Dog Brothers Public Forum

Power and Money in Venezuela
Some opponents of Nicolás Maduro remain supporters of socialism.
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By Mary Anastasia O’Grady
Feb. 10, 2019 3:02 p.m. ET
Venezuelan President Nicolás Maduro at Miraflores Palace in Caracas, Feb. 8.
Venezuelan President Nicolás Maduro at Miraflores Palace in Caracas, Feb. 8. Photo: andres martinez casares/Reuters

Nicolás Maduro’s decision to block humanitarian aid to the starving Venezuelan people is no surprise. It’s already well-established that the dictator and his Cubans backers are tyrants.

What really matters politically is the effect of new U.S. Treasury rules mandating that payments for Venezuelan oil go to an escrow account for the government of interim President Juan Guaidó. As the Journal’s Kejal Vyas and Bradley Olsonreported Feb. 4, the restrictions “are making it difficult for the Maduro regime to secure payment for the oil.”

A severe cash-flow disruption increases the odds that Mr. Maduro will have to move out of the presidential palace. Even so, democracy advocates had best not get ahead of themselves. Many risks would remain even if Mr. Maduro retires.

From the earliest days of Hugo Chávez’s rule, oil money has been the key to power in Venezuela. Chávez tightened his grip at first not by executing opponents but by buying them off. This is why friends of the region’s hard left are wringing their hands and crying that the Treasury rules will hurt the Venezuelan people.

The Venezuelan people are already destitute, and anything that accelerates Mr. Maduro’s demise is good for them. But what happens next?

Many analysts are overlooking the problem of the army of political operatives who were part of the breakdown of the country over the past two decades and now oppose Mr. Maduro.

These include die-hard chavistas like Rafael Ramírez. From 2004 to 2014, Mr. Ramírez was president of PdVSA, Venezuela’s state-owned oil company, which is in ruins. Also in the opposition are career bandits of the political class, who have shared for years in the spoils of corruption no matter who was at the helm. The list includes but is not limited to some members of Venezuela’s infamous Democratic Action Party.

These characters have broken with Mr. Maduro but not with the socialism that made them rich. They seek impunity for their crimes and a place at the feeding trough in the next government. Their strategy is to demand “power sharing” and to threaten to split the opposition if they aren’t dealt in. These self-interested opportunists have support from ideologues in places like the Vatican, which has been an advocate of appeasing Mr. Maduro.

The horrendous toll on humanity from two decades of Venezuelan socialism can’t be overstated. Food and toilet-paper shortages and malnutrition are getting the most attention. But an article in the journal Travel Medicine and Infectious Disease described Venezuela as “an epicenter of the resurgence of multiple vaccine-preventable, vector-borne, and zoonotic diseases with numerous ongoing, co-occurring epidemics.”

Malaria is a particular problem, the authors write, in part because of a large migration to illegal mining areas, a deterioration in the medical infrastructure and “above all, lack of political will.”

This is the legacy not only of Hugo Chávez but also those who embraced socialism, whether because of ideology or greed. He used his early popularity to rewrite the constitution, get the Venezuelan congress to give him the power to rule by decree, confiscate large farms, and attack entrepreneurs from the bully pulpit. He also cracked down on the free press. A few years later, when he trampled the rights of workers at PdVSA and packed the supreme court, the public was uninformed and there was little criticism from abroad. He could do it, the argument went, because he was still winning elections—though electoral institutions were already corrupted.

By 2007 price and capital controls were destroying the country’s productive capacity and harming businesses that sold imports. It was already difficult to find routine foodstuffs like milk, cooking oil, bread and pork. But Chávez had control of PdVSA and was flush with cash. No one could stop him.

Oil money greased every sector of society—from the government, military, business and media to nongovernmental organizations including religious groups. Most important, Chávez used it to bribe and corrupt members of other political parties.

These sycophants, along with the anti-Maduro chavistas, are now worried. They have no ethics and they don’t want Mr. Guaidó to succeed if it means the end of the gravy train—and the power that comes with it. That’s why they want to brand the interim president as a radical right-winger who is pulling off a coup with Washington’s help.

Enemies of democracy, including Cuba and Iran, will try to hold on to their power in Venezuela even if it means a bloodbath. In preparing for this possibility, Mr. Guaidó doesn’t have to worry only about Mr. Maduro’s supporters but also about the weasels who want to seize control of the opposition movement.

https://gellerreport.com/2019/02/venezuela-maduro-hezbollah.html/

What Happened

According to a Reuters report released March 12, partially recognized interim President Juan Guaido is preparing new legislation for Venezuela's oil and gas sector that would allow companies other than the country's state-owned energy company, Petroleos de Venezuela (PDVSA), to operate oil and gas fields. The proposed reforms, which Guaido's allies are presenting at an energy conference in Houston this week, are expected to be released for debate in Venezuela's National Assembly in the coming days.

Guaido's reforms would dismantle PDVSA's monopoly over Venezuela's oil and gas sector by no longer requiring its involvement in every project. In doing so, the laws would fundamentally reverse the country's highly nationalistic regulatory environment in place since former President Hugo Chavez nationalized the industry more than a decade ago.
Why It Matters

By proposing ambitious energy reforms, Guaido is ensuring Venezuelans that he has a rescue plan for the country's recovery should he gain more power. Venezuela's oil and gas sector is the main generator of revenue for the government, and its revitalization is thus paramount to address other factors plaguing Venezuela's recovery, such as its overseas debt obligations and decaying infrastructure.

There is a fair chance Guaido's reforms will pass the National Assembly, which is currently controlled by parties that support his campaign to unseat Maduro. Actually implementing the plan, however, will be a challenge so long as President Nicolas Maduro continues to control the military and, by proxy, the oil sector.

Venezuela's oil sector will still be an expensive and high-risk investment for foreign suitors, especially if they don't already have an established presence in the country.

Even if a transition from Maduro occurred and the new plan for Venezuela's oil sector went into effect, jump-starting investment into the sector — which has seen production collapse in recent years amid the country's ongoing economic and political crisis — would be no easy feat for Maduro's successor, whether that be Guaido or someone else. The country's oil and gas fields have long been neglected, and the heavy oil fields in the Orinoco Basin are also expensive to produce. After suffering years of underinvestment, some of the reservoirs are likely damaged and in need of costly repairs and upgrades to allow the conversion of heavy oil into a more easily transported form. This will make Venezuela an expensive and high-risk investment for foreign suitors, especially if they don't already have an established presence in the country.

And even if enacted, questions over how long the proposed reforms — which are modeled off of Colombia's and Mexico's energy reforms introduced over the last two decades — would remain in effect would give investors pause. While Colombia's reforms have been consistently backed by successive pro-business presidents, new Mexican President Andres Manuel Lopez Obrador's efforts to reverse Mexico's energy reforms show that if the political winds shift in a Latin American country prone to left-wing and populist movements — like Venezuela is — energy reforms may not last.

Is Russia Throwing Its Lot in With Maduro?

What Happened

Russia is seemingly upping the stakes in Venezuela's standoff — for friend and foe alike to see. In a deliberately visible event, two Russian aircraft reportedly landed at Simon Bolivar International Airport in Caracas on March 22. One plane arrived with 100 Russian military personnel, including the chief of staff of the ground forces, Gen. Vasily Tonkonshkurov, while the other landed with 35 tons of unspecified military equipment. According to an unnamed Venezuelan military official, the Russian forces are there as part of an agreement to assist the South American country in military training and engage in cooperation.

The Big Picture
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Its economy in tatters, Venezuela falls further into the abyss with each passing day. Because of the country's deep economic crisis and international pressure, President Nicolas Maduro could be forced to abandon his position, yet and he and his supporters — including key international backers like Russia — are trying to delay his departure for as long as possible. Now, Russia has reportedly upped the ante in the country by deploying more troops, possibly with the aim of prolonging Maduro's stay in power.
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Venezuela's Unraveling
Why This Matters

The Russian soldiers could be the first wave of additional troops that will arrive and remain in Venezuela. A greater Russian deployment would raise the stakes of a U.S. military intervention in Venezuela, as the use of military force to remove Venezuelan President Nicolas Maduro could ignite a direct confrontation with Russian military forces — something that Moscow could bank on the United States wishing to avoid.

Naturally, a semi-permanent Russian deployment could complicate U.S. efforts to oust Maduro, but it would allow Moscow to make strategic inroads into Washington's near abroad and deprive foreign energy companies the prospect of greater investment opportunities in the short term. But given Venezuela's importance to the United States, especially due to its geographic proximity, Washington could seek to counter Russia's actions in Venezuela with a more forceful reaction.

