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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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Could Venezuela Become Latin America’s Afghanistan?

The Biden administration, along with U.S. intelligence and military agencies, was stunned by the gains made by the Taliban which saw them seize the Afghan capital Kabul and take power earlier this month. The rapid collapse of the U.S.-backed government and its security forces was a complete surprise for Washington. The early July 2021 assassination of Haiti’s president, allegedly by Colombian mercenaries, along with six week-long violent anti-government demonstrations in long-time U.S. ally Colombia also caught the Biden administration off guard. Those events highlight that Biden, despite campaigning as a seasoned international relations expert, lacks a genuine understanding of many pressing geopolitical crises that are threatening regional stability and urgently need Washington’s attention. One such dilemma is the plight of Venezuela, once Latin America’s richest and most stable democracy.

The OPEC member, which was once among the world’s largest oil exporters, is on the verge of collapse after decades of corruption and malfeasance by the ruling United Socialist Party of Venezuela. The state’s potential to implode is accelerating because of strict U.S. sanctions, weaker oil prices, and the near failure of its economic backbone the petroleum industry. This confluence of events has triggered a deep seemingly irreversible economic crisis for Venezuela which has been described as the worst economic collapse outside of war. It is causing immense suffering for the Venezuelan people with it estimated that more than 90% are living in poverty and that over five million have fled their country, mostly settling in nearby nations notably Colombia, creating what is the world’s second worst humanitarian disaster. That massive influx of economic and political refugees into neighboring countries, notably Colombia, is exacerbating existing social turmoil in the region. In Colombia alone, those refugees are competing for work in a country with a double-digit unemployment rate, where more than 50% of the population works informally and over 42% (Spanish) live in poverty.

Related: Brent Climbs Back Above $70 On Major Production Outage

Venezuela’s economic implosion means that Caracas is nearly bankrupt and incapable of funding basic public goods, including security forces capable of maintaining a monopoly of violence in the petrostate’s territory. As the state progressively unravels, withdrawing from many remote regions, various towns and smaller cities have fallen into isolation. It is non-state armed groups that are stepping in to fill the void. Colombia’s Marxist National Liberation Army (ELN – Spanish initials), with an estimated strength of 1,500 fighters, has established a significant presence in Venezuela. The guerilla group, long tolerated by Chavez and Maduro, is operating in the states of Amazonas, Apure, Bolivar, Táchira and Zulia controlling lucrative smuggling routes, illegal gold mining and extortion. In many communities which lack a government presence where the ELN operates, the guerillas have become a de-facto state of sorts, meeting out justice and providing basic public goods. The ELN’s flourishing presence in Venezuela can be blamed on Caracas’ inability to control its territory and rein in the group’s activities. As the ELN’s power expands they can profit further from lucrative illicit activities, notably cocaine as well as arms trafficking and illegal mining. 

FARC dissidents, which are involved in similar illicit activities to the ELN, are also expanding their presence in Venezuela as the state further weakens and continues to unravel. This has seen the 10th and 28th FARC Fronts, who refused to recognize the 2016 peace accord with Colombia’s national government, expand their presence on the Colombian Venezuelan frontier. Clashes, earlier this year, between the dissident FARC 10th Front and Venezuelan security forces, in the state of Apure near the border with Colombia, highlighted the growing strength of the FARC dissidents. Using classic guerilla tactics, honed during years of battle with the Colombian Army, dissident FARC combatants defeated the Venezuelan military.  

Those events further emphasize just how weak Caracas has become and the government’s inability to effectively maintain sovereignty over Venezuela’s national territory. This is not only confined to remote regions; Maduro’s autocratic regime is also steadily losing control of Caracas with suburbs in the city’s west becoming virtual war zones as various armed gangs battle security forces for control. In the latest reported incident, which occurred in July 2021 roughly 300-armed gang members fought pitched battles with police. There is a growing consensus, among analysts and academics, that Maduro’s regime is steadily losing its grip on power in Venezuela. Reuters quoted Alexander Campos a researcher at the Central University of Venezuela who said, "It is becoming more evident that Maduro is losing control in and out of Caracas,".

Venezuela’s massive financial catastrophe triggered by the near-collapse of the petrostate’s economic backbone, its oil industry, has essentially bankrupted Caracas making it nearly impossible for Maduro’s regime to maintain control of the country. While a heavily divided opposition along with harsh U.S. sanctions appears incapable of unseating Maduro’s authoritarian regime there are growing fears that Venezuela will ultimately implode, leaving a failed state. If Venezuela is unable to rebuild its shattered economic backbone, the oil industry which will require an investment of anywhere up to $200 billion, then the state will likely implode. Strict U.S. sanctions cutting Venezuela off from global capital and energy markets make it impossible for Caracas to acquire the capital required, either through oil exports or financing from international lenders. Those harsh measures are deterring urgently needed investment from Western energy supermajors which are the only oil companies possessing the necessary capital, technology and expertise to rebuild Venezuela’s shattered oil industry. For these reasons, Venezuela’s economic crisis will deepen, heightening the risk that the state will collapse. 

While failed states are not contagious, they foment greater civil unrest, political turmoil, and conflict in neighboring states. As Afghanistan has repeatedly demonstrated, the void left by a failed state provides haven for terrorist and criminal groups while creating an ideal environment for extremist regimes to seize power. While it is unlikely the authoritarian Maduro regime will be replaced by a radical political power, as occurred in Afghanistan, the state’s failure will create a vacuum that various armed non-state groups operating in northern South America will seek to fill, sparking greater regional turmoil. It is Venezuela’s descent into chaos that is fueling Maduro’s desire to engage with Washington and have sanctions eased so that Venezuela’s collapse is prevented.

By Matthew Smith for Oilprice.com

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  • Mamdouh Salameh on August 26 2021 said:
    Venezuela could never become Latin America’s Afghanistan. While the Taliban regime is a very backward, fanatic, uneducated and restrictive regime, Venezuela’s population is civilized, law-abiding and highly educated.

    Venezuela’s troubles originated from a Bolivarian-like noble drive by a charismatic leader, Chavez, to improve the lot of his people but he ended mismanaging the economy and the oil industry on whose revenues the country overwhelmingly depended. This wasn’t helped by a collapse of oil prices. Then came US sanctions which have acutely exacerbated the hardships facing the population and made their life a real misery.

    Once US sanctions are lifted, Venezuela will be able to attract investments and rebuild its economy. Furthermore, it will never become Latin America’s Afghanistan.

    The United States has never been known to support nation-building. On the contrary, it has always opted for regime changes. Look what it did in Iraq and what it is trying to do in Venezuela. The Americans stayed many years in Afghanistan and spent billions of dollars there to no avail because they were building castles on sand. The end result is there for everyone to see.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment




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