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ICG Risk Blog - [ "Cubazuela" with Russian arms, Chinese economic ties, powered by oil - or perhaps not, conclusion ]

"Cubazuela" with Russian arms, Chinese economic ties, powered by oil - or perhaps not, conclusion


Part 4

This weapons acquisition program coupled with a new security doctrine based upon "asymmetric war" using a "decentralized defense" of guerrilla tactics that would involve the "participation of the whole population; adapting ourselves to the geopolitical [situation] of the country" has brought Venezuela squarely into conflict with the US. While the jury is still out as to the target of this new Venezuelan doctrine (the US in a defensive position, or domestic opponents or regional neighbors in an offensive position), a declassified 2005 version of the National Defense Strategy of the USA was shortly followed by a NIC (National Intelligence Council) that stated "U.S. intelligence experts are preparing a list of 25 countries deemed unstable and, thus, candidates for [military] intervention". While the watch list is classified, US policy statements identify Venezuela as one of the 25.

Unlike Cuba, Venezuela has a very different set of international economic suitors beyond the former Soviet Union, notably China. I find it interesting that China has made inroads in the Caribbean basin (also here) and Venezuela (also here [seen note below] and here), not to mention other areas of Central and South America, that would have brought strident US diplomatic responses had the Soviet Union been the investor. A significant Chinese presence would likely mimic Chinese PLA efforts in Asia and Brazil: a tidewater port presence that offers partial or complete opaqueness connected by a strassendorf (street city) style of satellite towns connected by new roads to a processing plant at the primary extraction asset, e.g., coal, oil, minerals, timber, etc. Such patterns are of interest wherever they occur.

All of the above presumes that Venezuelan energy stocks remain readily available and that is not a secure prediction. Petroleos de Venezuela's (PDVSA) net crude oil production is falling precipitously due to:

  • Mismanagement and incompetence by unskilled chavistas who assumed control of PDVSA after thousands of managers, engineers and oil field workers were purged in 2003
  • Insufficient investment in well maintenance and production-capacity development to offset depletion rates
  • Ramping threats, taxes and fees against foreign oil firms that delay essential energy investments, including Brazil, China and Spain identified as "special strategic partners" of the Bolivarian Revolution
  • Perpetually deferred expansion plans

Venezuela's essential domestic and foreign policy instrument has weakened, very likely severely so. Unlike the Saudis that are pumping high, Venezuela cannot offset lower wellhead prices with increased export volumes. Yet Chavez cannot reduce spending as, at a minimum, he retains power through a complex web of payments and bribes to many elements of the Venezuelan society. Unrest and inflation that would flow from efforts to keep spending flowing in the face of lower oil production could be expected to be constrained by Cuban advisors now in country along with Chavez's politically loyal militarized militias. Chavez's move to militarize certain PDVSA installations thereby permits the Cuban government "to exert more direct control over Venezuela's oil industry through Cuban military and security linkages with the FAN" and "chavista generals to seize full control of PDVSA with presidential support," ultimately seizing control of the Energy and Mines Ministry.

I recommend Duarte's Running on Empty which goes so far as to note that the oil markets have not begun to consider the "extremely significant factor" that "Cuba, which is widely believed to have infiltrated FAN, then will become a major player in global oil, and a de facto member of OPEC." Duarte continues to consider short-term Chavez actions in the face of further falloff in production and/or a fall in the price of oil:

  • massive asset liquidation, including U.S. bonds, and U.S. dollars. PDVSA is already trying to sell its U.S. refineries.
  • Yukos-like nationalization of foreign oil company assets in Venezuela

For whatever the US might be planning, I see the possibility that Chavez might force the US's hand. I am no longer sanguine that Venezuela can depend on the fact that the US would not execute a petroleum trade embargo on Caracas (the US has certainly analyzed the last Venezuelan production loss (also here)), a much more containable strategy than the failed blanket embargo against Cuba.

Venezuela's Oil Production Woes Will Be Felt Widely
by Joe Duarte, MD &
This article appeared on Marketwatch
May 20, 2005

Chávez arming to fight attack by U.S.
Miami Herald
Feb. 12, 2005

Global Market Brief: Monday, Jan. 3, 2005
Jan. 3, 2005
Mirrored here - scroll down to 'Latin American Countries Committing Strategic Trade Suicide.' Bold face and two extra paragraph breaks were added by poster.

Venezuela's Chavez pledges support for Chinese oil exploration
Beijing (AFP)
Dec 25, 2004

 China Widens Economic Role in Latin America
New York Times
November 20, 2004
Original scrolled to archive
Mirrored here

Gordon Housworth

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