Russia's Calculations

If Russia does deploy even more forces to Venezuela, it would have to consider the size of the force. Realistically, Moscow's options run the gamut from a token force to a larger-scale mission along the lines of its intervention in Syria.

A larger deployment would enable the country to bolster the Maduro government more effectively against internal threats, such as a military coup or a significant armed revolt. It would also allow Russia to spread its forces around the country, potentially deterring a U.S. intervention under the assumption that the United States would hesitate to launch military operations in Venezuela if it feared Russian casualties. In effect, Russia is calculating that the United States is unlikely to risk a wider war with Russia just to topple Maduro's government. Indeed, there is a precedent for such Russian behavior, as Moscow's increased presence in Syria restricted the United States' ability to strike and, ultimately, oust President Bashar al Assad.

The prospect of a larger Russian deployment could even spur the United States to move early to intervene before Russia can entrench itself militarily.

While a larger deployment would offer Russia greater ability to pursue its objectives in the country, it would also present some significant drawbacks, with cost being the most obvious concern. Yet another Syrian-sized deployment would place additional strain on Russia's ability to project force, especially since Venezuela is much farther away than the Levant. A larger, more visible deployment could also ensconce Russia in a potential quagmire, exposing its forces to more dangers and threats in the event that security worsens in the country. But there are potentially graver concerns for Moscow as well: An enhanced Russian military presence in Venezuela might not actually deter the United States from acting against Maduro. What's more, the prospect of a larger Russian deployment could even spur the United States to move early to intervene before Russia can entrench itself militarily.

A smaller deployment would offer Moscow less room to maneuver, but it would not expose Russia to as much risk. A more limited deployment would be less expensive and offer Russia greater flexibility, as it could withdraw its forces much more rapidly in the event that Venezuelan security deteriorates. And while a smaller deployment is likely to present less of an impediment to the United States, it would also put fewer Russian troops in harm's way, thereby decreasing the chances of a wider military conflict.

What to Watch For

So far, Russia has sent few forces to Venezuela, and even then, most of these troops have been on temporary missions. The deployments include Wagner Group mercenaries, rotations of heavy bombers and the latest arrivals on March 22. Accordingly, we will be looking for indications that Russia is preparing to upgrade its presence in Venezuela by deploying troops for longer periods and preparing more forces and materiel for missions to the country. If the Russian government seriously intends to bolster Maduro, it is likely to deploy military forces in and around Caracas, as well as near oil production and export infrastructure.

Of course, the U.S. reaction to this latest Russian move will also be on our radar. Thus far, there is no major indication that the United States is mulling a serious military intervention to preempt greater Russian activity in the country, but this could change if the Maduro government — emboldened by Russian reinforcements — conducts a bloody crackdown on its opponents.
A smaller deployment would offer Moscow less room to maneuver, but it would not expose Russia to as much risk as a larger deployment.

The U.S. strategy so far has been to focus on economic coercion to cripple the Venezuelan government and encourage military defections at the same time as it collaborates with Colombia and Brazil to contain the fallout. The United States will also evaluate the longer-term implication that Russia could establish a military foothold in the Caribbean basin, as that would undermine the core tenets of the Monroe Doctrine, complicating the U.S. imperative to prevent foreign powers from interfering in what it perceives to be its geopolitical domain.

For the moment, the threat of U.S. military intervention has hampered the Venezuelan government's attempts to crack down on growing internal dissent. Indeed, Maduro's government is reluctant to arrest or exile the partially recognized interim president, Juan Guaido, for fear of kick-starting a potential U.S. military intervention.

But if Maduro begins repressing the political opposition and other internal dissenters because he believes Russian forces have effectively eliminated the threat of a U.S. intervention, Venezuela's crisis will develop along two broad possible paths. On one hand, Maduro's opponents may perceive the Russian deployment as a sign they must act against the government sooner, rather than later. Depending on the extent of the plans to unseat Maduro, dissidents within the armed forces may attempt a coup before extensive Russian military deployments or a severe crackdown make that option impossible. On the other hand, the threat of a greater backlash from the government could convince officers sitting on the fence to swing back to the president's camp, making a coup much more difficult to carry out. Whatever the case, the prospects of a greater Russian presence on the shores of the Caribbean is likely to reshuffle the deck on Venezuela.

In Venezuela, the Tide Is Turning on the Opposition
A citizen shows his support for Venezuela's current president, Nicolas Maduro, (pictured in the poster on the left), as well as former President Hugo Chavez.
(FEDERICO PARRA/AFP/Getty Images)

Highlights

    The continued allegiance of high-ranking military officials remains the main obstacle to opposition efforts to unseat Venezuelan President Nicolas Maduro. 
    Encouraging officers to desert Maduro and support opposition leader Juan Guaido will be difficult, given the government's ability to threaten or bribe them into remaining loyal.
    To expedite Maduro's exit, the United States will increase sanctions against his government and directly dissuade foreign energy companies from doing business in Venezuela. 
    Maduro's government has also begun laying the foundation for Guaido's arrest, which would complicate and potentially stall the opposition and U.S. push for regime change.

For the first time since opposition leader Juan Guaido announced his bid to unseat President Nicolas Maduro in January, efforts at regime change in Venezuela face the real risk of failure. Though Guaido is free to move about the country and rally crowds against Maduro, there are still no signs he has the support of the key military commanders needed to initiate a prompt and relatively peaceful political transition, despite the United States and the opposition's best efforts. As long as his military remains loyal, Maduro's government will remain in Caracas — leaving Guaido, as well as other prominent opposition figures in Venezuela, vulnerable to a crackdown that could end his bid for power altogether.

The Big Picture

Venezuela's resurgent political opposition has been working to oust President Nicolas Maduro for nearly three months — but so far, to no avail. Despite rising sanctions pressure and the threat of military intervention from the United States, Maduro's government and his military's loyalty remain intact. And as a result, the chances that Venezuela's left-wing government can delay its departure for months, or potentially longer, are rising.

The Loyalty of the Military

The continued allegiance of high-ranking officials in the military remains the chief hurdle to opposition efforts to overthrow Maduro. The opposition's efforts at creating a military schism have so far failed. Commanders did not quickly desert Maduro in the wake of severe U.S. sanctions in January as the United States had hoped for. Instead, they have remained by his side, likely convinced by a combination of threats and financial incentives.

To seriously threaten Maduro, the opposition needs enough military commanders to come to its side, likely by convincing them that the new government will allow them to keep their privileges, power and — in some cases — ill-gotten gains. Any such amnesty agreement would, in theory, allow them to leave power without facing greater repercussions of arrest, imprisonment or extradition to the United States. However, it's unlikely that opposition negotiations will yield a quick political transition. Financial incentives for military officials to remain in power are too great, and the Maduro government will continue to intimidate, bribe or arrest officers perceived to be talking with the opposition.

In addition, the recent arrest of former military intelligence chief Hugo Carvajal has cast a cloud over opposition efforts to sway military officials. Nearly two months after declaring his allegiance to Guaido, Carvajal was arrested April 13 in Spain under a U.S. warrant on cocaine trafficking charges. His successful extradition to the United States would likely have a chilling effect on other military officers thinking about defecting to the opposition — especially since some commanders are involved in trafficking activities that could also land them in a U.S. prison.
Tightening the Noose of U.S. Sanctions

In an attempt to accelerate Maduro's exit, the United States will turn up the sanctions heat by implementing secondary sanctions that prohibit other countries' companies from doing business with Venezuela's state-run energy sector. Signs that Washington might also decide to pressure specific European energy companies to reduce their business ties with Caracas' natural gas sector have emerged following the recent meeting between the U.S. special representative for Venezuela and officials at the Spanish company Repsol. Repsol and Italian company Eni own stakes in an offshore natural gas joint venture that accounts for roughly 15 percent of Venezuela's total gas production. Since Venezuela reinjects natural gas into wells to keep pumping oil, if Repsol and Eni were to reduce their presence in Venezuela, the latter's oil production would plummet even more sharply.

But military commanders' loyalty to Maduro has so far withstood the increasing weight of U.S. sanctions, and will likely continue to hold strong despite these new threats from Washington — even as the country's economy and infrastructure crumble around it.

With Guaido in jail, military dissidents cowed into submission and commanders willing to repress political opponents, Maduro could remain in power for months if not years.

