Venezuela

The United States and its partners in the Americas have made little progress on ending the dire political and humanitarian crisis in Venezuela. Only with the cooperation of crucial partners in the European Union can the U.S. government hope to reach a resolution in the stricken South American nation.

Major powers need to provide less support for proxy forces and place more emphasis on conflict resolution.

More than three million Venezuelans have fled poverty, hunger, violence, and persecution in recent years, journeying throughout the Americas and Southern Europe.

Frank O. Mora is director of the Kimberly Green Latin American and Caribbean Center and professor of politics and international relations at Florida International University. There seems to be no end in sight to the political and humanitarian crisis facing Venezuela. The political impasse is deepening polarization and confrontation, particularly since January when Nicolas Maduro and Juan Guaido, leader of the opposition-controlled National Assembly, each took an oath of office as president of Venezuela. Meanwhile, the economic and humanitarian crisis has reached critical levels with the collapse of the food supply and infrastructure, putting the cost of food and other basic services, such as health care, out of the reach of an overwhelming number of Venezuelans. Four million Venezuelans refugees are now living in neighboring countries, frontline states that are not able to absorb such large numbers. This crisis has the potential to destabilize the region. What are the plausible scenarios and what policy options are available to address the goals of restoring democracy and providing humanitarian assistance? In a new Contingency Planning Memo Update, I delve into these questions and offer the United States and its regional partners recommendations for hastening change, as well as ideas for preparing for the “day after” stabilization phase. Of all the potential scenarios, the most likely is a prolonged period of stasis and deterioration where the political situation in Venezuela remains at an impasse and the socioeconomic situation deteriorates further. Other scenarios in descending order include: military/palace coup; democratic transition via popular coup; and state collapse and anarchy. Regardless of the scenario, the United States and its partners, in order to hasten change, should complement existing sanctions with clear incentives to members of the Maduro regime willing to accept a peaceful political transition (e.g. lifting individual sanctions, immunity, and the opportunity to participate in politics). In addition, it must show an attractive future to regime elements by developing and implementing a post-Maduro plan for stabilization and reconstruction that includes an international donors conference that offers a compelling package of humanitarian and development assistance. This would have the added benefit of deepening fissures within the regime. Policy options that include the use of military force, led by the United States, are likely to be counterproductive to U.S. interests and regional stability. One factor not discussed much regarding stabilization and reconstruction is security. Venezuela is among the most violent countries in the world. Today, Caracas is the third most violent city in the world. In addition to a number of nonstate armed groups and criminal gangs that roam major cities without resistance from government forces, it is believed that nearly half of Venezuela has become a haven for Colombian guerrillas and paramilitary groups, who are engaged in drug trafficking and other illicit activities. In the period of stabilization and reconstruction, systemic violence and insecurity will impede the delivery of humanitarian assistance, preparations for new elections, and the restoration of democracy and the rule of law. Planning and coordinating with regional partners and Venezuela’s democratic coalition needs to begin now, to provide both humanitarian relief and security assistance in the immediate phase of the transition. The United Nations should get more involved in Venezuela, particularly in the planning and implementation of a stabilization plan. In the area of security, the UN should sanction an international stabilization force, in support of existing state security institutions, that has the authority and capacity to enforce a secure and stable environment in order to establish democratic governance and facilitate the delivery of humanitarian aid. To learn more about how the Venezuela crisis threatens the interests and stability of the United States and Venezuela’s neighbors—and for more recommendations—read the full Contingency Planning Memo Update. To stay up to date on the crisis in Venezuela, visit CPA’s Global Conflict Tracker.

Punishing allies won’t help to rally international support for the restoration of democracy.

Sadly, they also help keep the country’s repressive regime in power.

