Venezuelan President Nicolas Maduro has begun rounding up suspects after he avoided an attempted assassination over the weekend, raising the possibility of yet another security clampdown on the already suffering nation.
A series of drones carrying explosives reportedly detonated near Maduro, but failed to kill him. The attacks, carried out during a military parade, sent soldiers fleeing as chaos spread. Maduro appeared on state TV a few hours later declaring that the investigation into the attack was already in an “advanced” stage, and that suspects were in custody. He accused the Colombian government as well as unnamed financiers based in the U.S. state of Florida of supporting the attack.
Maduro is eager to pin the attack on the United States and Colombia, a consistent theme that is critical to his political legitimacy. There is evidence that officials from the governments of the U.S. and Colombia were aware of a previous coup attempt, and it is entirely conceivable that they had some sort of knowledge about the latest attack, although both governments denied any involvement.
But at this point, with the country shattered, the threat from within is undeniably real. An anonymous group called Soldados de Franela (T-Shirt Soldiers) claimed responsibility.
The attack can be interpreted in different ways. One could argue that an attempted assassination will be used as a pretext to tighten the stranglehold that the Maduro regime has over the country. But it also offers some pretty damming evidence that his grip is shaky.
Understandably, Maduro would not want this to be the takeaway, as it would cripple the aura of his control and power. “Authoritarian leaders like Maduro need to make people think they are invulnerable,” David Smilde, a sociologist at Tulane University in New Orleans, told Bloomberg “But the optics were terrible. I think it could definitely spark other people’s imaginations.” Related: Locked Into Hedges, Shale Misses Out On Oil Price Rally
Ultimately, his survival depends on how long the armed forces stick by him. That is exactly why Maduro began stacking PDVSA with military loyalists last year, sacking leadership and putting Manuel Quevedo, a major general in the Venezuelan military, in charge of the state-owned oil company. The logic being that by handing over the most lucrative aspects of the state to the military, and bringing in the armed forces into the looting of state coffers, their well-being becomes intertwined with the survival of the Maduro regime itself.
That arrangement might work for a period of time, but it’s not necessarily true that the military needs Maduro to maintain control over the oil sector. And to the extent that cracks in Maduro’s control over the state begin to grow, his position becomes all the more tenuous.
There’s no way to know what would happen if the next coup attempt is more successful. But whether or not Maduro stays in power, oil production is heading down. Perhaps that is why oil traders didn’t focus all that much on the events unfolding in Caracas.
“I think in some ways the reason the market hasn’t reacted…production is falling so much already. Exports are only about 1.2, 1.3 million barrels per day and it continues to decline,” Amrita Sen, chief oil analyst at Energy Aspects, told CNBC. “Having said that, there are also those who believe that if there is a new government that comes in, perhaps you could see production could go up. But even if that were to happen, it’s going to take years.” Related: Goldman Sachs Expects “Very, Very Tight” Oil Market
Venezuela’s oil production fell to 1.24 mb/d in July, down 670,000 bpd over the past year. There are few, if any, examples of such a catastrophic declines in production in history outside of wartime. Because Maduro has presided over the collapse of the nation’s oil industry, it may be tempting to assume that his ouster could lead to a recovery.
But Venezuela has never sustained a production increase of more than 160,000 bpd for more than a few years at a time, and by all accounts, reversing the current decline would at the very least require a stable political context, some sort of macroeconomic rescue package and debt restructuring, billions of dollars of fresh investment in the nation’s oil fields, and lots of time. Needless to say, none of that seems even remotely feasible in the short-term, even if there were a change in leadership.
It remains to be seen what the most recent attempted assassination will mean for the near future of Venezuela. But if anything is certain, it is the ongoing losses in the nation’s oil production. Even still, the oil market has already somewhat incorporated those declines into pricing forecasts.
By Nick Cunningham of Oilprice.com
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