US oil embargo will see Venezuela turn to China, Russia for salvation
Esteban ROJAS, Alexander MARTINEZ
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Caracas (AFP) - The US oil embargo on Venezuela
that comes into effect on Sunday will deepen the South American country's
economic crisis without necessarily forcing President Nicolas Maduro from power
and force Caracas to turn to China and Russia for salvation.
Until now, US sanctions directly targeted the upper echelons of
Maduro's regime in the hope of weakening his grip on power in favor of a
transition to opposition leader Juan Guaido, who in January declared himself
acting president. Then, Washington led more than 50 countries in endorsing his
claim.
But these new sanctions will bite hard in a country that has suffered
five years of recession marked by shortages of basic necessities such as food
and medicines.
Venezuela is almost entirely reliant on oil revenue, with 96
percent of its income from crude and the US its single largest customer.
Michael Shifter from Inter-American Dialogue says "there is
certainly no guarantee that the petroleum embargo will result at the end of
Maduro's rule."
But he added: "It may contribute to the desperation that
fuels street protests and that ultimately leads to the regime's collapse."
Caracas is exporting 500,000 barrels a day to US companies, which
accounted for three-quarters of its liquidity by the end of 2018.
The new sanctions not only ban US companies from buying Venezuelan
crude but also all foreign entities from using the American banking system to
purchase the black gold from Caracas.
It means China and Russia may have to be Venezuela's
"lifesavers," specialist Luis Oliveros told AFP.
- Oil
production to fall? -
US-based consultancy Rapidan Energy Group says Venezuela's state
oil company PDVSA's production could temporarily fall by 200,000 barrels a day.
That would be a grave loss in production that has already crashed
from a high of 3.2 million in 2008 to just 840,000 in March.
"It will get even harder" for the government to keep
supplying heavily discounted fuel to its people, says Gorka Lalaguna, from
consultants Ecoanalitica, which could lead to rising discontent.
In a bid to circumvent the sanctions, Caracas has turned to
Chinese and Russian companies to act as intermediaries.
"It's using (Russians) Rosneft and other companies to place
its crude," said Oliveros. Rosneft denies the claims.
Venezuela had its eyes on India to try to make up its shortfall.
After the US measure was announced in January, PDVSA president
Manuel Quevedo traveled to India with the goal of doubling the 300,000 barrels
a day Venezuela sells to companies such as Reliance Industries and Nayara
Energy, which is part-owned by Rosneft.
India has emerged as the "largest cash flow generating
market" for Venezuela, according to the Washington-based Wilson Center.
Indian companies bought 22 percent of Venezuela's crude in 2017,
behind only US (41 percent) and Chinese (25 percent) firms, according to the US
Energy Information Administration.
However, Reliance told AFP last week it was reducing its imports
of Venezuelan crude and suspending the export of diluents -- which Caracas
needs to refine its oil -- due to the new sanctions.
India backing off leaves China and Russia as Venezuela's main
customers.
But crude supplies to those two countries are mostly to pay off
loans amounting to a fifth of Venezuela's $150 billion in foreign debt. It
won't bring in desperately needed liquidity.
- 'Share of
the blame' -
Maduro has hung onto power thanks to the armed forces, one of the
main beneficiaries from PDVSA's revenue.
If the purse strings tighten, Maduro's government "will use
what resources it has come in to prioritize the military," says David
Smilde, the Venezuela expert at the Washington Office on Latin America.
While the latest sanctions will crank up the pressure on Maduro,
Shifter says Guaido will not be immune to criticism.
"Guaido runs a big risk if the embargo fails to bring down
the government and only exacerbates a profound humanitarian crisis. As interim
president, he could well get a share of the blame."
But Hakim says the added pressure could turn the military against
Maduro -- something Guaido has failed to achieve -- although that won't
necessarily benefit the opposition leader.
He says the economic collapse itself may not force out the
socialist president but rather lead "to military action to replace
Maduro -- perhaps with a military leader."
In any case, Hakim says, history shows that US sanctions rarely
work.
"Maduro may just end up with the staying power of the Kims of
North Korea, (Bashar al-) Assad in Syria or the Iranian supreme power."
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