On April 2, the government took the first step to justify Guaido's arrest by stripping the opposition leader of his legal immunity. Maduro had been reluctant to go directly after Guaido — likely in fear of heavier sanctions or military intervention from the United States, and the resulting threat this would pose to the unity of his military commanders. Thus, such a bold move signifies that Maduro and his inner circle are gambling they can mitigate the effect of heavier sanctions on military unity by cracking down on key opposition figureheads, such as Guaido and those close to him, and dissident military forces. With Guaido in jail, military dissidents cowed into submission, and military commanders willing to repress political opponents, Maduro's government could remain in power for at least several more months, if not years.

The looming 2020 presidential election in the United States could also play a role in determining when and how soon Maduro makes his exit. Incumbent President Donald Trump has prioritized regime change in Venezuela. Should Trump fail to secure a second term in 2020, his successor might be less willing to bet on an opposition bid.

Of course, just because a delayed Maduro departure is becoming more likely doesn't make it inevitable. A covert push by lower-ranking military officers to remove Maduro could still prove successful, as could the opposition's efforts to sway higher-ranking commanders to join their side. And the country's increasingly dire economic situation and rapidly crumbling infrastructure — which recently manifested in a monthlong series of nationwide blackouts — could also fuel more riots and crackdowns in poorer neighborhoods and, in turn, spur certain military commanders to split from the government.

But as it stands, what seems most certain is that Maduro's government is gearing up for a crackdown that could possibly result in Guaido's arrest or extradition. Absent a viable opposition figure to seize the presidency, Maduro's armed forces will be even less likely to leave his side. And as a result, the United States will find its path to removing the Venezuelan president largely blocked off — that is, barring direct military intervention

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Brazil and Colombia: Responses to the Venezuelan Crisis

As countries that share borders with Venezuela, Colombia and Brazil are most vulnerable to the fallout from the crisis.
By
Allison Fedirka -
May 9, 2019   
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Summary

Colombia and Brazil have adopted similar approaches to Venezuela and likely will continue to do so for the foreseeable future. Both countries have followed the United States’ lead in opposing the Maduro government but for different reasons. Their responses to the crisis stem from their individual interests and the geopolitical forces driving their behavior.

Venezuela has been mired in an economic and political crisis for years. Hyperinflation, corruption, oil sector mismanagement and plummeting energy exports have spelled disaster for the country’s economy. The U.S. has led the international response against President Nicolas Maduro, but two of Venezuela’s neighbors – Brazil and Colombia – have been critical partners in the campaign to remove Maduro from office. Their role in opposing his government stems from the fact that they are the most vulnerable to the mass migration and general instability resulting from the crisis. They have approached the issue in similar fashion so far, calling for Maduro’s removal but rejecting military intervention.

But what’s really driving their responses to the crisis? And why have they been among the region’s most vocal opponents of the Maduro government? Before we can answer these questions, we need a geopolitical basis for understanding South America’s place in the world and Brazil’s and Colombia’s most pressing geopolitical interests. South America is a region that gets little attention in geopolitical discussions, in part because the continent lies on the edge of the global system. It interacts with major geopolitical players but generally doesn’t drive major shifts, disruptions and developments. This doesn’t mean, however, that the basic rules of geopolitics aren’t at play in South America. In fact, they can help us identify the interests of neighboring countries and foreign powers in a country like Venezuela and, therefore, how they may respond to the unfolding crisis. Using models developed by some of the top geopolitical theorists, this Deep Dive will lay out a framework for understanding South America’s connection to the global system and the Brazilian and Colombian reactions to the upheaval in Venezuela.

South America’s Model Behavior

Geopolitically, South America is part of the periphery of the global system. Located in the Southern Hemisphere, which accounts for roughly one-third of the world’s landmass and one-tenth of its population, the continent is fairly removed from the rest of the world. It’s separated from the Eastern Hemisphere by the Pacific and Atlantic oceans and connected to Central America by a short 140-mile (225-kilometer) border between Colombia and Panama.

In analyzing the behavior of South American nations, there are two common pitfalls. First, many tend to dismiss events on the continent as unimportant based on the erroneous belief that the periphery doesn’t matter. Second, there is a tendency to overemphasize politics and political leaders and treat them as geopolitically relevant. To avoid these pitfalls, we need to look at how some of the founding fathers of geopolitical theory – Alfred Thayer Mahan, Halford Mackinder and Nicholas Spykman – framed South America in the global context.

As a former U.S. naval officer, Mahan believed that if a country could dominate the world’s oceans, it could dominate the world. This view served as the basis for the expansion of U.S. interests across the Western Hemisphere at the turn of the 20th century – which included the creation of a security perimeter that stretched into the Caribbean. The first step in this project was to reduce Spanish influence in the Caribbean so that the U.S. could emerge as the dominant power there, which was accomplished in part through the Spanish-American War. The second was to control the Isthmus of Panama, a strategic land bridge between the Caribbean Sea and Pacific Ocean. The U.S. supported construction of a canal at the isthmus, which opened in 1914, so that it could control transit between the Pacific and Atlantic oceans, a power that had enormous economic value.

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In contrast, English geographer Mackinder took a more European approach to geopolitics. He focused on land power rather than sea power as the determinant of a nation’s global status. Mackinder formulated the heartland theory, which defined the center of Eurasia as the world’s heartland and argued that the dominant global power would come from this region. Its coastal areas – much of Europe, the Middle East and East Asia – were seen as secondary powers and areas beyond Eurasia, including the entire Western Hemisphere, as largely irrelevant. Mackinder updated his model following the two world wars, elevating North America and the North Atlantic to a status almost equivalent to that of the heartland. South America, however, still played a minimal role in Mackinder’s updated model.

Spykman believed that Mackinder overemphasized the importance of the heartland and instead posited that the center of global power was in the rimland, the coastal areas around Eurasia. He viewed the Caribbean Sea and surrounding areas as the American Mediterranean because of their central location in the Western Hemisphere. He also believed that the dividing line between north and south in the Western Hemisphere was not the Isthmus of Panama but the northern edge of the Amazon. According to Spykman, then, the northern part of South America, including Colombia and Venezuela, was essentially part of North America and included in the American Mediterranean. He believed the U.S. needed to dominate the Caribbean to establish regional security and that the construction of the Panama Canal further increased the importance of the Caribbean and the Pacific Ocean in U.S. strategy. For Spykman, the U.S. faced few challenges in the Western Hemisphere, but any threat to its domination of the hemisphere come from the southern cone.

There are two important takeaways from these three models. First, the Caribbean, which includes the northern coast of South America, plays a key role in U.S. maritime security. This explains why the U.S. has intervened in Caribbean conflicts and why developments in South America can be critical to U.S. interests. Second, the northern nations of South America represent a borderland between North and South America. Conflicts and instability in this region threaten to draw in countries from both continents, and the Venezuelan crisis is one key example of this.

Brazil’s Territorial Integrity

Geographically, Brazil is defined by three key features: its large size, its natural boundaries and its north-south divide. Brazil is the fifth-largest country in the world by landmass and has long faced the challenge of filling and controlling that space. Portugal was forced to colonize northeast Brazil (rather than use it as a trading post) and move south for both security and economic reasons. Shortly after the Portuguese arrived in the Americas, other European powers followed. While it had an agreement with Spain on how to divide their respective territories, no such deal existed with the U.K., France and the Netherlands – all three of which challenged Portuguese claims in the New World. The colony also needed land, labor and resources. Portuguese pioneers therefore pushed west for land on which to grow sugar cane and to find indigenous populations for enslavement.

Natural geographic barriers, however, limited Portuguese expansion beyond Brazil’s current borders. But in terms of security, its geography actually worked in its favor. Natural barriers insulated the country from the rest of South America and protected it from external threats. In the north, the Amazon’s dense forest and vast size prevented major military incursions from Venezuela, Colombia and Peru. Farther south, the massive Pantanal swamp fortified borders with Bolivia and Paraguay. In the east, the Atlantic Ocean protected Brazil from outside powers. The one area of geographic vulnerability is its flat southern border, though Uruguay provides some strategic depth there as a buffer state.

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Brazil’s north-south divide is a result of its climate, unevenly distributed natural resources and river systems. The south, which has a more hospitable climate than the northeast, is the location of the country’s major population centers and the vast majority of its wealth. Its two major river systems – the Parana River and the Amazon River – split the country between north and south. The Amazon system passes through dense jungle and flows into the North Atlantic, while the Parana system generally flows south where it merges with the Rio de la Plata, though some of its tributaries flow directly into the South Atlantic. The two systems do not cross paths and have fostered their own economic and population centers with little connection between them.

