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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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Will Venezuela Spark The Next Major Conflict In Latin America?

Military strikes in southwestern Venezuela and the resultant surge of refugees into neighboring Colombia have sparked renewed claims that the autocratic Maduro regime in Caracas is a major destabilizing force in South America. Those events occurred after an earlier escalation in regional tensions when Venezuela reasserted its territorial claims over Guyana to the disputed Essequibo region in the west of the former British colony. That dispute dates back to 1962 when Venezuela’s government asserted that the 1899 Paris Arbitral Award, which determined the South American country’s border, was null and void because of conflicts of interest and collusion between arbitrators. The Essequibo region, which contains around three-quarters of Guyana’s national territory, also includes the seabed where a slew of major oil discoveries was made in recent years.

Maduro’s last round of saber-rattling toward Guyana was triggered by the International Court of Justice in December 2020 affirming its jurisdiction to resolve the territorial dispute. In response, Maduro issued a decree claiming Venezuela’s exclusive sovereignty to the waters of Guyana’s west coast, which includes part of the offshore region where recent major oil finds were made. Those significant petroleum discoveries have breathed life into Guyana’s struggling economy which was hit hard by the COVID-19 pandemic. They will see the impoverished former British colony become a leading regional oil producer in six years. Caracas is clearly eyeing the vast petroleum wealth held in Guyana’s territorial waters. Maduro is desperate to revive Venezuela’s foundering oil industry and a shattered economy while fashioning a popular distraction for everyday Venezuelans struggling to survive the world’s worst peacetime economic collapse.

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On 21 March 21, Venezuelan military and police units commenced armed strikes against elements of the dissident 10th FARC Front, which was one of the units of Colombia’s FARC guerillas who refused to recognize the 2016 peace deal. Considerable uncertainty exists as to what has triggered Caracas’ decision to commence military strikes against Colombian guerillas in the border state of Apure near the municipality of La Victoria. Many commentators, including Colombia’s defense minister, believe the conflict relates to disputes over drug trafficking profits between the FARC dissidents and Venezuela’s military. While there is a history of collusion between various elements of the Venezuelan government apparatus in various illicit activities, the ferocity and duration of fighting points to the driver being something else. Apure is an important region for hydrocarbon exploration and production in Venezuela containing the La Victoria and Guafita oilfields. Maduro, as part of his strategy to rebuild Venezuela’s petroleum industry, which is the petrostate’s economic backbone, is focused on attracting urgently needed foreign investment to rebuild energy infrastructure and oilfields. He even went as far as proposing private control of Venezuelan oil assets, something not considered by Caracas since Maduro’s predecessor Chavez nationalized the oil industry as part of his socialist Bolivarian revolution.

To attract the considerable foreign investment required, tipped to be in the hundreds of billions of dollars, Maduro needs Washington to ease harsh U.S. sanctions, instituted under the Trump administration, that cut Venezuela off from vital energy markets. What is undeniable is that military actions in Apure have amplified Venezuela’s humanitarian crisis with it estimated that around 5,000 Venezuelans fled the fighting for the relative safety of Colombia. It is also contributing to greater instability in a region that has long been the focal point for the illicit activities of Colombian and Venezuelan non-state armed groups vying for control of lucrative smuggling routes.  Related: OPEC Urges Its Members To Lobby Against NOPEC Bill

Those routes are not only used to traffic cocaine but also for gasoline and petroleum stolen in Colombia, predominantly from the Andean country’s pipelines. Colombia’s National Police estimates 35% (Spanish) of all petroleum stolen from domestic pipelines ends up in Venezuela, underscoring the porous nature of the border and the importance of controlling smuggling routes. The sharp increase in illicit oil cargoes from Venezuela since strict U.S. sanctions were enacted, combined with a lack of state control and dwindling oil production makes the crisis-torn country the ideal location to dispose of stolen crude oil. Colombia’s national oil company Ecopetrol claims that the theft of crude oil from pipelines is rising, soaring 46% from a year earlier to 2,638 barrels per day. The popularity of stealing petroleum from pipelines is easy to understand. Not only are Colombia’s pipelines very accessible, passing through remote terrain, but oil theft is seen as a victimless crime which has become increasingly lucrative because of higher oil prices. 

There is a lengthy record of enmity between Caracas since Chavez commenced his socialist Bolivarian revolution in 1999, and Colombia’s national government. The autocratic socialist regime’s Maduro and his predecessor Chavez have long been accused of harboring and aiding Colombian socialist rebels, from the FARC and ELN, heightening tensions along the border. A weak almost non-existent government presence along the Venezuelan and Colombian frontier has led to a long history of lawlessness along the border, which is illustrated by Caracas’ latest military strikes against armed non-state groups around La Victoria. It is entirely plausible that Maduro is attempting to build political capital with the Biden administration by removing U.S. designated terrorists and criminals from its national territory in the hope that sanctions are eased. The latest military actions in Apure will strengthen Caracas’ presence in a region that possesses significant hydrocarbon resources but has long been neglected by an overstretched state leaving it subject to considerable lawlessness. When those developments are coupled with Venezuela’s smoldering economic collapse and grinding humanitarian crisis, now described as the world’s worst, it is clear the Maduro regime is a highly destabilizing regional influence.

It is Colombia that is bearing the brunt of the turmoil created by Venezuela’s economic crisis and the erratic actions of Maduro’s autocratic regime. That is compounding the severe headwinds impacting Colombia, the most perilous being a domestic security crisis and rapidly rising coronavirus cases. Those events are weighing heavily on an already badly damaged economy and Colombia’s vital petroleum industry, where investment, oil production, and drilling activity is well below pre-pandemic levels. That underscores the significant destabilizing effect the political, economic, and humanitarian crises triggered by Venezuela’s near-collapse are having on its immediate neighbors and northern South America as a whole. The situation is so severe international thinktank the Council on Foreign Relations ranked Venezuela as one of the top conflict risks to watch in 2021. Those factors underscore the urgency with which the crisis in Venezuela needs to be resolved to substantially reduce instability in an economically shattered and highly unstable post-pandemic Latin America.

By Matthew Smith for Oilprice.com

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  • Jess Miller on April 24 2021 said:
    Venezuela's claims over Guyana are 100% genuine. The British Queen stole those lands from Venezuela. The same way the British took lands from Spain (Gibraltar) or Argentina (Falklands) or Honduras (Belize) or maybe China (Hong Kong). The lands taken from Venezuela are the Esequibo. Those lands must be returned back to Venezuela.
    In regards to Colombia, Colombia is the world's largest exporter of cocaine, marijuana, heroine, meth, crack, opium, fake U.S. Dollars bills, fake U.S. green cards, fake U.S. social security cards, fake university diplomas, and now they export guerrillas as well. I believe the bombing of those guerrillas in Apure State by the venezuelan air force is fair and legal.

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