For the U.S., Venezuela Simmers on the Back Burner

By Reggie Thompson

Latin America Analyst, Stratfor

9 Nov. 2017

A major economic crisis is unfolding in the United States’ backyard as Venezuela’s recession stretches into its third year. The South American nation is now in dire straits. The country’s oil sector shrank by nearly 13 percent as a share of gross domestic product in 2016 alone, and its immediate future looks grim. The ruling United Socialist Party of Venezuela, meanwhile, is more concerned with staying in power than it is with addressing the catastrophic problems facing its people. Venezuela’s leaders don’t want to surrender power in free elections because they don’t trust their political opponents — whether in Washington or in Caracas — not to try to jail them on a litany of criminal charges. Day by day, the country seems to lurch from one milestone of misery to another while foreign analysts struggle to keep up.

Yet the United States probably won’t take direct action anytime soon to alleviate the suffering of the Venezuelan population. When viewed through the wider lens of geopolitics, the crisis that appears so singularly urgent in everyday life recedes to the margins of global affairs. Furthermore, pushing President Nicolas Maduro’s administration out of power in Caracas isn’t in Washington’s immediate interest. Any attempt to achieve that end would come with too many drawbacks, and any change in the country’s administration will be the result of domestic rather than international developments.

The Difference Between Strategic and Important

Venezuela is located at the southernmost edge of a region of massive strategic significance, albeit little immediate importance, for the United States. The Caribbean basin is vital for U.S. strategic security; had it never attained de facto control over its near abroad, the United States couldn’t entirely rule out a threat from foreign powers. But by the time it had cemented its authority over the Caribbean basin in the early 20th century, Europe’s imperial powers had mostly given up their colonial holdings in the Americas, leaving behind a hodgepodge of weak states, Venezuela among them. Today, the country poses no strategic threat to the United States, and its slow drift toward one-party rule isn’t reason enough for Washington to intervene decisively in its affairs. For that reason, Washington’s attempts at influencing the outcome of Venezuela’s crisis have been minimal to date. The U.S. government, in fact, has yet to formulate a clear policy toward Venezuela, contrary to Venezuelan propaganda claiming the United States is behind an «economic war» against it.

Rather than crafting a comprehensive strategy for dealing with Venezuela, U.S. President Donald Trump’s administration has taken a piecemeal approach, focusing on those areas of Venezuela’s operations that interest various government agencies. The Drug Enforcement Administration, for example, cares about drug trafficking in Venezuela, a major transit state for U.S.-bound cocaine whose leadership is believed to profit from the industry. The State Department consistently warns Venezuela about mistreating political dissidents and demands that it hold free elections. The Department of Homeland Security probably worries the country’s economic troubles will encourage more Venezuelan citizens to overstay their visas in the United States. And the Treasury Department is concerned with the financial crimes, including money laundering, that members of the Maduro administration and their front men have been involved in. Venezuela simply isn’t the kind of foreign policy issue that can bring the U.S. government together toward a common goal. Compared with the other foreign policy problems weighing on the United States, moreover, the country is a low priority. Between North Korea’s nuclear weapons development, the struggle to stabilize Syria and Iraq, and Russia’s efforts to undermine the United States around the world, Washington has too much on its plate to get more heavily involved in Venezuela.

From Bad to Worse

What’s more, pressuring Venezuela’s government, for instance by prohibiting U.S. companies from doing business with Caracas or by imposing a ban on imports of Venezuelan oil, would only create more problems. Washington already has hamstrung the country’s state-owned oil company, Petroleos de Venezuela (PDVSA), by forbidding it from issuing new debt in the United States. The measure is a serious blow to the firm, but it still leaves the U.S. government room to gradually up the ante with Venezuela. Slapping direct sanctions on PDVSA, by contrast, would kick off an even bigger catastrophe. Without money coming in from U.S. refineries, the Venezuelan government’s cash flow would dry up. The worsening economic conditions probably would drive Venezuelans by the thousands to try to leave the country, and some emigrants would doubtless opt to enter the United States illegally. Back home, U.S. companies, such as the Gulf Coast refiners that purchase oil from and sell gasoline to Venezuela, would likely lobby against heavier sanctions on PDVSA and the Maduro administration, too.

The United States could easily take a harder line on Venezuela to push the country toward a change, but the government has neither the need nor much incentive to do so. The political movement to crack down on Caracas consists of a group of hawkish lawmakers, including Republican Sen. Marco Rubio of Florida, and a cottage industry of Venezuelan lobbyists. Although the Trump administration regards Venezuela as an undemocratic country that is no friend to the United States, that assessment won’t drive Washington to try to remove the government in Caracas. Venezuela’s political opposition, after all, is in no condition to take the reins of power in the wake of the country’s current leaders. The movement, which controls few government institutions, has been deeply fragmented since its decisive defeat in regional elections in mid-October. In addition, the government has jailed, exiled, co-opted or otherwise intimidated the most powerful dissident leaders. To regain the political relevance it would need for Washington to take further action against the current administration, the opposition will have to associate itself with a major protest movement or rise to power in the aftermath of a coup. For the moment, however, neither event seems likely.

A Grim Outlook

Considering that the country’s economy rests on oil production, Venezuela’s prospects for recovery are dim. PDVSA is at risk of defaulting on its foreign debt in the next year, an outcome that would add to the misery the company’s decadelong decline has created. Ever since former President Hugo Chavez purged its technocrats and replaced them with loyalists after a strike in 2003, top-notch technical talent has been hard to find in the company. More than a decade of overspending followed the purge and contributed to a sustained decline in oil production. After peaking at 3.5 million barrels per day in the late 1990s, Venezuela’s crude oil output has dwindled to only about 1.9 million bpd today. And production will keep falling if PDVSA defaults. In that event, foreign oil services companies could become concerned about future payments and cut back their operations in the country or pull out altogether, taking with them Venezuela’s last life preserver.

Yet the country’s precipitous economic decay alone won’t guarantee the current administration’s collapse, so long as the opposition is weak and marginalized. Whether Maduro and his acolytes remain in power depends in large part on how well they can fend off challenges. Along with its opponents outside the ruling party, the government has hostile factions within the United Socialist Party of Venezuela and within the armed forces to worry about. It’s still possible that segments of the military will eventually try to overthrow the government or that a wave of anti-government protests will sweep the country again, as it did in 2014 and earlier this year. Regardless of who is in power, though, Venezuela will face a long and difficult path to economic stability.

The future looks decidedly bleak for Venezuela. Its financial and political conditions already have forced millions of Venezuelans to uproot their lives and flee, while millions more have stayed behind, struggling to afford or even find basic necessities such as food and medicine. Shortages have also ravaged Venezuela’s public health system, and diseases once eradicated in the state, such as malaria, have become more prevalent as a result. These conditions probably will get worse before they get any better as the government tries to ride out the country’s deepening economic plight. Recovery will take decades, and in the meantime, public services will keep disintegrating. And as the economic situation worsens, the United States will stay on the sidelines, stepping in selectively to pressure the Maduro administration with sanctions.

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