What is behind Venezuela’s detente with the USA, and will it last?
“I shook Obama's hand and I said, 'I want to be your friend.' My hand is still outstretched. I am not Obama's enemy, but it's difficult not to see imperialism in Washington.1” These were Hugo Chavez’s words in 2010, combatting what he described as America ‘blackmailing’ both Venezuela and other Latin American countries into not having ties with certain countries - namely Russia, Iran, Syria and Belarus. Now, in 2023, there are more diplomatic efforts to restore ties between both countries, to reduce the crippling effects of sanctions on Venezuela’s economy, and there are talks to facilitate Venezuela’s return to democracy. So, how did Venezuela find itself in this position, and what is the likelihood of a return to democracy and a stable economy for this oil-rich country?
Venezuela: a history.
Venezuela discovered huge oil deposits in Lake Maracaibo during World War I, and ever since, its economy has been tied to the price of oil. It has the largest proven oil reserves of any country in the world, and in 1950, Venezuela boasted the world’s 4th largest GDP per capita - although this figure is something of an illusion, as the wealth from its oil production did not spread to many Venezuelans2. In 1973, Venezuela voted to nationalise its oil industry, and as oil prices soared, so too did the Venezuelan economy; conversely, when oil prices plummeted in 1980, the economy suffered the same fate.
“Ten years from now. Twenty years from now, you will see. Oil will bring us ruin” - Pérez Alfonso, founder of OPEC3.
Ibsen Martinez, a leading Venezuelan analyst, describes oil as a poisoned chalice, and the history of petro-states would agree; they are often marred by poor human rights and autocratic governance. As Martinez says, “Deadly fights over who controls the country’s oil revenues become the only important issue in domestic political life. These “wars” over petro-rents annihilate already weakened institutions, favor the concentration of power, promote the bending of the law, and, last but not least, increase corruption which is already all-pervasive.4” In Venezuela’s case, oil has had a negative effect on the economy for two key reasons. The first is the ‘Dutch Disease’ (where an industry dominates a country’s economy at the expense of all others) - which results from a large influx of foreign capital to exploit a resource, which causes the country’s currency to increase in value - thereby making importing goods much cheaper, and also making the national industry much less competitive on a global scale5. The second is the nature of oil itself as a commodity - in that it is both finite and very volatile to price swings. Alex Epstein of the Ayn Rand Centre notes that as oil is finite, governments often feel that they need to spend the money generated from it as quickly as possible, to reap maximum benefits6. This problem is compounded in Venezuela, which has seen a string of populist, socialist governments that have spent the influx of money when oil prices and output have been high, and have been forced to borrow, or print money to make up the deficit when the prices or output fall.
Hugo Chavez
Perhaps the most famous socialist president of Venezuela was Hugo Chavez. Chavez first came into the Venezuelan national spotlight during a failed coup attempt against then-President Carlos Pérez, who had been forced to deploy the military to the streets to prevent looting caused by government spending cuts after the price of oil fell in 1989. Chavez orchestrated the attempted coup, but gained widespread notoriety for appearing on television, calling for the insurrection to end, but stating that they had only failed ‘for now’. He was imprisoned but was released two years later, after Pérez was impeached, and thereafter he set about campaigning to become president, vowing to overcome oligarchy, defeat corruption, and spread Venezuela’s wealth to its people. In 2000, Chavez pushed through a new constitution, removing many of Venezuela’s checks and balances, giving increased power to the president, and allowing him, in his words, ‘to complete his socialist revolution’7.
Chavez’s rule was generally popular, at least for his first two terms, with Venezuela’s GDP per capita rising significantly, an increase in social programs, and improvements in education, social welfare, and healthcare. This occurred during a boom in oil prices, which gave Chavez the money he required to fund such programs. During his time in power, he began to make alliances with other socialist regimes from around the world, seeking to reduce the ‘Global South’s’ reliance on the US. He spoke out vehemently against America’s ‘imperialism’ within Latin America, regularly accusing them of deliberately holding back the continent’s economic progress, via sanctions, espionage, CIA operations, and other means. He also deepened ties with Iran, and Venezuela created the ‘Hugo Chavez Peace Prize’ after his death, which it awarded to Vladimir Putin8.
Nicolas Maduro
Following Hugo Chavez’s death, his vice president, Nicolas Maduro, took power and won a presidential election in 2013 by 0.5% of the vote9. In 2014, however, the price of oil dropped from $100 per barrel to $40, and Venezuela did not have the capital to reinvest in its production, leading to its output dropping by 67%10. In 2014, Venezuela’s crisis started in earnest, with widespread protests, and by 2015, the country’s inflation had gone over 100%. With the situation deteriorating, and 1.2 million people protesting against him, Maduro refused to give in to the opposition; instead having the Supreme Court strip the legislative assembly of any powers, and handing it all to the ‘Supreme Ruling Council’, which was Maduro, and allies11. Opponents denounced this as a coup d’etat, and from then on Maduro has ruled with an iron fist, using the army to crack down on any dissent, and fraudulently winning elections. The situation deteriorated into Latin America’s biggest humanitarian crisis, with inflation reaching around 130,000% in 2018, since Maduro took power, many Venezuelans no longer have access to basic goods, the average salary is around $175, and almost 8 million people have left Venezuela, owing to the poverty, violence, and lack of opportunities.
