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Gonzalo Molina

Gonzalo Molina

Gonzalo Molina is the Director of Caribbean & Latin American Frontier Markets at DaMina Advisors. He conducts insightful, forward-looking research into Latin American markets, then…

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Venezuela At A Crossroads

Venezuela's legislative elections this coming December promise to be a vote of confidence on President Nicolas Maduro's first elected term. If Maduro's Socialist Party can hold onto its 98-seat majority in the 167-seat National Assembly, Maduro will hold Venezuela's domestic balance of power until the next presidential election in 2019.

But if opposition candidates attract rural voters and add just 19 seats to the current 65, opponents will finally have enough votes to challenge Maduro's Socialist policies, including alleged human rights violations and mismanagement of Venezuela's economy.

Maduro's domestic support is crumbling as barren grocery stores hold lotteries to decide who will buy essential goods on which day. But opposition party members and human rights activists think twice before protesting Maduro's economic policies, fearing they'll end up in prison like Leopoldo Lopez, founder of the Voluntad Popular opposition party, and one of the few remaining descendants of Venezuela's revolutionary founder, Simon Bolívar. Related: New Silk Road A Disaster Waiting To Happen?

Lopez was arrested last year for allegedly inspiring a wave of political protests that turned violent and left more than 30 people dead in the streets. Lopez denies responsibility but remains in custody at the Ramo Verde military prison outside Caracas.

In a bid of solidarity with Lopez and the opposition, last week a delegation of Brazilian senators landed in Caracas and took a bus to the prison to visit Lopez. Before they could reach the prison, a mob of violent Maduro supporters stoned the bus and forced the senators back to the airport. The senators returned to Brazil that day without completing their visit.

While Maduro insists Lopez is a violent agitator, Lopez argues that only respect for human rights and private property will bring prosperity to Venezuela, and that protests will continue until Maduro changes his ways or leaves office. But in spite of domestic pressure and U.S. sanctions, Maduro entrenches himself by trading oil for favors around the world. Related: Is Saudi Arabia Leaving The U.S. Behind For Russia?

Maduro uses oil money the same way his predecessor and mentor, Hugo Chavez did – to support ideological allies and frustrate foreign enemies. Though this often raises criticism over mismanagement, Maduro is more than willing to fund his ideology with oil profits. Indeed, oil exports have made Maduro a global player, affecting relations between North America, Europe, China, Brazil, and Iran, not to mention Cuba and Colombia. Venezuela is a member of OPEC, and although Maduro does not have as much influence within the cartel as he would like, it does offer him an opportunity to have a say over the policymaking of one of the most important institutions regarding global oil markets.

Hugo Chavez strengthened Venezuela's ideological and economic ties with Cuba, the Western Hemisphere's last remaining communist stronghold. But unlike Maduro, Cuba's Raul Castro is trying something new: convincing foreign firms to invest in the Mariel Economic Development Zone, Cuba's first experiment in Chinese-style hybrid capitalism. Raul knows Cuba's socialist economy has always required a patron and, with Russia sidelined and Venezuela now faltering, Cuba must attract foreign capital if it wants to stand on its own. Will rising inflation, dwindling currency reserves and pressure from opposition groups compel President Maduro to follow Cuba's example? Related: Mexico Moving Forward With Major Natural Gas Pipeline

Probably not. Venezuela is ideologically brittle and neither side is willing to bend very far. The Socialists will not cave to opposition demands for economic reform, no matter how many seats the opposition wins on December 6. In any event, the opposition winning 19 new seats and taking a majority of the National Assembly is unlikely.

The future is stark for Venezuela – on December 6, voters will choose between the ideology of the past or something new . If Maduro's socialist ideology wins, he will continue distributing oil (and oil profits) inefficiently, further contracting the Venezuelan economy. The opposition will have to wait until the 2019 presidential election to challenge Maduro directly but, in the meantime, impatience manifest itself in more protests and violent clashes.

On the other hand, if enough opposition candidates win on December 6, they will introduce reforms to not only diversify Venezuela's economy beyond oil, but also attract expert capital into the oil sector itself. That could open up new opportunities for international oil companies that have long been given the cold shoulder.

By Gonzalo Molina for Oilprice.com

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