“It is Russia’s actions which threaten the international order on which we all depend.” British Prime Minister Theresa May’s tough message to Vladimir Putin this week focused on what you’d expect: Russia’s illegal annexation of Crimea, its instigation of the fighting in Eastern Ukraine and its weaponizing of information, including the meddling in elections.
What she failed to mention was Russia’s insidious, increasing influence in Venezuela.
{mosads}First, let’s set the stage. By now you are probably aware that Venezuela has gone from being the envy of the developing world to one of the planet’s worst economic and political basket cases.
Venezuela had the fourth-highest GDP per capita in the world in 1950. Almost a half century later, when Hugo Chavez took power in 1999, Venezuela was still one of the richest emerging markets in the world. But last year, 82 percent of Venezuelans were under the poverty line.
Ninety-three percent of Venezuelans reported they did not have enough money to properly feed their families. Children are starving to death and people of all ages are dying of treatable diseases because of the lack of basic medicines.
The rise in prices has now reached hyperinflationary levels, by far the worst in the world. Since 1999, the amount of Venezuelan currency needed to buy a U.S. dollar on the black market has gone up by more than 10,000,000 percent — yes, you read that right.
The economy’s crash is so severe, the Americas have never seen anything like it, dwarfing the United States’ Great Depression and Cuba’s “Special Period” in the 1990s.
The blame falls squarely on Chavez and his successor Nicolas Maduro, who must never have heard about “saving for a rainy day” or that “a penny saved is a penny earned.”
As opposed to other oil-rich nations that had the foresight of using the windfall of record-high oil prices to increase reserves or invest in sovereign wealth funds, Chavistas chose to spend wildly and steal with abandon from the Venezuelan treasury.
The soaring oil prices couldn’t keep up with the profligacy and corruption, so the Chavez and Maduro governments borrowed enormous sums. Again, instead of investing in diversifying the economy and strengthening the country’s oil infrastructure, the billions borrowed mostly ended up in the pockets of government officials and their cronies. The country is littered with unfinished multi-billion-dollar public projects.
Meanwhile, the Chavistas’ socialist policies systematically devastated the private sector with expropriations, confiscations and price controls that turned profitable businesses and farms into bankrupt state enterprises.
Making things worse, in 2003, Chavez fired 18,000 employees of PDVSA, the Venezuelan national oil company, and, in 2007, pushed out international oil experts. Today, PDVSA produces only about 60 percent of the oil it produced in before Chavez took power, and that is falling every month.
Under these circumstances, when oil prices started dropping in the last half of 2014, economic realities made it clear it was only a matter of time before Venezuela would fail to meet its international debt obligations. Estimates are that oil would need to soar to well over $200 a barrel (a level unheard of) for the country to have a shot at balancing its budget.
Enter Russia. Chavez had developed strong relations with the Kremlin early on, a friendship further developed after the failed coup against him in 2002.
As relations with the U.S. became increasingly hostile, Chavez turned to Russia for investment in the country’s energy and mining sectors and as a supplier of weaponry, with Venezuela becoming a major purchaser of Russian military hardware, including fighter jets.
The two countries even agreed to build a nuclear power plant, one of the many public projects in Venezuela that have never come to fruition amid the economic chaos and corruption.
Russia has lent Venezuela billions to keep the regime afloat, mostly through loans to PDVSA. Instead of repaying in cash, Venezuela is often paying in oil. In fact, a report from August estimated that Rosneft, the Russian state oil company, resells 225,000 barrels a day of Venezuelan oil, about 13 percent of the country’s total exports.
Russia has also obtained bargain-basement collateral to secure those loans. In its desperation for cash infusions, the Venezuelan government has granted Rosneft liens on shares of CITGO, the large U.S. oil company it owns, and on Venezuelan oil fields.
The ties with Russia are also ideological. Venezuela may have been the only place outside Russia and Cuba that celebrated the 100-year anniversary of the October Revolution. In a speech, Maduro said, “This is your people, Lenin. This is your people, Trotsky.”
As Chavez’s foreign minister in 2009, Maduro said that a unipolar world of U.S. hegemony was collapsing and that Venezuela’s “alliance with Russia is part of the effort to build a multipolar world.”
It is hard to believe, given the catastrophic consequences of the Kremlin’s domination over Cuba, that any Latin American country would contemplate taking that road again. But Chavez and Maduro worshipped at the altar of Fidel Castro, and Putin’s kleptocratic dictatorship is a perfect model for the criminal enterprise the Venezuelan dictatorship has become.
To safeguard its investments, Russia has a vested interest in the survival of Maduro’s dictatorship, especially because the opposition has indicated it intends to untangle the Russian ties when it returns to power. Opposition leaders have argued that Russian control over any part of the Venezuelan oil industry is unacceptable and illegitimate.
Russian intelligence assets are reportedly ready to help in case the regime is threatened. Mutual ally Cuba has thousands of intelligence and military officers working in Venezuela to quell any dissent and prop up Maduro.
This has important consequences for the United States. Venezuela has the world’s largest proven oil reserves and eight-largest natural gas reserves. It has a large military and is strategically positioned on the northern end of South America, about as close to Miami as Chicago.
Since Chavez came into power, an estimated 2 million people have left Venezuela, far more than left Cuba after Castro. Some believe we should expect a refugee crisis on the magnitude of Syria’s if the country fully implodes.
The U.S. seems asleep at the wheel. The Obama administration’s narrative that Russia was just a “regional power” was clearly wrong, as evidenced by the Kremlin’s power play in Syria and its growing influence in Latin America. The Trump administration’s pussyfooting with Putin is certainly not helping.
The end game is nearing. Venezuela has missed recent payments to international creditors, beginning a likely cascade of defaults in what is certain to be one of the largest sovereign debt defaults in history.
Russia tried to come to the rescue, restructuring some of the debt it is owed, but the financial infusion will do little to keep Venezuela solvent. The $3 billion in debt restructured is only a fraction of the more than $140 billion Venezuela owes to foreign creditors.
However, it’s all a win-win proposition for the former KGB lieutenant colonel, Putin, and, especially, for the former bus driver, Maduro.
Putin knows he’s consolidating a loyal ally in its new Cold War against the West. Maduro and his henchmen understand that becoming loyal Russian subjects buys them a veto at the U.N. Security Council.
It also keeps Moscow available as a safe haven for escape when the inevitable happens and the Venezuelan people force them to flee.
Antonio Mora is the editor-in-chief of NewsandNews.com. He is a former news anchor for “Good Morning America” and a former host of Al Jazeera America’s primetime international news hour. He is both a Venezuelan and American lawyer who appears regularly on television as a Venezuelan-affairs analyst.