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These geographic features play critical roles in the models developed by the pioneers of Brazilian geopolitical theory, Carlos de Meira Mattos, General Golbery do Couto e Silva and Therezinha de Castro, in the mid-20th century. All three theorists emphasized the importance of territorial integrity – which is most at risk in the sprawling Amazon basin – and Brazil’s control over the South Atlantic.

This is where the Venezuelan crisis could have implications for Brazil’s broader geopolitical imperatives. Venezuela is just north of the Amazon, one of the most poorly integrated regions of Brazil. In fact, Roraima state isn’t even connected to Brazil’s electrical grid and gets its power from Venezuela. If Venezuela’s political crisis leads to military conflict or foreign military intervention, it could result in foreign forces pushing against Brazil’s borders. Any spillover into Brazilian territory could destabilize the area and disrupt connections to ports, making it even harder to reach and control this region. In the past, Brazil has opposed foreign involvement in management of the Amazon and permitted development and mining projects there because the government wants to maintain control over the whole region that falls within Brazil’s borders. This strategy helps Brazil repress any potential internal rebellion and provides strategic depth should an attack or blockade be waged on coastal areas.

Venezuelan migrants fleeing the crisis are also a challenge for Brazil. The flow of migrants toward and across the Brazilian border risks creating a borderland between the two countries that could pull the outer reaches of Brazil further away from its core. Another concern is that migrants who settle along the Brazilian border will compete with Brazilians for resources and jobs. Thus, early relief efforts involved flying Venezuelan migrants to areas farther south and settling them in larger cities. Brazil is also wary of delivering foreign humanitarian aid to Venezuelans from Brazilian territory, concerned that it could invite other kinds of external involvement in regional affairs. Brazil has therefore refused to deliver humanitarian supplies from other countries (including the United States) to Venezuela, insisting on providing only its own support.

Trade is another issue. Brazil has direct access only to the Atlantic Ocean, but its top trade partner, China, is a country that can be reached by sea only through the Pacific. To access the Pacific, therefore, it depends on sea lanes that run past Venezuela and the Caribbean to the Panama Canal. Any potential disruptions in this route – as a result of a conflict in Venezuela or a blockade to further isolate Maduro – could have major implications for the Brazilian economy.

Colombia’s Geographic Constraints

Unlike Brazil, Colombia is a bicoastal nation, meaning it has access to both the Pacific and Atlantic oceans. But this status is not nearly as advantageous as one might expect. When the Panama Canal opened in 1914, it became the most important corridor between the Atlantic and Pacific oceans in the Western Hemisphere. Colombia never developed into a good alternative to the canal because its various mountain ranges dissect the country, making overland transportation between coasts difficult. In addition, the vast majority of Colombia’s exports and imports transit through the Atlantic Ocean, so Pacific ports and infrastructure have been relatively neglected.

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Colombia’s two defining geographic features are the Andes Mountains and the Magdalena River. The Andes comprise roughly half of Colombia’s territory. (The other half is composed of the Amazon and Orinoco basins.) Just beyond the country’s Atlantic and Pacific coastlines, three distinct ranges of the Andes run across the entire length of the country’s territory, stretching from Ecuador to Venezuela. The majority of its population resides in different mountain valleys, which are poorly connected by land. The Magdalena River, however, helps integrate these disjointed parts of the country. An estimated 70-80 percent of the population lives near this river or one of its tributaries. It also facilitates the transport of goods between the interior and the Caribbean port cities of Barranquilla and Cartagena, both of which are relatively close to the Venezuelan border.

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Colombia has several geographic constraints that are difficult to overcome despite the country’s strategic location. According to leading Colombian geopolitical thinker Julio Londono Paredes, it was South America’s general disjointedness and difficult terrain that gave North America a substantial power advantage over its southern neighbor. Londono Paredes believed the formation of five confederations including Gran Colombia – which united present-day Colombia, Venezuela and Ecuador into one entity from 1819 to 1831 – were necessary to ensure peace in South America.

But without such a union, Colombia remains weak in relation to other large Caribbean countries, particularly Mexico and Venezuela. Both countries have influence over the region in ways that Colombia does not. Mexico has historical ties to Central America (many Central American nations belonged to the same viceroy as Mexico during colonial times) and has used these links to help protect its interests on the western edge of the Caribbean. Venezuela’s islands in the southern Caribbean Sea give the country strategic depth and influence over sea lanes. Venezuela is also situated farther east along the Caribbean coast, giving it greater access to the sea and beyond.

Colombia has overcome some of these challenges by aligning with the United States on a number of issues, including how to handle Venezuela. The U.S. welcomes Colombia as a close ally in a region where it has had few in the past, and Colombia’s alignment with the U.S. gives it a boost in the regional power balance.

It’s an advantage Colombia needs given that it shares borders with five different countries and has three three-country borders. Colombia has had territorial disputes with each of its neighbors in the past, but tensions have run deepest with Venezuela, whose disputes over land and sea borders with Colombia have focused on resource-rich areas. The Venezuelan crisis threatens to reignite these tensions. Mass migration has forced Colombian authorities to dedicate more resources to border security, though thus far, it hasn’t prevented irregular crossings. For the most part, Colombia has welcomed the migrants, but it has also struggled to cope with the sheer number of Venezuelans, about 1.5 million in total, who have fled across the border. In fact, the influx has cost Colombia 0.5 percent of gross domestic product (or roughly $1.5 billion) per year, according to Colombian President Ivan Duque. Organized crime and drug trafficking are also concerns as groups involved in illicit activities operate more or less with impunity along the Colombia-Venezuela border, raising the possibility of military involvement from both sides. The country’s two major ports, Barranquilla and Cartagena, are close to the Venezuelan border, so any spillover violence or instability could disrupt some of Colombia’s most important trade hubs.

Considering all these variables, it makes sense that Colombia has taken the strongest stance against Maduro of any country in the region. It has joined the U.S. and several other nations, including Brazil, in recognizing opposition leader Juan Guaido as interim president. Bogota doesn’t want the crisis to escalate into a full-blown civil war, but unlike other countries in the region, it can’t completely rule out military intervention because of the history of border disputes between the two countries, as well as the risk that the violence might spill over into Colombian territory.

Colombia needs U.S. support to protect its interests. Brazil, on the other hand, doesn’t have that same dependency on the U.S. For now, however, both Brazil and Colombia will cooperate with U.S. efforts to orchestrate Maduro’s departure because it aligns with their own national interests.

Russia in Venezuela. Russia is withdrawing key defense advisers from Venezuela and Russian state defense contractor Rostec has cut its staff in Venezuela from 1,000 to just a few dozen, according to a Wall Street Journal report. The report also suggested that, after Rostec had completed construction of a helicopter training center in March, other projects such as the construction of a Kalashnikov production facility had been put on hold because the company doubted the Maduro government’s ability to pay up. Rostec told Interfax news agency on Monday that there was no truth to the report – that its presence in the country hadn’t changed. Russia’s ambassador to Venezuela also said the story was unfounded, telling RIA Novosti there had been no talk of backing out of commitments or cutting back Russian personnel. In the absence of reliable information either way, we would add that it would not make sense for Russia to withdraw in this manner now, especially considering the resilience the Maduro regime has exhibited in recent months.

Oct. 2, 2019


What Moscow Really Wants From Venezuela


Russia has both economic and domestic political reasons for supporting the Maduro government.


By Ekaterina Zolotova


Throughout Venezuela’s ongoing political crisis, Russia has been among its staunchest supporters. Last week, Venezuelan President Nicolas Maduro visited Russian President Vladimir Putin in Moscow, hoping for some reassurances of the Kremlin’s continued support for his administration amid the ongoing turmoil in his country and international pressure for him to step down. In September, the United States imposed new sanctions (against four shipping companies registered in Cyprus and Panama) aimed at stopping Venezuelan oil exports headed for Cuba. The U.S. also promised last week to provide the Venezuelan opposition with $52 million in aid. The European Union, meanwhile, introduced sanctions against seven members of the Venezuelan security and intelligence forces. Russia, however, hasn’t wavered in its support for Venezuela. Indeed, Moscow has not only foreign policy reasons to maintain strong relations with Caracas but domestic ones, too.
The two countries are long-time allies, but their ties peaked around 2012. Moscow considered Venezuela among its main strategic partners, provided generous loans and supplied a wide range of goods. Several Russian companies were involved in the development of Venezuelan oil fields, Russian-made KAMAZ trucks were in wide supply, and Russia participated in a pro-government housing construction program in Venezuela. But geopolitical tensions, as well as tough sanction policies against both Russia and Venezuela, significantly complicated Russia-Venezuela relations. High inflation and the risk of default in Venezuela also affected the willingness of Russian investors and exporters to do business with Venezuela and the ability of Venezuelan companies to sell their goods to foreign customers.
Nonetheless, the Kremlin has chosen to seek greater cooperation with Caracas for several reasons. First, from an economic perspective, Russia and Venezuela have much to gain from maintaining close ties. Both have large markets and production potential.


