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Russia, China And Iran Lose Interest In Venezuela

Venezuela

Since the election of Hugo Chávez Frias to the Venezuelan presidency in 1998, followed by Nicolás Maduro in 2013, Venezuela has endured steady decline with the approval of the new constitution in 1999, concentration of presidential power, the capture of state and private institutions, gradual control over the press, mismanagement of its national oil company and establishment of a failed political project known as the “socialism of the 21st century.”  

With 81.8 percent of Venezuelan households in poverty, 1.5 million of its citizens leaving the country, 78 percent of medical centers suffering from a supply of medications, an inflation rate that may pass 2,300 percent in 2018, oil revenues cut by half and shortages of gasoline, Chávez and Maduro literally ruined the country.

These economic challenges have influenced foreign relations. Alliances sought to counter the United States are starting to backfire. The official line is that the government is strengthening strategic relations with partners like Moscow and Beijing as well as Tehran. But the Maduro administration has exaggerated the strength of those ties.

The priority is not helping Venezuela but countering U.S. hegemony in regional politics. For example, Russia and China did not attend an informal November meeting of the UN Security Council that sought to condemn Venezuela for human rights violations and undermining the country’s constitutional order. Vassily Nebenzia, Russia’s permanent representative to the UN, stood alongside Venezuelan counterpart Rafael Ramirez who denounced Washington for a "crusade"  against Caracas.

Russia and China help bankroll Venezuela, but a Bulltick Capital report suggests a 90 percent probability that Venezuela will struggle to repay its debts and other financial obligations this year – a problem for both countries that have lent Venezuela billions of dollars and paid for oil in advance. Rosneft sent $6 billion to its Venezuelan equivalent, PDVSA, in early 2017 and announced in August it planned no more advance payments. Russia gave Venezuela a brief break in November by agreeing to restructure about $3 billion in loans, buying Maduro time to pay off other creditors and assure bondholders. After helping Venezuela three times in 2017, Russia might be running out of patience. Nevertheless, Moscow’s loans to the Venezuelan government form part of a strategy that uses Rosneft to achieve foreign policy objectives. 

Related: Europe Becomes Victim of Russia’s Newest Oil Strategy

In fact, Russia behaves like a predatory lender when it comes to Caracas. The newspaper El Nacional reported in October that Moscow and Beijing took over refineries in Paraguana, “renting” them. The move is controversial, violating the 2006 Law of Organic Hydrocarbons, ironically a Chávez instrument. Venezuelan law indicates that only national firms registered in the National Registry of Contractors can work for the state.

Dependent: Venezuela's oil industry is in distress and relies heavily on the US market - the country's biggest exports are crude and refined petroleum, and major imports include petroleum blends for diluting its heavy crude (Sources: Observatory of Economic Complexity and CNBC)

Trade with Russia has increased since 2005, and a joint venture to export flowers began in 2006. But Moscow did not need Venezuelan oil and commerce with Brazil carried higher priority. By 2008, the large asymmetry in trade imbalances emerged between the two countries: Venezuela imported $967.4 million, mostly military purchases, while exporting $320,000 dollars in goods to Russia. After 2006 when the United States refused to sell American military technology to Caracas, Russia became primary provider with sales based on credit, either from Russian banks or the government.

Moscow maintains military relations with Caracas mostly for geopolitical, propaganda and symbolic reasons. Venezuela supported the 2008 Russian incursion into Georgia and invited the Russian nuclear warship Peter the Great to conduct joint exercises in the Caribbean, essentially the U.S. backyard. In 2016 at the United Nations, Venezuela voted to support Russia against a resolution for a ceasefire in Aleppo. In February 2017, Venezuelan Foreign Minister Delcy Rodriguez described Russia as a global actor that supports global stability and lauded Moscow’s role in confronting international challenges. In turn, Russian Minister of Foreign Affairs Sergey Lavrov declared that Russian-Venezuelan relations were “booming,” and a few months later an agreement was revealed – Russia would supply Venezuela with 60,000 tons of wheat per month, although the same could be obtained at lower cost from Argentina.  

(Click to enlarge)

Venezuela has tried to diversify its benefactors and reduce dependence on the American oil market. The 2001 visit of Jiang Zemin, the first of a Chinese president to Venezuela, and of Chávez to Beijing in 2002 marked the start of a diplomatic pivot for Caracas in Asia. Chinese commerce with Venezuela has grown exponentially since. In 2014 China became the nation’s second largest trading partner with more than $15.7 billion in trade. China has since replaced Russia, long considered Venezuela’s key military ally, as its major supplier of armament and defense technology. China offers more advanced technologies and provides better service in terms of maintenance and replacement parts. At the same time, Venezuela has opposed condemnations against China for human rights violations and supported Beijing in the search for global use of alternatives to the dollar. 

Although China has lent Venezuela more than $60 billion, it recently suspended further loans to Caracas. Chinese Sinopec, the oil and gas conglomerate, sued Venezuela’s national oil company PDVSA in December because it did not receive full payments for its orders. Chinese companies are also reported to have lost interest in investing in Venezuela due to the high levels of corruption.

