Two decades of malfeasance and corruption coupled with sharply weaker crude oil prices and ever stricter U.S. sanctions have precipitated the worst modern economic collapse outside of war in Venezuela. The crisis-riven Latin American country, which was once considered the wealthiest and most stable democracy in its region, is on the verge of collapse. While U.S. policymakers continue to believe that tough sanctions will bring the autocratic Maduro government to its knees and trigger regime change there are increasing signs that they are failing and have in fact strengthened his position. This is supported by events that have occurred since sanctions were ratcheted up by the Obama administration in 2015 with Venezuela described as an " unusual and extraordinary threat to the national security and foreign policy of the United States”. Unexpectedly former President Trump’s policy of maximum pressure, which saw his administration enact the harshest sanctions ever against Venezuela cutting the country off from international energy markets, has failed. Even the near-collapse of Venezuela’s economy due to harsh U.S. sanctions and growing lawlessness in the stricken Latin American country has done little if anything to erode Maduro’s grip on power.
The latest event highlighting the strength of Maduro’s grip on power has become since that declaration is the ruling United Socialist Party of Venezuela’s recent sweeping victory in regional elections. Coalition led by the party, which is controlled by Maduro, won 20 of the 23 governorships available and the mayoralty of Caracas. This comes after Maduro was able to secure control of Venezuela’s National Assembly, winning 256 of the body’s 277 seats during the December 2020 elections. That success essentially destroyed Washington’s recognized interim President Juan Guaido’s legitimacy because he lost not only his leadership of the lawmaking body but his seat. As a result, the European Union ceased recognizing Guaido as Venezuela’s legitimate interim president, instead bestowing the title of privileged interlocutor.
U.S. sanctions have a long history of failing to initiate regime change unless they are accompanied by other forms of overt pressure including military action. They were unsuccessful in removing Saddam Hussein from power, which was only accomplished through direct military action, have failed to curb the activities of a fundamentalist Shia Iran nor caused the communist regime in Cuba to collapse. Indeed, sanctions tend to fortify authoritarian governments by adding to the scarcity of goods and services thereby handing greater control to authorities for their provision and distribution while providing a handy scapegoat for the hardships they create. Harsh U.S. sanctions precipitated Venezuela’s economic meltdown which bolstered the Maduro regime’s power, making it the key provider of essential goods and services.
The targets of the sanctions typically find a way of dulling their impact or avoiding them altogether by finding alternate sources of capital, markets, and crucial resources. Maduro has been extremely successful in this regard, obtaining considerable support from countries opposed or antagonistic to the U.S, notably Russia, China, Iran and Cuba. Moscow and Beijing are both lenders of last resort for a near-bankrupt Caracas providing oil backed loans and even investing in Venezuela’s rapidly corroding hydrocarbon sector. During late-March 2020 Russian energy company Rosneft announced it had transferred its Venezuelan energy assets to a series of Russian government-controlled entities to avoid the impact of U.S. sanctions on its operations. That gave the Kremlin ownership of interests in a series of joint ventures with Venezuela’s national oil company PDVSA, including oilfields and infrastructure. Beijing along with Moscow has loaned billions to the financially crippled petrostate. It is estimated that Caracas owes Beijing anywhere up to and in excess of $50 billion with another $17 billion payable to Moscow. While that debt is proving to be a crippling burden for a nearly bankrupt Venezuela it has done little to weaken Maduro’s grip on power.
Events in Venezuela have provided Beijing with the opportunity to significantly expand its influence in Venezuela. State-controlled China National Petroleum Corp. is ramping up its presence in Venezuela sending engineers and technicians to the petrostate as it discusses with PDVSA how to boost oil production at their joint projects. Beijing is also a key facilitator for shipping Venezuelan crude oil. Logistics company China Concord Petroleum Co. was identified as a key facilitator in organizing shipments of Venezuelan crude oil. According to Reuters, the Hong Kong-registered firm charted tankers that in April and May 2021 were responsible for transporting a fifth of Venezuela’s crude oil exports for those months. Beijing is focused on more than obtaining repayment of outstanding loans. Caracas’ desperation for capital is being fully exploited by a Beijing determined to build influence and presence in Latin America as a direct challenge to Washington. A resource-hungry China has also secured extremely favorable terms for a series of loans not only for petroleum but other commodities including iron ore, leaving an increasingly financially desperate Venezuela with backbreaking debt. This strategy is an increasingly important plank in China’s economic and societal conflict with the U.S as it seeks to secure vital raw materials and gain greater geopolitical influence.