In 2019, Donald Trump imposed extremely harsh sanctions on Venezuela, hoping to put ‘maximum pressure’ on Maduro to step down and allow a transition to democracy. These sanctions hit Venezuela very hard - both restricting their access to the global financial system, and sanctioning them from accessing many parts required to drill for, and refine oil. While the sanctions hit Venezuela’s economy very hard, they did not impact Maduro - if anything, they gave him a scapegoat to blame his country’s woes on, to placate malcontent amongst the working classes. Maduro has been able to find alternative avenues to keep Venezuela’s elites happy. As Jorge Jraissati, a Venezuelan economist noted in ‘Foreign Policy’, By loosening controls on businesses and allowing elites to profit, fomenting a lucrative narcotrafficking empire in Venezuela, and successfully circumnavigating sanctions with the help of Iran and China, Maduro has managed to satisfy those around him, thus avoiding a palace revolution12.
Heading towards a restoration of relations?
Thus, the US and Venezuela are at an impasse. Venezuela’s economy is still in tatters, criminal gangs control swathes of the country, inflation is at around 300%, hundreds more become refugees every day, and there seems to be no respite. Despite this, Maduro’s grip on power seems firmer than ever, showing that Trump’s ‘maximum pressure’ strategy has been unsuccessful. Venezuela is clearly in crisis, but America is also facing two crises itself - an energy crisis, and a migrant crisis.
In terms of oil, the Russian war in Ukraine, and the sanctions imposed by that have left not just America, but the ‘Global North’ in a position of weakness regarding their oil dependency. Russia and Iran are 2 of the world’s top 7 oil producers, and both are subject to crippling sanctions by the US13. Further, China is the fourth largest producer of oil, and other Middle Eastern states appear in the top 15. With the geopolitical tension with China, over their potential invasion of Taiwan, and with the Middle Eastern political situation looking extremely precarious due to Israel’s current invasion of Gaza, the ‘Global North’ restoring ties with Venezuela would alleviate a lot of pressure.
The second crisis that America is facing is its migrant crisis. Around 2.4m migrants are attempting to cross the Mexican border into the US every year, and this number has spiked drastically since Joe Biden became president. This is quickly becoming a big political issue for Joe Biden, as Donald Trump has called the current president weak, and stated that he would send troops to the border to restore order. Venezuelans are currently the most represented nationality at the crossing, and thus preventing the flow of Venezuelans into America would be key to reducing the overall number of illegal crossings. Venezuelans comprise the biggest nationality crossing the border not just because of the economic situation, but because it struggles to repatriate them. As the US does not have political ties with Venezuela and has sanctioned them on human rights grounds, it is very difficult for them to deport them to Venezuela; in fact, since 2020, over 500,000 Venezuelans crossed the border, but there have not been any repatriation flights14.
On 17th October, the US and Venezuela sent representatives to Barbados to attempt to negotiate a return to democracy for Venezuela, and a normalisation of relations. At first, the talks seemed to be a limited success - Venezuela nominally agreed to allow the opposition to hold primaries for next year’s elections, and in return, America conditionally lifted some of the more draconian sanctions it had placed on Venezuela’s oil industry. The day after, the first flight of repatriated Venezuelans arrived in Caracas from the US, and 2 million Venezuelans voted in the opposition’s primaries for the upcoming election. The day after, however, Maduro’s Supreme Court declared the results to be invalid, calling it a fraud, and annulled the election. As Marco Rubio commented, “They basically wiped out the election. They’ve broken the deal”15.
What will follow is anyone’s guess. Venezuela’s elections are scheduled for 2024, and they will go ahead - how free they will be remains the question. As Nicolas Maduro has been charged a ‘Narco-Terrorist’ by the US, it is unlikely that he will relinquish power, and the most likely outcome is that Maduro’s regime will win the elections - through a combination of mobilising the regime’s supporters, vote buying, opposition intimidation, vote rigging, and any other tactic common to autocratic regimes. The United States is in a challenging situation, as it has backed itself into a corner and left little room for maneuver. It cannot afford to look weak on Venezuela, as many Latinos in America who have fled socialist regimes will refuse to vote for a Democrat should they take a soft stance on those countries, and as a key demographic, Biden must pander to them. Additionally, the US does not want to set a precedent of allowing autocratic, socialist regimes within the Americas - a region that the US considers part of its ‘sphere of influence'.
