PDVSA still have an office here in The Hague, although the staff size is greatly diminished and they carefully worded all their contracts that they were only an agent for Bariven in Venezuela. Lots of manufacturers and service suppliers got stung and owed hundreds of thousands here in Europe. They still call companies up to ask if they will start working for them with no guarantee of payment and that you might get the money in a couple of years time. Apparently they had some military placement General Managers who's mission over the last couple of years was to sucker the Europeans into working for free. Of course, no one was that dumb. As far as I know.
Two good articles this week from the geopolitical strategist, Peter Zeihan:
Fire in Venezuela, Part I of II
So…there might have just been a military coup in Venezuela.
Not hard to see the justification. The economic policies of the now-deceased Hugo Chavez largely destroyed what used to be the breadbasket of the northern half of South America as one as the most sophisticated energy firms of the developing world: PDVSA. Under Chavez’s successor, current(?) President Nicholas Maduro, the degradation has accelerated. Foreign airlines no longer serve the market and most foreign contractors across all sectors have left due to non-payment, and the destruction of the country’s economic cores combined with a level of graft that would even make Russian oligarchs blush (briefly) has become so entrenched the country is in the early stages of a civilizationally-crushing famine. Something like one-sixth of the population has already fled and at least two-thirds of those who remain are malnourished. The Maduro government has largely abrogated the country’s constitution, run sham elections and largely kept the country’s opposition parties out of the halls of power.
Put simply, the place is ready to blow. And it just might be blowing.
Last week a shadow assembly of opposition groups labelled Maduro a usurper. U.S. Vice President Mike Pence on Jan 22 formally recognized that assertion.
On Jan 21 there was a definite coup attempt by the National Guard. It was stopped and the government arrested the leadership.
On Jan 23 opposition leader – Juan Guiado – unilaterally declared himself the interim Venezuelan president. Shortly thereafter, U.S. President Donald Trump formally recognized Guiado’s claim to power.
Perhaps most importantly, while the military isn’t saying anything, riot police are guarding – not dispersing – anti-government protestors. Where the military comes down on this will ultimately prove whether this is a true change, or just the start of another massacre.
I cannot overstate how something like this has been a long time coming. Between Chavez and Maduro the Venezuelan system – politically, economically, and culturally – has degraded from being one of Latin America’s most successful and vibrant to among its most dysfunctional. But a coup today hardly means the country is through the worst.
Far from it, this is where things get very, very bad.
Fire in Venezuela, Part II of II
It is always dangerous writing about unfolding events. With that in mind, Part I is just about where we are now. Part II is about the future.
Assuming for the moment that Nicholas Maduro has indeed fallen from power and his regime is crumbling, everything that happens in the next few weeks are details. Venezuela’s constitutional system of government has been suspended to shattered since at least the mid-2000s, and any new government will literally be making things up as it goes along. Even if the new government is truly representative of the popular will and makes no mistakes whatsoever, Venezuela’s mid-term future is for chaos and degradation. The damage of the Chavez/Maduro years has simply been too deep-rooted and catastrophic for this story to unfold any other way.
Four main problems:
First, food. Venezuela used to be a significant food exporter, but a combination of outright theft, corruption, supply chain breakdown and state expropriation of private assets that resulted in those assets lying fallow, has reduced the country to importing roughly three-quarters of its foodstuffs. As other economic sectors decayed the ability of anyone to afford what food is available has shriveled and starvation set in.
In the best-case scenario with perfect management, political unity and deep international assistance, bringing Venezuela back to food-neutral will take three years. Venezuela is in the tropics, and when tropical lands lie follow they tend to go riotous pretty quickly. Add in the infamous low fertility of tropical soils and the Venezuelans will need to reform all the supply chains for fertilizers and pesticides and such just to get things started. That all takes time. And money.
In the meantime, the 30-million(ish) people who remain in Venezuela will either continue to starve or live on handouts. Either way, the political system will remain fragile and so very, very desperate for years to come.
Second is oil – both a problem in its own right and perhaps a partial solution to the money issue. The money part is obvious – oil brings in income that could be used to regenerate Venezuela’s agricultural sector. But neither is this quick or easy.
Venezuelan crude is some of the most expensive to produce in the world, and fetches some of the lowest prices. It is high in sulfur and thicker than toothpaste. Only highly-specialized technicians can coax it out of the ground, and many Venezuelan crudes require specialized equipment just to get it to port. There are also very few countries that can process it. Add in economic chaos and a whiff of political desperation and there will not be a long line of companies wanting to pour large volumes of cash into the country in the near-term. Adding as little as a million barrels per day of new output is likely at least a five-year project. Venezuela currently produces only about 1.6 million bpd, down from 3.4 million bpd when Chavez took power.
(Side topic: When the Saudi government saw Chavez angling for power, they did everything they could to encourage him, hoping his economic populism would wreck the country’s oil output. They picked the right horse.)
Making matters worse, technically – legally – Venezuela owes any new production to Chinese and Russian entities who have provided the Chavez and Maduro governments with billions of dollars of loans. Loans that were to be repaid with crude oil.
Third, Venezuela in the best of times is a very shooty place. The political culture of the country has always been shaped by extreme economic inequality, which has generated crime and violence rates as bad as Colombia’s while Colombia was in a cocaine-fueled civil war. The oil largess succeeded in pacifying large parts of the population, in essence buying off the poor with absolutely massive subsidies on energy products and food.
It isn’t so much that any economic rectification effort must abandon those subsidies, but instead that the country cannot afford them now. Expect broadscale unrest to be the norm for years.
And that’s hardly the worst of it. Chavez’s first attempted rise to power took the form of a coup. After becoming president more conventionally, he later survived a coup. It all made him a bit nervous. In order to establish a force that would be loyal to him personally, he flat out bribed a few tens of thousands of neighborhood thugs to be his unofficial militia and equipped them with Russian-provided AK47s. They are now unmoored and unpaid – but not unarmed. Expect them to take whatever they damn well please.
Finally, Venezuela had no real release valves. If Maduro is truly gone, there is no one left to blame except whatever poor bastard tries to pick up the pieces and lead the country to a better future. There is no food-exporting country next-door that Venezuelans could theoretically migrate to. (Brazil produces food, but the trackless Amazon is between Venezuela and Brazil’s agricultural lands). The only country Venezuela shares a land border with that folks can walk to is Colombia, and the Colombians have already taken in over two million Venezuelan refugees.
(Another side topic: Most Latin American countries have enacted restrictions on Venezuela migration to prevent swarms from coming. Colombia has not. During the Colombian Civil War the Venezuelans accepted droves of Colombian refugees. The Colombians feel it is their duty to return the favor. Despite all the bad blood between recent governments on both sides, along with the general descent into nationalistic-populism around the world, it is nice to see the two powers not being complete jerks to one another.)
Whether Venezuelan refugees being largely stuck in-country is good or horrid of course depends upon what you think of people who are refugees due to internal political mismanagement, but the bottom line is that there is nowhere for Venezuelans to go.