Iran and its proxy, Hezbollah, are becoming increasingly important supporters of the Maduro regime. Teheran is providing considerable assistance to PDVSA including materials, technicians, and engineers to rebuild its severely dilapidated refineries. According to Reuters, in 2020 Iran sent more than 20 flights, carrying parts and technicians, to Venezuela to restart the 310,000 barrels per day Cardon Refinery which is part of the 971,000 barrels per day Paraguana refinery complex. Then in February 2021 further airlifts of materials including catalysts bound for Paraguana were identified. Iran is also sending shipments of urgently needed condensate to Venezuela, This is critical to PDVSA’s operations because it is mixed with the extra-heavy crude produced in the Orinoco Belt so that it can be transported, processed, and exported.
The growing influence of Iran, which is also subject to strict U.S. sanctions, has allowed Hezbollah to establish a sizeable foothold in Venezuela where it engages in a range of illicit activities including cocaine and arms smuggling as well as money laundering. Hezbollah has also established terrorist training camps in Venezuela, meaning it poses an existential terrorist threat to the U.S. its citizens and allies in Latin America. The militant Shia group was responsible for the 1992 car bombing of the Israeli Embassy in Buenos Aires and then the 1994 bombing of a Jewish community center in that city. The combined attacks claimed 116 lives, were the worst-ever terrorist attacks in Argentina, and highlight eh threat posed by Hezbollah in Latin America. Hezbollah is conducting all those activities with the approval of the Maduro regime. The Shia militant organization’s presence in Venezuela is only fueling further regional instability, with the militant U.S.-designated terrorist organization engaged in relationships with local illegal armed groups such as the ELN and FARC dissidents.
The autocratic Maduro regime’s ability to overcome or avoid strict U.S. sanctions has allowed crude oil output to steadily rise since June 2020 reaching 590,000 barrels per day for October 2021. That coupled with Maduro’s reluctant reforms, the economy bottoming out and its steady unofficial dollarization leading to lower inflation sees international financial institutions predicting that Venezuela’s economy will grow during 2021. Investment bank Credit Suisse has forecast that Venezuela’s gross domestic product during 2021 will expand by 5.5% after contracting every year since 2014. Whereas economists estimate Venezuela’s economy will grow by anywhere between 5% and 10% this year. If that occurs it will further fortify Maduros’ position making it even more difficult for his regime to be toppled by current U.S. policy.
Washington’s unwavering faith in strict economic and other sanctions has failed to trigger regime change in Venezuela. In fact, it is becoming increasingly clear that over time the utility of sanctions gradually diminishes to the point where they no longer have any material impact on the target regime. This is the point that has been reached regarding Washington’s approach to Venezuela. Not only have those measures failed but they are creating a range of undesirable side effects which are harming U.S. interests in Latin America. One of the most worrying is that they are creating an opportunity for Russia, China, and Iran to bolster their footprint and influence in the region, challenging Washington’s traditional hegemony. This is particularly worrying because Venezuela’s vast natural resources, notably its colossal petroleum reserves are gradually falling under foreign control. Washington’s policy is also allowing illegal armed groups and designated terrorist organizations to prosper in a lawless Venezuela which is nearly a failed state. That not only further inflames regional instability and creates greater opportunities for criminal groups to engage in harmful illicit activities such as cocaine smuggling but heightens the risk of terrorist attacks. Aside from the considerable humanitarian suffering occurring in Venezuela, it is for these reasons that Washington needs to reappraise its approach towards the authoritarian regime and the crisis-riven country.
By Matthew Smith for Oilprice.com
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