On the other hand, America also cannot afford the constant influx of Venezuelans illegally crossing the border - with around 50,000 crossing last month alone - nor can it afford to have another oil-producing power be hostile towards them16. Further, the US has tried its ‘maximum pressure’ strategy for four years, and while the effects on Venezuela’s economy have been enormous, it has not served to weaken Maduro, whereas it has had negative effects on the US’s economy and geopolitical position. Lastly, there does not seem to be any precedent for America overthrowing an entrenched autocratic dictator other than via a military coup, as occurred during Operation Condor, or an invasion, as happened to Noriega in Panama in 1989. Mariano de Alba, from the Crisis Group, a think-tank in Brussels, says the US “has several reasons to be careful”, and does not believe that the US will reimpose its harshest sanctions on Venezuela17. It seems that this ideological clash has only produced losers for both sides and while Venezuela’s economy might be in ruins, Maduro appears to be negotiating from a position of strength relative to the Americans. Autocratic socialist regimes have demonstrated resilience in Latin America, with Cuba serving as a notable example. Despite the best efforts of the United States, regime change appears unlikely in the near future.
1 - Hugo Chávez grants rare interview to western media.” The Guardian, 13 June 2010, https://www.theguardian.com/world/2010/jun/13/hugo-chavez-bbc-hardtalk-interview. Accessed 5 November 2023.
2 - “How Venezuela Fell Apart - Knowledge at Wharton.” Knowledge at Wharton, 12 July 2016, https://knowledge.wharton.upenn.edu/article/how-venezuela-fell-apart/. Accessed 5 November 2023.
3 - Martinez, Ibsen. “The Curse of the Petro-State: The Example of Venezuela.” Econlib, 5 September 2005, https://www.econlib.org/library/Columns/y2005/Martinezpetro.html. Accessed 5 November 2023.
4 - IBID
5 - Munichiello, Katrina. “What Is The Dutch Disease? Origin of Term and Examples.” Investopedia, https://www.investopedia.com/terms/d/dutchdisease.asp. Accessed 5 November 2023.
6 - “Three Myths About Oil.” Forbes, 18 June 2010, https://www.forbes.com/2010/06/18/oil-spill-economy-terrorism-opinions-contributors-alex-epstein.html. Accessed 5 November 2023.
7 - Venezuela's Chavez Era.” Council on Foreign Relations, https://www.cfr.org/timeline/venezuelas-chavez-era. Accessed 5 November 2023.
8 - Pons, Corina, et al. “Venezuela creates Hugo Chavez peace prize, awards to Russia's Putin.” Reuters, 7 October 2016, https://www.reuters.com/article/us-venezuela-politics-idUSKCN12801I. Accessed 5 November 2023.
9 - Chavez heir Maduro wins Venezuela presidential election.” BBC, 15 April 2013, https://www.bbc.co.uk/news/world-latin-america-22149202. Accessed 5 November 2023.
10 - Cawthorne, Andrew, and Bernard Orr. “Venezuela says oil exports fell in 2014 to 2.33 mln.” Reuters, 20 January 2015, https://www.reuters.com/article/venezuela-oil-idUSL1N0UZ2GD20150120. Accessed 5 November 2023.
11 - El Supremo venezolano quita los poderes a la Asamblea Nacional y asume la función legislativa.” 20Minutos, 30 March 2017, https://www.20minutos.es/noticia/3000080/0/supremo-venezolano-quita-los-poderes-a-la-asamblea-nacional/. Accessed 5 November 2023.
12 - Jraissati, Jorge, and Wolf von Laer. “Trump's Sanctions on Venezuela Only Made Maduro Stronger.” Foreign Policy, 3 June 2021, https://foreignpolicy.com/2021/06/03/maduro-sanction-trump-biden-stronger/. Accessed 5 November 2023
13 - Oil Production by Country.” Worldometer, https://www.worldometers.info/oil/oil-production-by-country/. Accessed 5 November 2023.
14 - US offers almost 500000 Venezuelans legal status.” BBC, 21 September 2023, https://www.bbc.com/news/world-us-canada-66875264. Accessed 5 November 2023.
15 - Delgado, Antonio Maria. “Washington looking into claims that Maduro already violated accord.” Miami Herald, 31 October 2023, https://www.miamiherald.com/news/nation-world/world/americas/venezuela/article281269483.html. Accessed 5 November 2023.
16 - Montoya, Camilo. “Record number of Venezuelan migrants crossed U.S.-Mexico border in September, internal data show.” CBS News, 4 October 2023, https://www.cbsnews.com/news/venezuelan-migrants-us-mexico-border-september-numbers/. Accessed 5 November 2023.
17 - Venezuela's Supreme Court tests President Joe Biden.” The Economist, 2 November 2023, https://www.economist.com/the-americas/2023/11/02/venezuelas-supreme-court-tests-president-joe-biden. Accessed 5 November 2023.