 

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Trade between the two has fluctuated over the years, however. When it comes to oil, Russian companies of course have an interest in Venezuela – the country, after all, has the largest oil reserves in the world, exceeding 300 billion barrels, according to OPEC. Some Russian oil companies have therefore invested in the Venezuelan energy sector. But in recent years, many Russian oil companies have left Venezuela, put off by the political uncertainty, security risks and general low quality of Venezuelan oil, not to mention the threat of sanctions. Yet a small group of companies, including Rosneft and Gazprom Neft, remains, despite U.S. threats to impose new penalties. In early September, for example, Washington said it was considering sanctions against Rosneft for its involvement in the Venezuelan oil sector; Rosneft, however, continues to purchase oil and develop fields in Venezuela.
Russia also sees Venezuela as a potential market for Russian wheat (wheat exports to Venezuela in 2018 increased by 33 percent year over year), mechanical engineering products and medical supplies. Such products could provide some relief from the scarcity issues plaguing Venezuela since the crisis began. For its part, Venezuela sees Russia as a potential buyer of its agricultural products. Russia already buys food products from other Latin American countries – these tend to be cheaper than Russian food products despite logistical costs and tariffs. In fact, Uruguay and Argentina account for 7 percent and 5 percent respectiely of Russian dairy imports. In addition, Argentina is the second-largest supplier of cheese to Russia after Belarus.
The Kremlin also has domestic political reasons for wanting to increase cooperation with Venezuela. It sees an opportunity to boost its approval rating by backing the Maduro government because Russian public opinion tends to be favorable toward Venezuela, and Latin America in general. A survey released in February by the Russian Public Opinion Research Center found that 57 percent of respondents were interested in current events in Venezuela. It also found that 20 percent of Russians see the deteriorating political and economic situation in Venezuela as a result of actions by other countries, particularly the United States. When it comes to the Venezuelan opposition and anti-government protesters, 15 percent said they felt indifferent, 12 percent felt distrust and 11 percent condemned them. Thus, if Moscow were to refuse to help Maduro, it might experience some backlash from the Russian public. Moreover, the amount of support Russia has provided – food supplies and a small number of troops for nonmilitary support – doesn’t carry a huge financial burden for Moscow anyway. Considering that it, too, has seen a recent wave of anti-government protests, it has been inclined to help Caracas in its time of need.


 

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In addition, Russia has an interest in increasing its presence in the Western Hemisphere, in the United States’ own backyard. It has done so primarily by getting close to Cuba – given its proximity to the U.S. – a country the Russian prime minister is scheduled to visit later this week for the first time since 2013. But maintaining strong relations with Venezuela could also help the Kremlin boost relations with Cuba. It has been difficult for Russia to gain a substantial foothold in Venezuela, partly because the U.S. would react strongly to any Russian military involvement in the country. For this reason, not to mention the expense and logistical requirements, it’s extremely unlikely that Russia would set up a military base in Venezuela, but it did send roughly 100 troops there in March, and a group of Russian military personnel arrived in Venezuela a week ago to carry out maintenance on Russian-made equipment.
Venezuela used to be one of the largest buyers of Russian weapons; it had purchased Russian tanks, Grad multiple rocket launchers, Pechora-2M missile systems, S-300 air defense systems and many others. But today, Venezuela is no longer considered a major market for Russian arms. In the past, these goods were purchased mainly using Russian loans, and Moscow can no longer rely on Caracas to pay back its debts given the state of its economy. Moscow too is short on funds and reluctant to offer loans it can’t be sure will be paid back. Thus, Russia’s defense-related activity in Venezuela today is limited mostly to fulfilling old contracts and maintaining assets that have already been delivered under previous agreements.
Russia has unquestionable long-term economic and geopolitical interests in Venezuela. But its ability to increase its presence there is limited, in part by its own economic obstacles, which include falling oil prices, reduced federal budget revenue and deteriorating living conditions for the Russian people. Still, Moscow will continue to make gestures of increased cooperation with an eye toward strengthening ties in the long term, not only because of the potential economic benefits but also because the Kremlin knows this is a popular policy position at home.

By Jessica Donati, Andrew Restuccia and Ian Talley
Jan. 27, 2020 10:22 am ET

The Trump administration’s bid to replace Venezuela’s authoritarian leader Nicolás Maduro hit a roadblock after a meeting with Russian officials in Rome last year—and has never recovered.

U.S. envoy Elliott Abrams arrived at the Westin Excelsior hotel hoping to persuade Russia to withdraw its support for Mr. Maduro and to recognize Juan Guaidó as Venezuela’s legitimate leader. Russian deputy foreign minister Sergei Ryabkov instead demanded the U.S. back down from military threats and lift the economic sanctions intended to force Mr. Maduro’s hand.


Venezuela’s Nicolás Maduro and Russian President Vladimir Putin in Moscow in September. PHOTO: SERGEI CHIRIKOV/AGENCE FRANCE-PRESSE/GETTY IMAGES

In the months that followed, the U.S. campaign spiraled into a foreign-policy debacle, thwarted by familiar adversaries, Russia and Cuba, as well as allies, Turkey and India—all countries that one way or another helped Venezuela sidestep U.S. sanctions, according to current and former U.S. officials and Venezuelan opposition activists. The European Union watched from the sidelines.


The Trump administration, confident Mr. Maduro would fall, didn’t foresee Russia leading the way for other countries to eclipse the sanctions. In turn, administration reluctance to impose sanctions on Russian enterprises and others kept Venezuela’s oil and gold flowing to buyers.

This month, in a sign of how much the opposition is floundering, Venezuela security forces blocked Mr. Guaidó from entering the National Assembly building, where he was seeking re-election as leader. Mr. Guaidó, in a blue suit, tried and failed to scale the spiked iron fence.

Russia now handles more than two-thirds of Venezuela’s crude oil, current and former administration officials said, including helping to conceal export destinations. The lifeline has helped Mr. Maduro slow the economy’s free fall, consolidate his grip on power and weaken the opposition.

Almost half of the $1.5 billion in Venezuelan crude exported to India in the nine months after the U.S. sanctions was purchased by an Indian joint venture with Russia’s oil giant, Rosneft, according to a Wall Street Journal analysis of data compiled by trade database Import Genius.

The United Arab Emirates has imported around $1 billion in gold from Venezuela since gold sanctions were imposed in late 2018, according to Venezuela trade records. U.S. intelligence officials say the actual amounts are far higher, based on evidence that Venezuelan gold is leaving the country masked as originating from Colombia, Uganda and elsewhere. The exports land in Turkey, the U.A.E. and other gold-trade hubs.

The Turkish Embassy in Washington denied any oil or gold trade with Venezuela that breached U.S. sanctions. “The allegations do not reflect the facts, and they are only speculative and hearsay,” a spokesman said.

The Russian Embassy in Washington declined to comment. It referred to past foreign-ministry statements criticizing the U.S. for interfering in Venezuela’s affairs. Officials from India and the U.A.E. didn’t respond to requests for comment.

Administration officials acknowledge President Trump’s frustration and say the White House continues to press for Mr. Maduro’s ouster. Mr. Trump, pointing to America’s superior economy and military, suggested in a recent interview with the Journal that the U.S. had the resources to outlast Mr. Maduro. “We have a lot of options,” the president said.

Yet with an election, impeachment and attention turned to the Middle East, Venezuela has for now moved to a back burner, an administration official said.

The stalemate allows Mr. Maduro to take a star turn as David to America’s Goliath. He makes speeches and appearances nearly every day to show he remains comfortably in charge. He chided Mr. Abrams and other U.S. officials, saying they misled Mr. Trump that a regime change would be easy.

