Maduro Seeks Salvation from the Private Sector

In recent weeks a particular move by the disputed president of Venezuela, Nicolás Maduro, has signified just how tenuous his grip on the nation’s top job has become. His petition to countrywomen that they pencil in giving birth to six children ‘for the good of the country’ and its repopulation efforts, evidences his desperation to maintain his grip on power.

Beyond the next generation of children, there are the plans Maduro has for the other asset essential to the nation’s future: its oil. He has spent the early months of 2020 looking to preside over a sweeping change to the country’s oil industry, embracing privatisation and so signifying a huge break away from Venezuela’s socialist doctrine and the modus operandi of the regime prior.

So what is motivating Maduro in his new mission? And who stands to benefit most?

The Domestic Politics

As discussed below, this move comes with some substantial international considerations but at its core, as with all events in Venezuela’s current chapter, are domestic machinations.

Maduro has been seeking to empower foreign oil companies to take control of government-controlled property. Although there remain many steps before this vision can become a fully-operational reality, the decision has allowed Maduro to fire a salvo at the National Assembly, and its prior power that gave members exclusive authority over the approval of oil-licensing deals.

So, even though this path sees the country cede control of its hitherto state-controlled oil industry, it offers an avenue for Maduro to gain more control over its political life as a whole. This is good for him, bad for the opposition. Now, what does it mean for stakeholders beyond the governing class?

At Home and Abroad

This approach by Maduro is the latest in a long line of creative manoeuvres over the past year, and is a desperate attempt to kickstart a resurrection for an economy that has shrunk by more than two thirds since 2013. Since the US oil embargo imposed by Washington DC in January 2019, Venezuelan oil output has fallen by an estimated 35 per cent.

In late February Maduro declared an “energy emergency” and announced a reshuffle of the top leadership at the nation’s state oil company, PDVSA. He claimed this was to protect Venezuela from “imperialist aggression” but the fact it was said while simultaneously pursuing ways to encourage more private business in the sector (and after a year when a number of foreign oil companies have been operating within it) ensured his words were tinged with irony. Yet ultimately, the actions of Maduro here are significant not only for their effect, but the counter-effect they are now set to create.

At the core of these moves is an attempt by Maduro to shore up his coalition of support at home, and to project within the international community an image of strength and stability, even if, by so many measures, Venezuela is today in an era of meltdown. Central to the current challenges in Caracas is the back and forth between Washington DC and Moscow; understanding the significance of Maduro’s latest offensive first requires a recognition of this relationship in context.

The Washington Factor

Before the US oil embargo, the United States was the biggest export market for Venezuela, making the loss of trade an immense blow. What’s more, as a result of US pressure, such as threats against any international bank assisting the regime or ships carrying the oil, it is not only US buyers who are steering clear, but any other looking to avoid the ire of Washington DC. However, despite the campaign for isolation of the country’s oil industry, renewable sanctions waivers have been issued to a number of companies, namely the US’s Chevron, Spain’s Repsol and India’s Reliance, allowing them to continue dealing in Venezuelan oil, albeit to a far more limited degree than Russian businesses.

Russia and China

This move by Maduro offers benefits for his supporters in Russia. The privatisation aim offers a chance for entities like the Russian giant Rosneft Oil to gain legal certainty over their oil investments so that even if their man in Caracas does eventually lose his grip on power, their control on oil exports should remain. Furthermore, not only has Russia already been profiting immensely from its operations with Venezuela (Russia’s state-controlled businesses are estimated to have earned US$ 120mn a month since the US embargo), but it stands to benefit massively from Maduro’s proposals. Besides gaining a stronger legal foothold, Russia will surely find new ways to expand the trade that sees one nation effectively selling in order to ensure its survival, and the other only too happy to pursue a relationship built on such desperation.

Similarly, although the past year has seen China take a step back in its relationship with Venezuela – with the China National Petroleum Corp (CNPC) making headlines for skipping the loading of oil cargo in mid-2019 so as to avoid running afoul of US sanctions – this tactic by Maduro will incentivise the Chinese to re-examine the chessboard, and see where they could up the import of Venezuelan oil while not upsetting Washington DC.

Foreign Actors, Local Fallout

Whether this push by Maduro will work, remains unclear. The options for it to progress under Venezuela’s current government depend, in no small degree, on the pressure being placed upon it by Washington DC, and conversely the support it enjoys from Moscow. Invariably, oil suppliers and the markets that are hungry for its import will find a way to clear obstacles in their path.

Many US oil producers have been pressuring the Trump administration to revise its current policy towards Venezuela, with the aim of gaining access to the market once more (but Moscow unquestionably prefers the absence of American business in the country) and so it is possible that this latest thrust by Maduro (and in a US election year, no less) may well tick all the boxes in shoring up his rule, driving new economic activity and diminishing pressure on his regime abroad.