Thousands in Venezuela took to the streets to protest President Nicolas Maduro yesterday. Coverage of the events has focused on the demonstrations and the responses of the opposition and foreign governments, but few have considered the long-term impact of Venezuela’s downward spiral.
First, however, we need to take stock of what’s happened in the country so far. As of now, Maduro remains in power. Opposition leader Juan Guaido swore himself in as president during yesterday’s marches, and the U.S., along with at least 13 other countries, recognized him as Venezuela’s interim leader. Maduro responded by cutting diplomatic ties with the U.S. and giving its diplomats 72 hours to leave the country. Venezuela’s Supreme Court, meanwhile, issued a warrant for Guaido’s arrest. The military remained silent throughout most of the day, suggesting internal discord. Then in the early evening, the defense minister and other generals said the country’s Constitution must be protected, and they recognized Maduro as president. Some media outlets have reported that U.S. President Donald Trump’s administration is prepared to apply sanctions on state-owned oil firm Petroleos de Venezuela, or PDVSA, and to put Venezuela on the state sponsors of terrorism list. Some even speculated that military action may be possible. Guaido has announced plans for another march in February to demand more humanitarian aid to the country, suggesting the opposition plans to continue campaigning for Maduro’s ouster even after the opposition leader declared himself president.
Whether the response from foreign governments registers with the Venezuelan administration depends on how they convey that they no longer recognize Maduro as president. Without follow-up actions, Washington’s moves may not mean much, though it could apply more pressure by leaving U.S. diplomats in Caracas, in defiance of Maduro’s orders. The talk of imposing sanctions or adding Venezuela to the terrorist list shows that Washington doesn’t really see Guaido as the country’s leader, or else it wouldn’t need to make such threats. The opposition, after all, will have limited power so long as the military refuses to join its cause, and it has yet to demonstrate that it can carry out government functions.
As for the impact on the oil industry, short-term fluctuations in price and supply are possible, but oil markets and producers have learned to expect volatility from Venezuela after years of crisis. Oil exports from the country have dropped by half over the past two years, to just under 1 million barrels per day. More important, Venezuela has already promised much of the oil it produces to countries such as China and Russia to help pay down its staggering debt. The latest upheaval, then, won’t have much effect on the global oil market.
If the U.S. decides to follow through with sanctions on PDVSA, it will feel the move more keenly than any other country – besides Venezuela, of course. The U.S. is by far the largest importer of Venezuelan crude oil, and cutting off those imports would force it to tap into its own reserves or use alternative suppliers. The potential repercussions for U.S. refineries and businesses are among the top reasons Washington hasn’t followed through on this threat so far. Though its energy industry has been suffering for a while now, Venezuela is still home to the world’s largest oil reserves. Oil companies want to be involved there not for the profits they can earn now but for the profits they can earn in the future. Maduro can’t hold on to power forever. When his government collapses, there will be a push to revive the industry and many firms will be ready to help. That’s why even U.S.-based oil companies, such as Chevron, have stayed in Venezuela despite the deteriorating conditions and international condemnation of Maduro’s government.
Russia and China have also chosen to take the long view. Russia fulfilled most of its arms contracts with Venezuela before the most recent instability broke out and has said it won’t pursue further defense cooperation for now. Its main concern is how the unrest might affect its joint projects with Venezuelan oil companies. Moscow is hedging its bets in Venezuela, holding on to its assets and operations there while it waits to see how things play out. Similarly, China, a major importer of Venezuelan oil, is biding its time.
No matter how the current turmoil in the country ends, Venezuela’s problems won’t disappear overnight. Venezuela’s economy needs complete restructuring, its infrastructure needs an overhaul, and its people need access to basic necessities. What’s more, the fallout of mass migration spurred by the failing economy will be felt for years to come. Even if the government and opposition reach a deal, those who have left the country are unlikely to come back anytime soon. The changes that might bring them back will take a lot of time and resources that Venezuela doesn’t have right now, and the loss of so many people may well hurt its economy in the long run. In the end, Venezuela’s problems will outlast its current political drama.