“They’re trying to save their jobs because Trump is furious with the lies they’ve fed him on Venezuela,” Mr. Maduro said in a recent address. “They failed, and Venezuela triumphed.”

Mr. Maduro’s hold on the presidency has been costly for what was once Latin America’s most-prosperous economy. Hyperinflation, high infant mortality rates and a shortage of medical supplies contribute to the humanitarian crisis there. Food, electricity and water shortages have driven an exodus of 4.5 million people.

Mr. Abrams, the U.S. envoy, acknowledged this month that the yearlong U.S. effort to remove Mr. Maduro hit unexpected obstacles. “We underestimated the importance of the Cuban and Russian support for the regime,” he said. “The Russian role in the economy, particularly the oil economy, is larger and larger.”


Elliott Abrams, the U.S. envoy to Venezuela. PHOTO: ERIK S LESSER/EPA/SHUTTERSTOCK
Mr. Guaidó, in an interview, sounded a similar note. “I think we did underestimate things,” he said. He called on countries to help block gold exports from Venezuela. “You have to try to bring pressure on those who support the regime,” he said. “Sanctions today are the only real tool we have.”

Mr. Guaidó’s approval rating had fallen by more than 20 points to 38%, according to Venezuelan pollster Datanalisis. Allegations against opposition members, including accepting bribes from Maduro cronies, have eroded confidence.

Despite the setbacks, administration officials said there are no plans to abandon Mr. Guaidó. Vice President Mike Pence last month summoned senior administration officials to a meeting in the White House’s Situation Room. U.S. officials later hosted a conference with opposition leaders to try to reinvigorate them, people familiar with the gathering said.

Mr. Guaidó’s backers see Russia as their principal obstacle and want the U.S., Europe and other allies to take a harder line on sanctions loopholes.

“Russia in my view has become the most important partner of Maduro,” said Carlos Vecchio, the Venezuela ambassador to the U.S. for Mr. Guaidó. “A multilateral approach on sanctions is critical.”

The EU hasn’t introduced sanctions or prevented Maduro officials from traveling to the eurozone to raise money and support.


Charles Shapiro, a former U.S. ambassador to Venezuela who is now president of the nonpartisan think tank World Affairs Council of Atlanta, said the Trump administration’s predicament showed the difficulty of regime change without military force.

“And if you use military force,” he said, “there are all sorts of other problems.”

The U.S. has warned officials in Russia, Turkey, the U.A.E. and India about sanctions violations in private meetings, U.S. officials said, but hasn’t moved to blacklist companies or individuals suspected of breaking the sanctions.

Policy options have split the administration. Some officials believe sanctions on Russia’s oil firm Rosneft and other companies doing business with intermediaries could close loopholes that have allowed Mr. Maduro to survive.

Others say they could undermine U.S. interests elsewhere, including Iran. India agreed to stop importing Iranian crude as part of Washington’s pressure campaign against Tehran, but it continues to import Venezuelan oil. India pays for the deliveries in gasoline, a trade that the nation says doesn’t violate U.S. sanctions.

Secretary of State Mike Pompeo hasn’t ruled out negotiations with Mr. Maduro.

“We will continue to tweak our policy to get the strategy just right, but we’ve seen no evidence that Maduro is remotely interested in having free and fair elections,” Mr. Pompeo said recently about direct talks. “As far as our strategy, the tack we’ll take, I’m sure that will change over time.”

Long road
Mr. Guaidó, 36 years old, was virtually unknown in Mr. Trump’s circles before he came to Washington with a delegation in December 2018. Administration officials and opposition leaders made a plan to put Mr. Guaidó in charge, and Mr. Pence was given a central role.

Administration officials targeted Venezuela, in part to punish Cuba and win support among Cuban Americans, a potent Republican voting bloc in Florida. Republican Sen. Marco Rubio of Florida and Mauricio Claver Carone, the National Security Council’s head for Latin American affairs, had roles in forging Venezuela policy.


President Trump spoke about Venezuela during a visit to Florida International University in Miami last February. PHOTO: KEVIN LAMARQUE/REUTERS
Cuba provides Mr. Maduro with intelligence and security services, helping to minimize defections in his government, U.S. officials said.

When Mr. Guaidó declared himself interim president in a widely watched oath of office ceremony a year ago, the U.S. swiftly recognized him as Venezuela’s legitimate leader. Canada, Brazil, Argentina, Colombia, Chile, Peru and other South American countries followed. They supported Mr. Guaidó on the grounds that Mr. Maduro’s election to a second six-year term was a sham.

Two days after Mr. Guaidó’s oath, Mr. Abrams was appointed as the top envoy to Venezuela. He was given one job: Remove Nicolás Maduro.

Mr. Abrams rattled some at the State Department, in part for his involvement in the Iran-Contra affair, a covert operation in the mid-1980s to sell weapons to Iran and use the proceeds to arm rebels in Nicaragua.

Some career State Department staff feared that any heavy-handed U.S. intervention would derail Mr. Guaidó’s popular support, while political appointees questioned Mr. Abrams’s support of Mr. Trump.

In March, Mr. Abrams met with the Russian deputy foreign minister in Rome. After Russia refused to back Mr. Guaidó, the U.S. envoy promised more sanctions and possible military action. After this article was published, Mr. Abrams said: “I and all the others in the U.S. party had very low expectations of what could come from the meeting.”

The realization that regime change wouldn’t be easy came in April. The opposition planned to have Venezuela’s top court recognize the National Assembly, headed by Mr. Guaidó, as the legitimate representative of the Venezuelan people. That would give the country’s armed forces legal grounds to abandon Mr. Maduro.

Guaidó supporters expected high-ranking Maduro officials to announce they were switching sides. The plan flopped, and White House frustrations erupted.

In May, secret talks brokered by Norway opened in Barbados between Mr. Maduro and the opposition, which called for fair elections. In August, Mr. Maduro quit the talks.


Mr. Trump met with Fabiana Rosales, the wife of Juan Guaidó, at the White House in March. PHOTO: WIN MCNAMEE/GETTY IMAGES
Looking back, the U.S. campaign originated with unrealistic expectations, current and former U.S. officials and Venezuelan opposition activists said.

“There was a firm belief, and briefed to the president, that all that had to be done was to recognize Guaidó, and Maduro would fall,” said Fernando Cutz, a former White House National Security Council official during the Trump and Obama administrations who was involved in U.S.-Venezuela policy.

The administration’s call for the Venezuelan military to defect and support Mr. Guaidó was wishful thinking, said Michael Shifter, president of the Inter-American Dialogue, a nonpartisan think tank: “The last thing the military are going to do is follow orders from a foreign power, especially the U.S.”

Mr. Trump complained to aides and allies that he was led to believe Mr. Maduro would be removed quickly, people familiar with the matter said.

The president directed much of his anger at national security adviser John Bolton, those people said, adding that those frustrations contributed to Mr. Bolton’s ouster in September.

Helping hand
With Russia’s help, Venezuelan oil output could return to 1 million barrels a day from a low of 650,000 to 700,000 barrels, Rapidan Energy Group, a geopolitical risk consulting firm, said in December. Rosneft is helping Petróleos de Venezuela SA, the state oil company, pay for overdue maintenance and the hiring of foreign experts, according to the group.

Russia has provided Venezuela more than $300 million in currency over the past 18 months—dollars and euros that have become more scarce under the sanctions, according to the Journal analysis of data from Import Genius.

Mr. Abrams said he still believed sanctions will work. “The situation of the regime is untenable and many people in the regime clearly know it,’ he said. “They would not keep sending their money, their wives, their children, and their mistresses out of the country if they thought it was stabilizing.”

Cynthia Arnson, director of the Latin American program at the Woodrow Wilson International Center for Scholars, said the standoff this month at the National Assembly underscored the opposition’s weakened state.

“At the same time,” she said, “the [Maduro] government has no real options for ending the economic, humanitarian and legitimacy crises that it faces.”

The issue surfaced at a Trump re-election event this month in Florida, a battleground state with the largest population of Venezuelans in the U.S. Some of Mr. Trump’s supporters in Florida have voiced frustration that Mr. Maduro remained in power.

Commerce Secretary Wilbur Ross, speaking informally to a small group at the event, said the administration had expected the leadership change to happen faster, and that some officials sought more aggressive efforts, according to a person familiar with conversation.

A spokesman for Mr. Ross declined to comment on the meeting but said the administration is looking at all options. “The U.S. is 100% behind Guaidó,” Mr. Ross said Thursday in a TV interview.

