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OPINION

Our son of a bitch again. How the U.S. is easing pressure on Venezuela amid war in Ukraine

As the world forgot Venezuela with its gloomy authoritarian regime it suddenly reminded about itself: at the beginning of June the US State Department allowed two European companies - Italian Eni and Spanish Repsol - to start exporting Venezuelan oil to Europe next month. Of course, the Biden administration decided to take such an extraordinary step because of the war in Ukraine. Political scientist Yevgeny Bay explains how this could affect the lives of Venezuelans and the relations between Caracas and Moscow.

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Flirting with the dictator

The U.S. authorities reacted quickly to the new situation. Two weeks after Russia's aggression in Ukraine began, two high-ranking officials from Washington traveled to Caracas. Their purpose was to discuss the possibility of increasing Venezuelan oil exports, which would replace Russian oil and, given favorable circumstances, could lower the astronomical price of hydrocarbons.

The data on oil production in Venezuela varies widely. Representatives of Venezuela's largest oil company, Petroleos de Venezuela (PDVSA), claim the country produces about 850 barrels per day. Rafael Ramirez, Venezuela's former oil minister at the time of Hugo Chavez, believes these figures are exaggerated. He says that since 2014, oil production has fallen by 84% and is now somewhere around 650,000 barrels per day. This is slightly less than the amount Russia had been exporting to the United States before the sanctions were imposed. So can, even theoretically, Venezuelan oil, even if we take the former figures as a reference point, replace Russian oil?

“It can't, because Venezuela has serious obligations to China,” says Giovanna de Michele, a well-known expert in Venezuela. “Besides, some of the oil goes to the domestic market. So, it's all just a fantasy.”

At first glance, it’s true, given the amount of oil that the Maduro regime sends to its “blood brothers” in Cuba, not mentioned by the expert. But there are other opinions. It is true that Venezuela now supplies up to 70% of its oil to China. But as one Venezuelan insider told The Washington Post, “the dialogue that has begun between the two countries allows Caracas to hope for new, even bigger deals.”

“They (Venezuelan authorities) have Mickey Mouse's hat in their hands,” the source says. “Now they are quite pro-American, no matter what, and they are ready to negotiate. They think they can get a lot more bang for their buck by supplying oil to Texas than they can to other parts of the world.”

The Venezuelan authorities are quite pro-American and are ready to supply oil to Texas

Allowing two European companies to start supplying oil from Venezuela was not the only step towards Caracas. At the same time, the U.S. authorities allowed oil giant Chevron to negotiate with Venezuela to resume operations in that country. They had stopped in 2019 when the U.S. imposed serious economic sanctions on Venezuela.

“Maduro must understand that after Russia has been subjected to severe energy sanctions by the West, that country will begin to refocus on the eastern market where Maduro sends his oil,” says Venezuelan economist Luis Vicente Leon. “And so, Putin, Maduro's friend, could become his fiercest competitor in a market where consumption has slowed down.”

Billions down the drain

Not to mention the former Russian players in the Venezuelan field, in particular Rosneft. However, the company's troubles began two years ago. In March 2020, Rosneft unexpectedly announced the termination of its activities in Venezuela. The company owned by the Russian government sold all its assets. That happened after the U.S. imposed sanctions against Rosneft's subsidiaries working with Venezuela. In particular, the Swiss Rosneft Trading fell under sanctions. At the same time, Rosneft vice president Didier Casimiro was placed on the U.S. sanctions list.

Venezuela and Rosneft have a longstanding relationship. In 2014 alone, Rosneft gave Venezuela $6.5 billion in advance payments for oil supplies. Since then, Sechin's brainchild had acquired various licenses to develop oil and gas fields and shares in other foreign companies (particularly India's Essar Oil) operating in Venezuela.

Now Rosneft can forget about its multi-billion-dollar investments in the Venezuelan oil industry. Technically, Caracas continues to be an ally of Russia. The Maduro regime has paid lip service to Russia's adventure against Ukraine, but Venezuela defiantly did not participate in the UN General Assembly vote in early March, when 174 states strongly condemned the aggression. In May, the country’s government appointed a new foreign minister, Carlos Faria, who had previously been Venezuela’s ambassador to Moscow.

The Maduro regime paid lip service to Russia's adventure against Ukraine, but Venezuela defiantly did not vote at the U.N. General Assembly in early March

What does the U.S. want?

