The Venezuela Crisis: Drifting on Oil

On January 10, 2019, Nicholas Maduro started his new yet controversial six-year term of presidency; then, on January 23, Juan Guaido, who claimed that he did not recognize the legitimacy of the President, received support from the Parliament. The main goal of Guaido and his supporters is to deny the results of the 2018 Election and start a re-election.

Shortly after Guaido’s announcement, US President Donald Trump formally recognized Guaido and praised his plan of re-elections. In the following time, Canada, Brazil, Colombia, and some EU countries have also sent recognition and support to Guaido. Why was there such a political turmoil in Venezuela, the former richest country in South America with abundant oil reserves? Why are the other South American countries unwilling to support Maduro?

The Biggest Problem: The Economy

According to the International Monetary Fund (IMF), the average price level of Venezuela in 2018 is 13,000 times higher than the previous year, and it is more likely to deteriorate to 100,000 times this year. The reason why the economy came to such a situation, in addition to the global oil price decline in previous years, is that the US economic sanctions have greatly affected the Venezuelan export. Maduro’s socialist government, with its acts of printing money and nationalizing enterprises, led the country to hyperinflation and a humanitarian crisis. Experts pointed out that the problem in Venezuela is not socialism, but a series of false policy: those who are in power are the real destroyers of the economy.

The crisis has caused a massive problem for the sorrounding areas. Since Chavez’s presidency until the beginning of 2018, about 4 million Venezuelans have left the country. Although not all immigrants need economic relief from local governments, such a vast population influx is a severe economic and social security issue for any country. As a result, many South American countries stand in line with the US and support Guaido, leaving only Bolivia, Cuba and other left-leaning governments still support Maduro. Although countries like Brazil and Argentina have “turned to the right” in recent years, such a vast population influx is a severe economic and social security issue for any country and thus causing a change in their attitudes.

The Economic Crisis: Oil as a Main Cause?

Venezuela has the world’s largest oil reserves, but after Chavez’s adopted socialism, there is no significant domestic industrial development. According to data from the Organization of Petroleum Exporting Countries (OPEC), 98% of Venezuelan export trade is oil, which is even more imbalanced than Saudi Arabia, the world’s number one oil producer.

As a result of the excessive dependence on a single industry, Venezuela is unable to cope with price fluctuations and recover from the crisis when global oil prices fell in the past few years. Even with the stabilization of oil prices, the oil production of the country is still difficult to increase under such political instability and lack of materials. According to the data of OPEC, the daily output of the commissioned oil was 1.148 million barrels, which was only one-third of the heyday production. In the absence of income from other active industries, the economy is now in a vicious circle. There are some consolations for the world, too. Considering the low output and market share, the political situation in Venezuela, has not caused considerable fluctuations in international oil prices.

Sino-Russian Support: On the Cusp of Power Competition?

In this incident of domestic economic turmoil and the struggles of national powers, China and Russia once again stood on the opposite of the US and expressed their support for Maduro.

Since the beginning of the 21st century, China has invested heavily in Latin America, providing a total of 150 billion U.S. dollars in loans or direct investments. Among them, Venezuela alone receives 62 billion US dollars. The mode of “cooperation” between Venezuela and China is exchanging loans for oil. However, considering the country’s oil supply has been unstable in recent years, the economic risks increase for China as Venezuelan borrowings increase. On the other hand, the opposition committed that it would respect the economic cooperation agreements reached between the two countries during Maduro’s period, so China’s attitude in supporting Maduro is subtle and not the same as Russia’s. As the first man-in-power to support Maduro, Putin’s position mainly bases on political considerations: Russia’s direct investment in Venezuela is 17 billion U.S. dollars, much smaller than China’s.

Therefore, China and Russia have different motives for supporting Venezuela: China focuses more on the economy, while Russia has its eyes on geopolitical concerns. The Venezuelan crisis has its uniqueness and is not a game for big powers.

Conclusion

Even if Maduro is willing to sit down with the opposition, the future of Venezuela remains unclear. As long as the military still supports Maduro, the current stalemate, as well as the humanitarian crisis, will continue. And if the Sino-Russian-supported Maduro is willing to exchange reform of the Venezuelan government for economic aid, or the government is willing to accept the negotiation options proposed by the EU, the whole country may be saved. However, if the military rebels and sets up another government, there will be further violence, and Venezuela’s tomorrow will be even more gloomy.

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