—José de Córdoba, Alex Leary, Kejal Vyas and Vivian Salama contributed to this article.

February 7, 2020   View On Website
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    ‘Wild Capitalism’ in Venezuela
By: Allison Fedirka

In a development that would have been unheard of just a few years ago, the government in Caracas is slowly and quietly loosening its control over the Venezuelan economy. Markets are opening, regulations are being relaxed, and foreign countries are participating in its flailing state oil company. Various Venezuelan media have dubbed this unexpected period of transition “wild capitalism” and “chaotic capitalism,” but whichever name sticks, the strategy of the government is clear: adapt or die. It’s a fairly pragmatic response to the actions of the U.S., which hoped that economic pressure, widespread public protests and international support would bring an end to the Maduro administration. Instead, Caracas has simply become more creative and resourceful as it seeks to remain in power – this time by integrating its informal economy with its formal one.

Economic Pressure

For nearly 20 years, the United States has opposed the Venezuelan government on political and security grounds. But Washington grew more impatient as the Venezuelan economy tanked, thanks largely to low oil prices, high social welfare spending and economic mismanagement. The social instability that followed was a perfect opportunity for the U.S. to tackle what it saw as a security threat head on to try to facilitate regime change. It employed a strategy of heavy economic pressure for three reasons. First, U.S. military intervention in Latin America is risky, unpopular and historically counterproductive.

Second, the strategy corresponds with a broader shift in national strategy away from military action as the force to bring about change. Third, the U.S. is the largest economy in the world and formerly Venezuela’s single biggest customer, so changes in trade patterns would disrupt the Venezuelan economy.

Initially, things went according to plan. Increasingly heavy sanctions aggravated the underlying weaknesses of the country’s economy. Working conditions and quality of life went from bad to worse for the vast majority of Venezuelans as hyperinflation, power outages and food shortages became commonplace. The economy has contracted for the past six years, losing roughly two-thirds of its gross domestic product from 2013 to 2019, according to the International Monetary Fund. Projections for 2020 remain bleak as GDP is expected to contract by another 10 percent.

Emigration – particularly among oil industry experts – was a problem even during the Chavez administration, but economic decay over the past two years has accelerated the trend. As of this year, an estimated 4.7 million people – out of a population of 28.4 million – have fled the country.
 
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Washington also enacted a political strategy of supporting Maduro’s enemies to capitalize on public discontent and usher in a new government, culminating with Juan Guaido, the president of the opposition-led National Assembly, declaring himself the president in 2019. For a brief moment, it seemed that pressures were aligning such that the U.S. would deliver the intended results.

Except it didn’t. Economic restrictions and lack of availability of goods expanded a robust parallel market that became essential for procurement of basic public goods. Before the U.S. levied its sanctions, economic hardship taught Venezuelans the value of acquiring and saving strong foreign currency, namely the U.S. dollar. Those who could established bank accounts in the U.S. Meanwhile, early expatriate Venezuelans, many of whom were educated and/or wealthy enough to find work abroad, provided a steady flow of U.S. dollars directly to their fellow Venezuelans. Indeed, remittances to Venezuela have risen sharply since 2016, totaling an estimated $3.7 billion-$4 billion in 2019, according to Ecoanalisis. (The increase owes to both the number of transactions and value of transactions.) According to a Consultores 21 survey, some 40 percent of the population has received remittances at some point in time and another 32 percent receive remittances on a regular basis. When government restrictions made it harder to get or use U.S. dollars, more informal or electronic means were employed to get dollars into the country. This rendered the local bolivar essentially worthless as bartering and foreign currencies have become the preferred choice for commercial transactions.

 
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Rather than fight the dollarization of the economy, the Maduro government embraced it. It relented on some currency controls and allowed a freer circulation of dollars because doing so would help to normalize the economy. After all, a recent Ecoanalitica report estimated that over half of the country’s transactions occur in U.S. dollars and that there are likely more dollars circulating in the country than bolivares. Changes in fiscal policy now allow for some purchases of foreign currency with a 25 percent value-added tax. This allows for fees and goods to be purchased and sold in foreign currency on a larger scale, making them more accessible to those with foreign currency. Businesses have also resorted to dollar-denominated transactions. Over the past few months, banks have begun to offer custodial services for holding billions of U.S. dollars and euros in cash for businesses that want to avoid ties with the government and thus evade sanctions. This may not be much help to those without access to dollars, but it has lowered inflation in the dollar-denominated economy while giving more access to more people for basic goods.

The Maduro government has eased off other areas of the economy too. It has let imports in and lifted restrictions on certain exports. Goods can now be shipped out of Cabello Port in Carabobo without the requisite red tape. Price controls have also been lifted on many goods, and companies have been allowed to invest what small funds they have.

But the most notable changes pertain to state-run oil company PDVSA. The lack of funds to repair dilapidated equipment, improve production and support business operations like refining has led PDVSA to look for support from foreign oil players, particularly Rosneft, to conduct its business. The government is also in talks with Spain’s Repsol and Italy’s ENI on how to partner or take a share in the company in exchange for capital and assistance in a scheme of virtual privatization.

Saving Face

All these measures demand a certain political flexibility to mitigate whatever risks they could pose, considering they fly in the face of Maduro’s previous policies. By allowing for reform, he has tacitly admitted that those policies have failed.

Caracas has made sure to sell the changes without losing face. In some cases it downplayed them. In others, such as dollarizing the economy, it simply passively allowed it to happen. The government has also attempted to employ traditional revolutionary rhetoric when publicly speaking of the changes, framing them as measures necessary to help the poor in Venezuela and respond to economic attacks. (The regime’s roots are buried deep in Hugo Chavez’s legacy; echoing him lends Maduro some legitimacy.)

Still, Venezuela is long past the point where it can downplay or ignore its plight. When Maduro opened the judiciary session this year, he acknowledged that the U.S. isn’t entirely to blame for everything wrong in the country – a pretty significant rhetorical departure for him – adding that more work was needed to transform the country. He received a standing ovation.

But Maduro still has to tread carefully. He shares a delicate balance of power with Diosdado Cabello, the head of the Constituent Assembly (the pro-government legislature) and current #2 in the governing PSUV party, and Vladimir Padrino Lopez, the minister of defense. (Economic liberalization would be particularly galling to a dyed-in-the-wool Chavista such as Cabello.) There are also two competing legislatures that would be involved in whatever economic change is made into law.

Which is to say that Maduro’s hold on power is still precarious. “Wild capitalism” hasn’t solved any problems – things are still very expensive, and not everyone benefits from access to foreign currency – and Maduro risks alienating his supporters by seemingly turning his back on the legacy of Chavismo. This means he is still vulnerable to losing power and opening a path for a more moderate Chavista to step in, rather than someone like Guaido who marked a complete departure from the regime. This is the opposite of what the U.S. had in mind.   

•   On March 28, Russian state oil company Rosneft announced the end of its operations in Venezuela. The company said it will receive a liquidation payment worth 9.6 percent of its capital.

In Venezuela, the U.S. Offers Sanctions Relief for a Power-Sharing Deal
4 MINS READ
Apr 1, 2020 | 17:46 GMT
HIGHLIGHTS
In a notable shift from its hardline anti-Maduro rhetoric, Washington has called on both sides of Venezuela's political battle to step aside for a new transitional government and free elections....

The Big Picture

The U.S. State Department has called on both sides of Venezuela’s ongoing political battle to stand down and make way for a new transitional government and democratic elections, marking a notable shift from Washington’s more hardline, pro-opposition rhetoric. But the United States' primary goal of undermining elite support for President Nicolas Maduro nonetheless remains in place.

See Venezuela's Unraveling

What Happened

To break Venezuela’s ongoing political stalemate, U.S. Secretary of State Mike Pompeo announced a plan on March 31 that outlines a path to a power-sharing framework and free elections in exchange for the potential removal of U.S. sanctions. Dubbed the "Democratic Transition Framework," the proposal specifically calls for both President Nicolas Maduro and U.S.-backed opposition leader Juan Guaido to step aside for the formation of a new “inclusive transitional government acceptable to the major factions” without either leader. Elected by the country’s opposition-controlled National Assembly, this transitional government would remain in power until it oversees free elections, ideally held in six to 12 months.

