he said. Related: Low Oil Prices Have Silver Lining For Latin America’s Heavy Crude Producers
Nearly all Caribbean nations participated in the energy security summit (Cuba was not present).
Although the U.S. government hopes to seize on Venezuela’s weakness, the ultimate outcome of the summit is still unclear. An official that works for the Vice President told the AP that the U.S. plans on providing technical assistance, financing, and policy advice to eliminate market distortions.
In practice, that likely means a greater emphasis on U.S. exports of oil and liquefied natural gas (LNG) to the Caribbean even though the U.S. to some extent has been billing the event as a sustainable energy forum.
Former State Department official David Goldwyn has been heavily involved in the planning of the Caribbean Energy Security Summit. Given his long record of trying to convince the U.S. Congress to liberalize oil and gas exports, the U.S. will likely prioritize fossil fuel exports over cleaner alternatives.
The U.S. government may pay lip service to a desire to reduce greenhouse gas emissions (the official White House press release said the forum is intended to “promote a cleaner and more sustainable energy future in the Caribbean”), but ultimately the U.S. is seeking to carve out greater geopolitical and economic influence at the expense of Venezuela.
By Nick Cunningham of Oilprice.com
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