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Venezuela’s Biggest Losers

Venezuela is on fire. An economic meltdown resulting from the disastrous policies of the “Bolivarian Revolution” has spawned broad speculation as to the outcome of this socioeconomic upheaval, which includes a Soviet-style collapse. With the currency worthless and imports non-existent, the people of Venezuela have been left with virtually no food or medical services. Opposition parties have been silenced, the regime-friendly Supreme Court has stripped the opposition-led congress of its powers, and the National Guard has transformed into a drug trafficking operation. It is accurate to say that most pillars of civilization in Venezuela have either disintegrated or will soon. To add insult to injury, Venezuela earned the dubious top spot in Forbes’ misery index for the second year in a row.

Image courtesy of the Presidential Executive Office, © 2017

While the citizens and democracy in Venezuela are the obvious victims of this tragedy, there are a number of international stakeholders—including governments, businesses, multinational organizations and non-state actors—that will lose economically and politically by a collapse in Venezuela’s state and economy. This loss could ripple into regional and national economies across the globe.

As the self-described bastion of socialism and anti-Americanism in Latin America, Venezuela developed ideological relations with like-minded partners throughout the world. China, Russia, Iran, and Cuba are some of the most affected stakeholders. In addition, Venezuela’s OPEC partners face a period of uncertainty with regards to Venezuela’s intent to honor production limits and to abide by other cartel decisions.

China continues to provide loans to Venezuela in what amounts to a loan shark agreement. The Maduro government welcomes these foolish loan agreements because there is essentially no other option to keep the government afloat. Venezuela sends China around 500,000 barrels of oil a day in order to service its debt. With investments abound, China stands to lose hundreds of billions of dollars in the event of a Venezuelan default, coup, or collapse.

Russian investment is also a pillar of Venezuela’s wobbly finances. Oil deals involving the largest Russian companies have injected billions of dollars of cash the Venezuelan government needs in order to remain solvent. Russian military cooperation with Venezuela is also a key partnership for Vladimir Putin’s foreign policy master plan. Any regime change in Venezuela will surely change this agreement and force Putin to forge military ties with the ensuing regime in the politically right-swinging region.

Iran, a fellow OPEC member, stands to lose as well. The Islamic Revolution and the Bolivarian Revolution share significant political ties and multi-billion dollar investments. Perhaps most importantly, Iran’s client terrorist organizations, including Hezbollah, may no longer be allowed to train in Venezuela and use it as a base for their illegal drug trafficking activities, which directly fund terrorism around the globe. Their use of the Venezuelan financial and banking system to launder money and funnel cash could be cut off by the successor regime.

Cuba will perhaps be the most affected state actor. As Venezuela’s ideological compadre in Latin America, Cuba has used the Bolivarian Revolution as a way to make socialist inroads into South America as it once used the communist uprisings in Central America in the 1980’s. For years, the exchange of oil for doctors propped up the respective socialist governments, and was the only logical competitive advantage for both countries (a capitalist ideal by the way). Cuba is reported to have a cadre of military officers and snipers in Venezuela, helping the Maduro government to stamp out the daily protests by assassinating faces in the crowd. A collapse of the Maduro regime would deal a blow to Cuba’s designs on maintaining a socialist foothold on the mainland of Latin America, as well as shut off its lifeline of cheap oil to the impoverished island nation.

It is uncertain how exactly the Venezuelan situation will play out for OPEC, but it is certain that the cartel of oil exporters and the oil industry as a whole will be affected in some way. What Maduro may do with the vast oil reserves of the country in order to service loan obligations may violate prior OPEC agreements and impact the price of oil. The potential sale of some or parts of PDVSA, the state oil company, has enormous implications and should be monitored closely.

There are a number of other international stakeholders that will also be affected in this tragedy in other ways, namely the surrounding countries of Colombia, Brazil, and Guyana as they continue to face a humanitarian disaster at their borders. The international community must prepare to deal with the fallout of yet another failed socialist experiment and move in quick to help the people of Venezuela.


Ernesto Garcia

Ernesto is a management and technology consultant to U.S. and international public sector clients. His professional and academic focus is centered on the economic, geopolitical and security environment in Latin America, with particular concentration on Panama, Colombia and Venezuela. A former military officer, Ernesto has extensive international security and collaboration experience in Europe, Central Asia and Latin America. Ernesto holds a M.A. in International Relations from The Fletcher School of Law and Diplomacy at Tufts University and a B.B.A. in Information and Operations Management from The Mays School of Business at Texas A&M University. You can connect with him on Twitter @karlkrockel11.
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