To put the plan into motion, the United States has offered the quick removal of sanctions on individuals who resign from their posts within the Maduro regime. The removal of broader U.S. sanctions on Venezuela’s oil industry and state-owned energy company Petroleos de Venezuela (PDVSA), however, are contingent on Maduro himself leaving office, as well as the withdrawal of all Cuban and Russian forces currently deployed in the country. In a separate statement, the U.S. Special Representative for Venezuela, Elliot Abrams, notably added that the proposal does not have a mechanism to reject the U.S. Department of Justice’s recently announced indictment of Maduro and other Venezuelan officials over so-called "narco-terrorism" charges.

Why It Matters

The fact that the new proposal is less overtly Guido-centeric marks a notable shift in tone for the United States, and could indicate that Washington has concluded that its former hardline rhetoric against the Maduro regime has failed to quickly oust the leader from office as intended. But the core of the White House’s strategy in Venezuela is still the same — that is, driving a wedge between Maduro and his loyalists in both the United Socialist Party and the military so that they eventually turn on the leader in some fashion. The U.S.-led push to oust Maduro was always going to inherently require a transitional government; this plan just formally plots the course to reach that end.

However, Washington’s move to indict a number of Maduro’s allies less than a week ago — and that the newly proposed transition plan does not include dropping those charges — could backfire on this goal by hardening solidarity among the regime’s top indicted officials who now all find themselves in the same boat. It will thus be critical to monitor whether non-indicted officials begin to come out against Maduro in response to the new U.S. plan, and if those who do have enough political sway to encourage other officials to follow suit.

While the proposed power-sharing deal marks a notable shift in tone, Washington's primary goal of undermining elite support for President Nicolas Maduro nonetheless remains the same.

There’s also a chance Maduro would still be eligible to run in the new elections: While Pompeo stressed Maduro would "never again" rule Venezuela in his statement, Abrams also noted that he could "theoretically run." Indeed, there is significant concern among Venezuela hawks in the United States that the new proposal could effectively pull the rug out from Guaido’s feet, and it remains unclear whether there's a different opposition figure who could replace him to challenge Maduro.

What’s Next

The U.S. offer for a transition will entice some non-indicted officials to turn against Maduro, but those pathways have always been there. So far this year, Maduro’s security forces also have continued to successfully block attempts by Guaido’s opposition movement to access the National Assembly building. Stratfor thus maintains its assessment that Maduro’s government will remain in power through the end of 2020, despite the mounting financial strain brought on by U.S. sanctions, the collapse in oil production and now coronavirus-related drops in global oil prices and demand. The more likely timetable for those fissures to metastasize into pushing out Maduro is 2021 or 2022, with the long-term health of Venezuela’s oil industry and oil prices still the most important force that could eventually result in a government transition.

   
    Rosneft Leaves Venezuela
By: GPF Staff
 
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Russian oil company Rosneft announced last week that it would cease all its operations in Venezuela. The decision was not a surprise; the U.S. had imposed sanctions against two Rosneft subsidiaries – TNK Trading International and Rosneft Trading – for continuing to buy oil from Venezuela despite sanctions against such purchases. The move could, however, negatively affect the company's image as well as its performance. Moscow remains heavily dependent on oil sales, and the recent fluctuations in oil prices have hit the country's finances hard.

But Russia isn't leaving Venezuela completely. Rosneft's Venezuelan assets have been sold to a Russian state-owned company, which will acquire shares in the Petromonagas, Petroperija, Boqueron, Petromiranda and Petrovictoria oil fields as well as Rosneft's trading operations. Venezuela is one of Russia's few remaining partners in Latin America, so Moscow was prepared to buy up Rosneft's assets to help support the Maduro regime. Moscow also owns a 49.9 percent stake in U.S.-based Citgo, giving it some leverage in future talks with Washington.   

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    Why Venezuela's Maduro Isn’t Worse Off Than He Is
By: Allison Fedirka

The past few months have been a nightmare for economies that rely on oil. After the coronavirus pandemic sent prices plummeting, finance ministries had to triage planned revenue, major social and infrastructure projects were put on hold or aborted altogether, and the public started to lose its temper. All available evidence would suggest that oil-dependent Venezuela is, once again, on the brink of collapse. Yet President Nicolas Maduro finds himself in a comparatively stronger position now than when oil prices collapsed in early March. Since then, he has managed to navigate through extensive U.S. actions meant to cripple the Venezuelan economy and has weathered three key external events — the pandemic, the oil crash and a farcical coup attempt involving two Americans — maintaining his power however precariously.

Venezuela is strategically important to the U.S., at least within the parameters of hemispheric security and control of the Caribbean Sea, and it’s no secret that the Trump administration would like to see Maduro fall. Hence Washington’s general low-cost, low-effort policy of slowly tightening an economic vise around the country, which keeps its interests in play while waiting for the Maduro government to self-destruct or for the opposition to take over. The fall of the price of oil, however, gave Washington an opportunity to pitch new transition talks to Maduro and his opponents. On March 31, the U.S. State Department issued its proposed Democratic Transition Framework for Venezuela, in which it offered to begin lifting parts of the sanctions if members of Maduro’s United Socialist Party of Venezuela formed an interim government without Maduro to transition to new elections. Unsurprisingly, Maduro publicly rejected the plan.

He could afford to. Low oil prices didn’t damage the Venezuelan economy as badly as expected. Mostly that’s because the economy, particularly its hydrocarbon sector, was already in ruins. Food shortages have been rampant since at least 2012, the currency been in a state of hyperinflation since 2016, power shortages occur regularly and many citizens depend on the black market for survival. U.S. sanctions targeting high-level politicians and key business activities made things only worse. Oil production has been in decline since 2016 and has fallen dramatically since 2018. Most of the oil Venezuela does produce is sold at a discount and used to pay off debts or for domestic consumption. These problems were such that the drop in oil prices hurt the economy but not as badly as the drop hurt healthier economies.
 
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When it became clear the transition proposal was dead on arrival, the Trump administration called on Chevron, the only U.S. oil company still operating in Venezuela, to leave or give up its shares in its operations. It was meant to be retaliatory but in fact did little to hurt Maduro. Chevron produced only 34,000 barrels per day in 2019 — a drop in the bucket for a country that produces under 1 million bpd (and falling) in a bad year — and so it made sense for it to halt operations, which it did. However, Chevron kept its shares in joint ventures with state-run oil company Petroleos de Venezuela, meaning the company will keep its foot in the door in Venezuela, which has been the company’s only purpose in the country for the past couple of years. The truth is that the Chevron decision did little to undercut Maduro or hurt the Venezuelan oil sector writ large.
 
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The biggest danger to Venezuela is the price of domestic duel, which skyrocketed around the same time prices fell as supplies ran low. The shortages are due primarily to poor refining capacity. At the beginning of 2015, Venezuela refined 915,000 bpd of crude. By the start of 2020, it was refining just 135,000 bpd. Now, refining has never been Venezuela’s strong suit; it generally relied on U.S. facilities. But low gasoline prices were a fixture of Venezuela for decades, and raising the price is politically dangerous.

Thus Venezuela turned to Iran, a country with lots of experience and little to lose from angering the United States. In exchange for about $900 million worth of gold, Iran sent input chemicals for refining, pledged help to repair refineries and dispatched five tankers to delivery emergency fuel to Venezuela. That is a hefty sum of money for a country with few reserves, but solving the fuel crisis is necessary for Maduro to remain in power.

There are two other factors that explain why Maduro is relatively safe behind his heightened security. The first and most obvious is that the coronavirus pandemic discouraged people from protesting in public, and gave the military an excuse to patrol the streets and take control of the distribution of health equipment and food. The second was the May 3 “coup attempt,” if you can call it that. Dozens of people — including two Americans — launched an amphibious assault, only to be immediately snuffed out by authorities. The incursion was never a real threat to Maduro’s power, but since the alleged orchestrator was an American mercenary with a company based in Florida, Maduro had more than enough reason to publicly villainize the U.S., increase security even more and portray the government from a position of strength. Most important, it gave Caracas two U.S. prisoners who can be used in future negotiations.

The U.S. is in no rush to re-engage Venezuela. It’s written off Juan Guaido, the so-called other president of Venezuela who failed to serve his purpose of ushering in a new government. Washington is content to wait until it can capitalize on its reconstruction once there is a new government in place. Reconstruction comes down to who has the most money to pour into Venezuela, and to no surprise the U.S. was for the past few months the most well-suited to do so. Now, with low oil prices, a global recession and record-level unemployment in the U.S., Washington has no will and limited ability to fund Venezuela's reconstruction.

And so Maduro occupies his post relatively uncontested for now. The economy is still a mess, but time seems again to be on his side.   






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