Having written last week that Venezuela was staggering on through seemingly endless social and economic crises, an end game may finally be insight. It is impossible to predict when a regime will fall, but when it happens it can happen fast, and in Venezuela’s case the impact on the oil market could be substantial.
A reported 3 million people have fled the country, the government has defaulted on its debts, the economy is in the grip of hyperinflation, there are shortages of food, medicines and basic goods, and much of Venezuela’s remaining oil production, now reduced to around 1 million b/d, is in hock to China. The salaries paid by state oil company PDVSA are virtually worthless and many employees simply do not turn up for work.
The announcement on Monday of US sanctions on state oil company PDVSA will disrupt the flow of crude oil to Gulf Coast refineries, and precipitate an even deeper cash crisis for Caracas. Trade flows of heavy crude could be rerouted, but Caracas would be dependent on China and its other customers paying dollars rather than taking the crude in lieu of existing debt.
Revolution and state failure are by no means unlikely scenarios, yet it is evident that the Chavista revolution retains some core support, particularly within the military.
So what are the possible outcomes?
The military stands firm behind the Maduro government. This could only be achieved by further repression and heightened…