Author chairs the Policy Institute at King’s College London
There have been enough false dawns in Venezuela to deter any confident prediction, but a series of developments – all related to energy – suggest that 2020 could be the year when regime change could actually occur and the country could begin to resume its role at the heart of the global energy market.
The state of the country could hardly be worse. In January, oil production was 733,000 barrels per day, more than 2 million barrels per day below the peak of nearly 3 million barrels per day reached in 2002. Petroleum exports, which supply 99% of export earnings, decreased by a third last year. Falling incomes produced the kind of poverty that was barely imaginable in what was once one of the region’s wealthiest economies.
In a survey published in late February, the World Food Program reported that nearly one in five Venezuelan households live at levels of food consumption that are too low.
Inflation is estimated at 6,567% in 2019 and, according to the UNHCR, some 4,000 to 5,000 Venezuelans leave the country every day.
The magnitude of these problems may increase, but they are not new and so far they have failed to bring about a change of government. A year ago, the attempt by Juan Guaidó, president of the National Assembly controlled by the opposition, failed despite the support of the governments of the United States, Canada, the United Kingdom and other European countries.
President Nicolás Maduro remains in power with the support of the country’s military leaders. He said in January that he would increase oil production to 2 million bpd this year, a statement that sparked a strong reaction from the United States. Even tougher sanctions, combined with the sharp drop in the price of oil due to the coronavirus, are expected to lead to a drop in production this year, putting intense pressure on the Maduro regime.
US sanctions have reduced export earnings, but so far have not been tough enough to completely shut down the oil trade through the participation of companies like Rosneft and, until the end of the year last, the state-owned China National Petroleum Corporation. President Donald Trump has now extended sanctions to Rosneft and is expected to include his Swiss subsidiary TNK Trading in the near future. In recent days, Indian companies – including Reliance – which had been large buyers of Venezuelan crude oil, said their purchases would stop.
Selling oil, even at sharply reduced prices, will become more difficult. Chevron is the last major U.S. oil company to operate in Venezuela, and its exemption from sanctions has so far been repeatedly extended by the U.S. government. But if the exemption were removed, it would be the next tightening of the screw – the company has been present in the country for almost 100 years.
If Mr. Trump decides that the waivers will end in May, Chevron says that in his absence, Venezuelan supplies would be managed by Russian or Chinese companies.
However. Chevron’s departure would expose the shortage of skilled workers in PDVSA, which has experienced an exodus of qualified professional staff over the past decade. Maduro’s aspiration to increase production is based on the continued presence of American society and the involvement of other Russian or Chinese groups.
Venezuela remains a strategic asset for Russia, but Rosneft, with its international reach and western minority shareholders, may be more reluctant to violate US sanctions. Venezuela’s debts to Rosneft have been largely paid off by the oil trade and now represent only $ 800 million on some $ 6.5 billion in loans.
For now, at least China’s oil needs are reduced due to its economic problems, and in any case Chinese support for the Maduro regime has weakened.
Beyond these factors, the biggest force for change in Venezuela will be the price of oil. With a global supply surplus and further cuts to the Opec, Venezuelan oil is no longer needed on the market. Without substantial export earnings, the Caracas government is unlikely to be able to provide the investments necessary to maintain current production, let alone achieve Mr. Maduro’s goal. Even the most authoritarian regimes cannot survive without income.
Author chairs the Policy Institute at King’s College London
There have been enough false dawns in Venezuela to deter any confident prediction, but a series of developments – all related to energy – suggest that 2020 could be the year when regime change could actually occur and the country could begin to resume its role at the heart of the global energy market.
The state of the country could hardly be worse. In January, oil production was 733,000 barrels per day, more than 2 million barrels per day below the peak of nearly 3 million barrels per day reached in 2002. Petroleum exports, which supply 99% of export earnings, decreased by a third last year. Falling incomes produced the kind of poverty that was barely imaginable in what was once one of the region’s wealthiest economies.
In a survey published in late February, the World Food Program reported that nearly one in five Venezuelan households live at levels of food consumption that are too low.
Inflation is estimated at 6,567% in 2019 and, according to the UNHCR, some 4,000 to 5,000 Venezuelans leave the country every day.
The magnitude of these problems may increase, but they are not new and so far they have failed to bring about a change of government. A year ago, the attempt by Juan Guaidó, president of the National Assembly controlled by the opposition, failed despite the support of the governments of the United States, Canada, the United Kingdom and other European countries.
President Nicolás Maduro remains in power with the support of the country’s military leaders. He said in January that he would increase oil production to 2 million bpd this year, a statement that sparked a strong reaction from the United States. Even tougher sanctions, combined with the sharp drop in the price of oil due to the coronavirus, are expected to lead to a drop in production this year, putting intense pressure on the Maduro regime.
US sanctions have reduced export earnings, but so far have not been tough enough to completely shut down the oil trade through the participation of companies like Rosneft and, until the end of the year last, the state-owned China National Petroleum Corporation. President Donald Trump has now extended sanctions to Rosneft and is expected to include his Swiss subsidiary TNK Trading in the near future. In recent days, Indian companies – including Reliance – which had been large buyers of Venezuelan crude oil, said their purchases would stop.
Selling oil, even at sharply reduced prices, will become more difficult. Chevron is the last major U.S. oil company to operate in Venezuela, and its exemption from sanctions has so far been repeatedly extended by the U.S. government. But if the exemption were removed, it would be the next tightening of the screw – the company has been present in the country for almost 100 years.
If Mr. Trump decides that the waivers will end in May, Chevron says that in his absence, Venezuelan supplies would be managed by Russian or Chinese companies.
However. Chevron’s departure would expose the shortage of skilled workers in PDVSA, which has experienced an exodus of qualified professional staff over the past decade. Maduro’s aspiration to increase production is based on the continued presence of American society and the involvement of other Russian or Chinese groups.
Venezuela remains a strategic asset for Russia, but Rosneft, with its international reach and western minority shareholders, may be more reluctant to violate US sanctions. Venezuela’s debts to Rosneft have been largely paid off by the oil trade and now represent only $ 800 million on some $ 6.5 billion in loans.
For now, at least China’s oil needs are reduced due to its economic problems, and in any case Chinese support for the Maduro regime has weakened.
Beyond these factors, the biggest force for change in Venezuela will be the price of oil. With a global supply surplus and further cuts to the Opec, Venezuelan oil is no longer needed on the market. Without substantial export earnings, the Caracas government is unlikely to be able to provide the investments necessary to maintain current production, let alone achieve Mr. Maduro’s goal. Even the most authoritarian regimes cannot survive without income.
