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Rosneft Looks To Expand Its South American Portfolio

Rosneft

Despite the multiplicity of major and urgent international crises around the globe, Russia still finds time to invest its political resources in Venezuela’s long-running collapse. Indeed, Russian President Vladimir Putin is meeting with his Venezuelan counterpart, Nicolás Maduro, today (October 4), in Moscow, to discuss the two countries’ “strategic partnership” as well as international and regional developments (RTEl Nacional, October 3).

Falling global energy prices have significantly contributed to Venezuela’s unfolding disaster; yet, the onus of state failure rests squarely on the shoulders of Maduro’s authoritarian government, which is distinguished by its massive corruption, adherence to long-discredited socialist economics, and over-reliance on energy exports. At the end of 2016, Putin promised to send wheat and military equipment—which Maduro’s government clearly cannot pay for—in order to help keep this Latin American regime in power (Lenta.ru via Getrussia.com, December 7, 2016; TASS, October 4, 2017). And since then, Moscow’s rhetoric defending the Venezuelan government has continued.

Last January, the Russian Ministry of Foreign Affairs issued a statement denouncing the opposition in Venezuela and cautioning other states against lending their support to them (Mid.ru, January 20). Then, over the summer, Putin and Maduro discussed how the Russian oil giant Rosneft could swap its collateral in the Venezuelan state-run energy company PDVSA (which owns the Houston-based energy firm CITGO) for oilfield stakes and a fuel supply. The two leaders considered how such deal could be structured so that Rosneft would not be victimized by the United States’ proposed sanctions on Venezuela (Kremlin.ru, July 10). Should the Venezuelan state actually default, Rosneft (i.e., the Russian government) would be among its principal creditors and could thereby gain an ownership stake in CITGO, something the U.S. government is determined to prevent (Platts, April 7). Related: OPEC Producers Unmoved By U.S. Shale Threat In Asia

For now, Rosneft has used the opportunity to gain more control over field operations there. This has become Russia’s modus operandi—using the crisis to entrench itself in Venezuela’s energy and politics. Thus, since mid-2017, it has become clear that Rosneft is furnishing the Venezuelan government with cheap credits while buying up equity in more oilfields inside the South American country. In other words, it is applying the equity-for-debt schemes the Russian government and energy firms have long championed in Eastern Europe to gain leverage over the energy assets and politics of Russia’s neighbors (see EDM, July 14, 2006July 12, 2011). And while these cash infusions or subsidies provide a lifeline for Maduro’s government, they would also allow Rosneft to acquire 49.9 percent of CITGO (Reuters, August 11).

In July, Moscow advocated recognizing the legitimacy of Venezuela’s fraudulent and repressive elections (Mid.ru, July 31). Such calls came in response to the mounting U.S. interest in pressuring the Maduro government and providing support for the opposition. Thus, Russia intervened again, on August 10, calling for a “peaceful settlement,” despite Maduro’s unending recourse to violent repression (see Mid.ru, August 10). At around the same time, evidence grew of emerging Russo-Chinese cooperation in regard to Venezuela and Latin America more generally. A well-known Russian expert on China, Vasily Kashin, observed that the July 2017 joint Sino-Russian summit communiqué for the first time overtly mentioned Latin America and the Caribbean. Moscow and Beijing are now confronting the risk of their large investments in Venezuela, he noted (Valdaiclub.com, July 6).

Related: U.S. Shale Isn’t As Strong As It Appears

Finally, in his speech to the United Nations General Assembly, on September 21, Foreign Minister Sergei Lavrov incorporated Russian views on Venezuela into the larger issue of Moscow’s campaign against democracy promotion worldwide. Lavrov stated that, “Instigation to turmoil and threats of power interference for the sake of so-called democratization of Venezuela or actions to undermine the legitimate government of any country are inadmissible. In any internal conflicts the international community must encourage the parties to national reconciliation and compromise” (Mid.ru, September 21). In light of Russian policies in Moldova, Georgia, Ukraine and Syria, this statement’s bald hypocrisy speaks volumes as to what Moscow hopes to gain here by essentially trying to create a Russian satellite in Latin America—one that must depend on Moscow and Beijing to survive. In as much as Venezuela under Hugo Chavez and Nicolás Maduro openly boasted about possessing Russian arms to overthrow the neighboring and pro-US government of Colombia, Lavrov’s remarks take on a new light. Essentially, the Kremlin is seeking to place Venezuela under Moscow’s umbrella, while Russia expands its leverage over key sectors of Venezuela’s economy and politics and entrenches itself there.

Russia’s growing embeddedness in Venezuela’s economy and politics resembles, in a crucial way, the kinds of tactics Moscow has applied in other similarly misruled states along its periphery. But given the earlier military dimension of its policies there, now being replicated mainly in Nicaragua we can see that Moscow is investing in Venezuela not just to gain energy rents but to obtain a long-term strategic enclave in the Americas. Here, as elsewhere Moscow is playing the long game. Accordingly, it behooves Washington not only to understand the game and its component tactics, but also to recognize the long-term strategic goal behind it.

By The Jamestown Foundation

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