But as far as economic interests are concerned, in the current situation, the U.S. is certainly much more interesting to Maduro than Russia. Especially in light of the fact that Washington has effectively announced a break with former President Donald Trump's “maximum pressure” policy on that country. “That policy has completely failed,” says Jeff Rumsey, a Venezuelan expert in the Washington Office on Latin America. “At the same time, the countries of the Western Hemisphere are seeking pragmatic solutions to the Venezuelan crisis, guided by the reality of the country's situation. And the reality is that Maduro, with the help of the military, maintains complete control over it.”

What does Joe Biden seek in these circumstances? He openly says that the U.S. can lift some of the economic sanctions if Maduro sits down at the negotiating table with the opposition, led by Juan Guaido (a new round of those negotiations is to be held in Mexico). U.S. diplomacy hopes that those talks will lead to democratic elections.

But these hopes are unlikely to come true. America itself does not know what to do with Guaido. Formally, it considers him the legitimate leader of Venezuela, but he lost his popularity long ago and now poses no threat to the ruling regime. He was not even invited to the June 6-10 Summit of the Americas in Los Angeles, the largest regional forum of the Western Hemisphere. Biden tried to explain himself to the oppositionist a few hours before the summit opened by calling him and confirming that the U.S. still considered him president of Venezuela, but that did not make the situation any less absurd.

Salvation is in the dollar

But the main thing is that the Maduro regime itself is doing quite well, despite the continuing sanctions. “The country has made a rather sharp turn toward a freer market, marking a return to the era of unbridled consumption in the 1970s that the former national idol Hugo Chávez had branded,” Bloomberg reporters write. “Maduro's decision to embrace some elements of U.S. capitalism had the dual purpose of ending the country's financial crisis and finally burying Guaido's influence.”

The main element of the new course was the total dollarization of the country. In recent years Venezuela was the world record holder for inflation, peaking at 2 million percent a year. The bolivar devalued to the point that local robbers didn't steal the bills, but homegrown artisans embroidered shirts with them and sold them to foreign tourists for a couple of dollars.

The bolivar depreciated to the point that people were embroidering shirts with them for tourists

In 2018 Maduro authorized legal circulation of the dollar, and sometime in early 2021 it became the country's main monetary unit. “The greenback is now used by everyone from top corporate managers to street vendors, who would have been quickly sent to jail for that during the Chavez era. Back in January, the authorities said they had put an end to hyperinflation (although the latest figures put it at 500% a year). Growth in manufacturing this year is expected to be 10%.

Casinos against sanctions

Some of the richest neighborhoods in Caracas have begun to resemble the American Las Vegas in recent months. Numerous casinos have been growing like mushrooms after the rain. Under Chavez they were also banned, but Maduro gave them the green light, believing they would... help the country overcome the U.S. sanctions.

“Around 11:30 p.m.,” Bloomberg writes, “a respectable crowd starts gathering at the casino's roulette table. Bartenders offer cocktails, dancers sway to merengue music, bingo players vie for a $500 prize. One lucky winner in May won a $2900 Yamaha motorbike.” “In the last 10 years, we could only dream of places like this where we would have fun,” says 52-year-old real estate broker Maria Helena Milian before heading to the roulette table with her husband.

The casino is located on the roof of a 15-story building. Downstairs is a car dealership displaying three red Ferraris, the cheapest of which costs $200,000. That's the annual salary of 590 civil servants.

Potemkin Village

To an outside observer, it may seem that the Venezuelan regime has managed to climb out of its deepest socio-economic hole, that the country is surviving despite its isolation. But perhaps this is an illusion. The new Venezuelan economy is a Potemkin village. 94% of Venezuelans continue to live in poverty with a monthly family income of $30. 70% of Venezuelans live in slums. Venezuela still ranks 177th out of 180 on Transparency International's list of corruption, democracy and economic freedom. Over the past five years, 6 million Venezuelans have emigrated, the world’s largest exodus until the war in Ukraine.

Caracas, whose streets are ruled by crime, continues to be one of the most dangerous cities in the world, along with San Pedro Sula of Honduras, which is considered the “murder capital of the world.”

Caracas remains one of the most dangerous cities in the world

“The dollar bubble on which the demonstrative prosperity of wealthy Venezuelans rests could burst any moment,” said Tomás Straca, a historian at the Universidad Católica Andrés Bello in Caracas. “Venezuela is facing either a change or a new stage in its tragedy.”

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