Venezuela: Russian Respite
After unveiling a Russian-made statue of Hugo Chavez in the late President’s hometown in October 2016, Igor Sechin, Russian official and CEO of state-owned Russian oil firm Rosneft, addressed both Venezuelan state television and the crowds of supporters, “thank you for trusting us […] Russia and Venezuela, together forever!”
A gesture of good will perhaps, of loyalty to past alliances, but with the recent situation in Venezuela worsening and international powers calling for democracy and the safeguarding of citizens, is there more behind this ceremony that met the eye last October? If we look to uncover the meaning behind what Sechin told the crowds about Russian involvement, Venezuelan trust and a ‘forever’ partnership. perhaps such a ceremony should have been met with a sense of foreboding.
A few months later, Venezuelan President Nicolas Maduro ordered his loyalist Supreme Court to take over the powers of the opposition-controlled National Assembly — effectively removing their power of veto and ultimately, amongst other things, giving Maduro the sole power to auction off the country’s vast natural resources. After months of violent civil unrest, Maduro’s government became increasingly authoritarian and the country spiralled out of control, with rates of poverty, corruption and crime soaring.
But what does have to do with Russia? Decidedly, Russian influence in Venezuela’s current crisis is growing increasingly more significant, particularly when focusing upon Venezuela’s oil-based economy and its consequent impact on political and social spheres.
Interestingly, Russia’s involvement in Venezuela can be traced back to 2006 in a $4 billion arms-for-oil deal between the governments of late Hugo Chavez and Vladimir Putin. After being infamously shunned by the United States, Chavez instead bought Russian fighter jets, helicopters, tanks and guns. More specifically, and importantly to Venezuela’s current situation, this deal eventually ran through the countries’ two state-owned oil firms, Russia’s Rosneft and Venezuela’s PDVSA, as Venezuela paid for a portion of the deal using its oil exports.
Today, as Venezuela’s unraveling socialist government faces severe crisis across political, social and economic spheres, Maduro increasingly depends on Russia for the cash and credit Venezuela needs to survive, offering further state-owned oil assets in return. As Venezuela spiralled deeper into debt, Maduro used oil as trading currency because Venezuela’s national currency, the Bolivar, became increasingly worthless due to the rapid inflation (which is forecasted by the International Monetary Fund to top 800% this year, and increase into 900% in 2018).
As an opportunistic response, Russia is manoeuvring itself intelligently in this situation. Through acting as Venezuela’s last resort, Russia’s state-owned oil firm Rosneft is quickly gaining control over the OPEC nation’s oilfields (the largest in the world) and a growing share of its crude exports. To this extent, Rosneft now owns substantial portions in 9 of major Venezuelan oil projects, including five in Venezuela’s largest oil producing region, the Orinoco, three in its second-largest and oldest producing area, Maracaibo Lake, and a shallow-water oil project in the Paria Gulf. Additionally, Russia’s growing control over Venezuelan oil reserves has given it a much stronger foothold in energy markets across the Americas — indeed, Rosneft has now positioned itself as a middleman in sales of Venezuelan oil to customers worldwide. Rosneft now resells about 225,000 barrels per day of Venezuelan oil, which constitutes roughly 13% of the nation’s total exports.
Whilst Maduro uses these deals to boast that Russia’s investment in its oil industry shows confidence in PDVSA’s financial stability and the nation’s business opportunities, many opposing the current Venezuelan government claim that Russia is acting like a predator, especially as most other countries have now withdrawn further investment from such a precarious situation.
Tellingly, Venezuela accepts these deals as a as a last resort. These payments are choking the cash flow from Venezuela’s oil industry and creating the need for even more loans, which solely entrap the country deeper in crisis. Rosneft has been crucial in helping the financially strapped Venezuelan government avoid defaulting — however, Venezuela’s downward spiral has put Rosneft in a position to acquire Venezuelan oil assets at a substantial discount, which is something that will certainly taint Venezuela’s economic recovery in future.
Whilst we are now seeing the impact of Chavez’s reckless attitude, historic mismanagement and outright dependency of their vast, rich resources that have caused such a situation to occur. Whilst Russia is opportunistically expanding upon this crisis, it is only able to do so through an industry left wide open by the Venezuelan government. In the future, when Venezuela hits further crises, the impact of Maduro’s futile decisions and temporary solutions will become even more evident.