Back in 2013, Venezuelan state oil company PDVSA had ambitious plans for expansion of its oil production capacity. Its leaders envisioned eight new projects in the Orinoco Belt region that would require $108.3 billion in new investment to increase production to 4 million barrels a day (b/d), according to the state firm’s business plan covering 2013 to 2019. At the time, to facilitate this rise in production, capacity expansions for the heavy oil upgraders needed to convert the tar-like Orinoco extra heavy oil to a lighter mixture for transportation and refining was estimated at $23 billion. Today, the four heavy crude upgraders installed in the 1990s and operated with minority partners, Total/Equinor, Chevron, and Rosneft, have an official nameplate capacity to process 700,000 b/d of Orinoco oil. In reality, output from the upgraders has been running below that level. For example, the Petrocedeno upgrader, where Total and Equinor are minority partners, was closed temporarily in early February due to mechanical problems with a pipeline and pump. PDVSA’s Petro San Felix upgrader, expropriated by the state firm from ConocoPhillips in 2007, has been out of service for months. In the same Orinoco region, a fire last week at a crude oil pumping station interrupted the transportation of oil from the Petrocarabobo oil field, a joint venture between PDVSA and Repsol, and from Petroindependencia, which Chevron is a partner. Gasoline supplies are also expected to sink as currently arriving international shipments made by oil traders prior to recent U.S. sanctions start to dry up. Venezuela is also having trouble finding new buyers for its crude oil exports that were previously going to the United States. India, which is purchasing about 360,000 b/d now, faces refining constraints and is therefore unlikely to be able to process much additional oil from Venezuela. PDVSA only has storage for 44 million barrels, a little more than roughly one full month of production at current output, so continued marketing problems could affect production rates. The longer the situation goes unresolved, the more Venezuela’s production is likely to fall, potentially leaving exports at close to zero. Why it matters? The oil situation does not bode well for a smooth financial transition, even if the current political stalemate in Venezuela comes to a peaceful end. In the latest development, Juan Guaido called on his supporters to surround Venezuela’s military bases and peacefully demand “the entry of humanitarian aid.” It will be tempting for Washington policy makers to assume revitalization of the oil sector will help Venezuela dig out from its current economic woes under a Guaido-led transition, followed by democratic elections, but that process could be a drawn out one. Presumably, before it can bring in new investment by other companies, the interim government will need to organize new elections. The next government then will need to pass a new constitution to be followed by a revised hydrocarbon law that can be the cornerstone to new foreign investment. It is possible that companies currently still operating in the Orinoco Belt could extend their existing contracts to inject more investment, but that presumes those players will be willing to sink more money into the country where they already have high exposure and political risk. It is unclear if China, which is still owed $20 billion by Caracas, will be willing to add even more oil investments in the country under a new government that might have stronger links to the United States. What’s Venezuela’s best-case oil scenario? In 1992 when Venezuela announced it would open its oil sector to foreign investment for the first time since 1976 when it nationalized its oil industry, the line of firms interested in investing was long. Thirty- three companies signed service agreements to develop Venezuelan oil and gas fields in exchange for a fixed fee for service, including ExxonMobil, Shell, BP, Equinor (then Statoil), Total, Repsol YPF, China National Petroleum Corp. (CNPC). ExxonMobil and ConocoPhillips also negotiated profit sharing agreements for newer fields such as La Ceiba and the Coronoco field, respectively. In addition, four consortia formed extra heavy oil upgrading associations to exploit the prolific Orinoco Belt. But even if Venezuela manages to shift its government and reinvigorate its national hydrocarbon law to attract new foreign direct investment, it will have a harder time than during the 1992 Apertura Petrolera initiative. That’s because the North American shale revolution and the advent of electric cars has dispelled the notion of resource scarcity that drove massive capital investment in search of new oil reserves in the early 1990s. Many international oil companies are less interested in amassing large reserves that take many years to develop and might become stranded assets that won’t be needed in twenty or thirty years. Companies estimate that it would take three years for international corporations that still have ongoing oil production joint venture contracts to expand their operations, mostly in the Orinoco region, to add 1 to 1.5 million b/d to oil production levels, now at 1 million b/d and falling. The Western Maracaibo Basin, where PDVSA produced 1.5 million b/d back in 2002 from three main fields – Bachaquero, Lagunillas, and Tia Juana- suffered natural field declines of roughly 25 percent in recent years and are mainly shutdown. PDVSA used to spend $3 billion to $4 billion a year just to arrest wellhead declines in mature fields but has failed to make needed repairs and maintenance of its fields in recent years. Younger fields in Venezuela’s Eastern Basin, such as El Furrial and Santa Barbara, which used to produce 1.8 million b/d prior to the election of Hugo Chavez, have suffered from underinvestment and have sustained reservoir damage.  Implications for U.S. Policy If restoring oil revenues could be a lengthy process, the United States, together with the International Monetary Fund and other regional countries, are going to need to fashion other strategies to finance humanitarian assistance to Venezuela. Any recovery strategy is going to need to consider structural economic reforms, coupled with generous international financial assistance for food, medicines and other badly needed humanitarian aid, and a revitalization of the Venezuelan private sector. Loose talk that Venezuela has “large” oil reserves that can collateralize the country’s future will do disservice to the Venezuelan people who need to rebuild their country by utilizing a broader economic base to prevent another resource curse disaster in the future.

Lopez Obrador’s tacit support for Maduro will diminish his political capital at home and abroad.