Analysis: Venezuela’s A Powder Keg That Just Won’t Blow

Venezuela is in political and economic crisis. President Nicolas Maduro and his fellow Chavistas continue to cling to power despite the Democratic Unity Roundtable (MUD) securing a massive two-thirds supermajority in last December’s parliamentary elections. Economically, the country is suffering riots and lootings due to shortages of food, medicine, other basic goods and electric power.

This crisis has contributed to the country’s crude oil production slipping to a 13-year low of 2.1 million barrels per day in June, compared to 2.4 million barrels per day last year, and roughly 3 million barrels per day when Hugo Chavez gained power in 1999.

Venezuela is a textbook case of how not to run an economy. Over the course of the 17-year Bolivarian Revolution, President Chavez and his successor Maduro have adopted price and currency controls, massive subsidies for a wide range of goods, and the gradual dismantling of the country’s private sector.

The combination of these economic measures have led to triple digit inflation and shortages of goods, despite the country receiving roughly US$1 trillion in oil revenues and US$60 billion in Chinese loans over this period.

On the political front, the opposition has been neutered. Their parliamentary victory last December gives them substantial legislative power. Unfortunately, these powers have been subverted by a number of executive actions by President Maduro.

President Maduro stacked the Supreme Court even more in his government’s favour before MUD took office on January 5. The Supreme Court blocked the victories of three opposition candidates prior to the swearing in ceremony, pushing MUD below the all-important supermajority level.

In addition, the Chavista-controlled National Electoral Council has dragged its heals verifying signatures for the presidential recall referendum. If the recall referendum is held before the mid-point of President Maduro’s six-year term in early January 2017 and he loses, new presidential elections must be held. After that date, his Vice-President would simply take over the presidency, ensuring the Chavistas’ grip on power for three more years.

On May 13, President Maduro declared a 60-day state of emergency. This emergency decree basically transfers the powers of the National Assembly to the presidency and has since been extended.

MUD also has its hands tied in terms of peaceful demonstrations to force the Maduro government to respect its constitutional rights. President Maduro controls a wide range of social control mechanisms to defend the revolution, including the Armed Forces, so-called colectivos, many with heavily-armed militias, and Cuban intelligence and military specialists working for the government.

President Chavez was able to install loyalists in command of the Armed Forces, and purge it of dissenters, after the aborted military coup of April 2002. He has since involved the Armed Forces in a variety of commercial ventures to tie its interests closer to the Bolivarian Revolution’s.

On July 12, President Maduro made General Vladimir Padrino Lopez, the Defence Minister, the second most powerful person in the country. He has been put in charge of the food supply system, and hence, given indirect control over of all of Venezuela’s ministries.

In the first half of 2014, the last time the opposition took to the streets in force to demonstrate against the Chavista government, the Guardia Nacional and colectivos attacked them with impunity, forcing the opposition to curtail their protests.

There is little light at the end of the tunnel for President Maduro and his fellow Chavistas, and even less for the Venezuelan people as a whole. Higher oil prices would give the Maduro government some breathing room, especially as 96 per cent of the country’s export revenue and 45 per cent of the government budget comes from oil.

But Venezuela’s economic crisis hit in earnest in the first half of 2014, when oil prices were still around $100 per barrel. Ironically, one of the most likely causes of substantially higher oil prices in the shorter term is a major disruption to Venezuela’s crude oil production.

There is a slight chance that China may again come to Venezuela’s rescue, either through new loans or the rescheduling of old ones. But it has been reported that Chinese representatives have been in contact with MUD to determine whether they plan to respect their country’s debt to China if they gain power.

The Chinese government is concerned about throwing good money after bad. Prior to embracing their capitalistic economic reforms beginning in the late 1970s, the Chinese had adhered to failed economic policies similar to the Chavistas’

As a result, potential scenarios for Venezuelan crude oil production likely depend on how things play out politically within the country. The relatively high probability scenario is the Chavista government — with or without Maduro — continues to muddle along. In this case, the country’s oil production will continue its downward trend, possibly at an accelerating rate.

A less likely scenario is a splintering of loyalties within the Armed Forces, possibly due to the Chavista government ordering regular units (not just the Guardia Nacional) into the streets to quell social unrest. In this case, the drop off in the country’s oil production is likely to be much quicker, the length of which would depend whether the country falls into full-scale civil war or not.

Vincent Lauerman is president of Geopolitics Central, a Calgary-based consultancy.