Venezuela also has ties with Iran. Iranian revolutionary ideology in the 1980s was influenced by Latin American leftist doctrine and the two countries constructed consensus around an "anti-imperialist" axis. Since 2001, both countries have reached more than 340 agreements in technology, health, industry, infrastructure, culture, defense and housing. Nevertheless, the vast majority of these agreements have not been implemented. A 2006 joint venture between former Chávez and Iran’s former President Mahmoud Ahmadinejad to build cars through Venirauto Industrias C.A. generated losses and was largely unsuccessful. Another joint venture to produce corn flour struggled  with low productivity despite high demand for the product in Venezuela. By 2014, Iran canceled a project of the Persian Gulf Petrochemicals Holding in Venezuela. Iran’s Rokneddin Javadi, former deputy oil minister of Iran, admitted that establishing offices of the National Iranian Oil Company in Venezuela had no economic justification but rather served political purposes.  Related: OPEC Won’t Compensate For ‘Small’ Supply Outages

In return, Venezuela was one of the few nations to oppose the International Atomic Energy Agency’s efforts to present the Iranian nuclear program case to the UN Security Council in 2006. Venezuela supported Iran in criticizing Israel, and in January that year broke off diplomatic relations in response to the Israeli offensive in Gaza. In November 2007 at OPEC’s third summit, Chávez tried to persuade members to transform into a more active geopolitical group that supported Iran. Saudi Arabia opposed that proposal. 

A military relationship between Iran and Venezuela is in question. Some have accused Iran of installing intermediate missile systems in the country, though General Douglas Fraser, former head of the U.S. Southern Command, dismissed an Iranian military presence in Venezuela. Nevertheless, some officials like Vice President Tareck el Aissami are reported to have provided assistance to Iran and Hezbollah. In 2013, state-owned Venezuelan weapons company CAVIM was sanctioned for trade with Iran. Under Chávez in 2008, trade between both nations was approximately $57 million with additional investments.

For Iran, China and Russia, Venezuela is a small and distant priority. The country’s value is for needling the United States, much less necessary with the distractions and “America first” policies endorsed by Donald Trump. Venezuela’s chaotic economic crisis is more pressing as its relationship with Russia, Iran and China weaken. The imbalanced relationships ensure that Venezuela is but a pawn for legitimizing those countries' policies on the world stage rather than advancing a real agenda of its own.

By Yale Global Online

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  • John Brown on January 09 2018 said:
    Venezuela, the worlds newest socialist paradise. A nation with the greatest oil reserves in the world that has sent 1.5 million of its people fleeing, can't keep the lights on in its capital city, can't feed its population, has tens of thousands of children now starving to death, and can't even supply its population with simple toilet paper. You'd think it would be madly trying to pump our more oil, but the socialist heroes of the people are so corrupt that they've robbed the state oil company blind so ever month production drops, in a country with oil reserves greater than Saudi Arabia. When socialist hero of the people, Hugo Chavez, died the richest person in Venezuela was his daughter with well over a billion dollars, accumulated at a time that everyone else in Venezuela became impoverished.
    The Venezuelan Bolivar is worthless, because Venezuela is so corrupt, incompetent, and poor that even its oil production is cratering, and yet Maduro has announce the Petra, a crypto currency he says will be backed with Venezuelan oil, gold, and diamonds. LOL! If Venezuela was producing enough oil, gold, and diamonds to back a cryto currency the Bolivar wouldn't be worthless, and it wouldn't need a crypto currency. Anybody wanting to exchange the Petra for the oil, diamonds, and gold that Maduro says will back it had better take a shovel and plan for digging for it themselves.
    Take a look a Venezuela folks. Its leaders are corrupt morons who care more about showing solidarity with Iran, Russia, China, and North Korea, and spitting at the USA its largest trading partner than it feeding its people. Ain't socialism grand? Its amazing to me that the Democrats, especially Senators Bernie, Warren, and the rest want to turn the USA into a socialist paradise just like Venezuela. Obama had us on that path with 8 years of misery. I hope the USA has learned its lesson for at least the rest of my lifetime. I don't want to spend my golden years without toilet paper.
  • Swiss Cheese on January 09 2018 said:
    @John Brown
    I agree with most you say about Venezuela. Let's hope for the people that this nightmare ends soon!

    I don't agree with your comparison with Bernie Sanders and Democrats at all. Pure, uncontrolled capitalism would destroy (does) destroy everybody. I am capitalist. Capitalism does what it's supposed to, compete. Like in a boxing fight, the contenders have to beat eachother up, fairness is not big in their mind - that's the job of the referee.

    Same in a government - it has to make sure, everybody gets the chance to succeed, it has to provide shelter for the fallen. Some tasks no profit-oriented organisation will ever do properly, but they are necessary to provide a sense of comunity and security.
  • The Naked Ape on February 16 2018 said:
    The state of Venezuela is a direct consequence of US's dirty politics and nothing less, you are so obsessed for Venezuela's oil you would let every man woman and child die, I pray for South America eventually unites and expels the cancer that has been bleeding it dry for over a hundred years.
    Venezuela would be much better off dealing with China or Russia any day of the year and maybe while they are there they should build military bases too!

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