The ongoing plunge in global oil prices is pushing Venezuela toward economic collapse just as President Nicolas Maduro — the hand-picked successor to the late socialist Hugo Chavez — faces mounting international criticism for jailing opposition figures after months of street protests.
Where Chavez once drew praise from the world’s leftist elite for using the high price of crude oil during the 2000s to underwrite a socialist revolution, a growing number of analysts in Washington say Mr. Maduro is clinging to power in a country on the edge of becoming a failed state.
Venezuela still boasts some of the world’s largest known crude reserves, but it has continued for too long spending more on government programs than it has collected in oil revenue, analysts say. The average price of oil has dropped from more than $100 a barrel to less than $60 during recent weeks, only adding to Venezuela’s woes.
Simply put, the “current situation in Venezuela is unsustainable if the price continues to fall,” said Michael Shifter, president of the Inter-American Dialogue, a policy research group in Washington. “You can debate what a failed state is and what it looks like, but Venezuela can’t continue like this.”
Others offer an even more stark assessment. “There are parts of Venezuela where the state is already failed,” said Adam Isacson, a senior associate at the Washington Office on Latin America. He said there is “complete lawlessness” along several Venezuelan border zones, and in certain “Caracas slums where you’ve had shootouts between pro-Chavez militias and police.”
Although national security analysts are debating what the Obama administration might be able to do to positively affect the situation, Mr. Isacson said, Washington should, at a minimum, be wary of the security implications at play for the region and the world.
Venezuela is “not an area that you want ungoverned because of the way organized crime could use it as a base,” he said, pointing to a United Nations estimate that at least 200 tons of cocaine cross through the nation en route to Europe and the U.S. each year.
But such realities are largely in the backdrop of more pressing domestic political turmoil that has gripped Venezuela since Chavez died of cancer in March 2013.
While reviled as a dictator by American conservatives and free market advocates in many parts of the world, Chavez carried a glorified status among his supporters during his 14-year rule. He built a cult of personality with followers — the “Chavistas” — who hailed him and his social programs for lifting millions of Venezuelans out of poverty.
At the same time, the nation struggled to overcome basic problems. On Chavez’s death, The Associated Press noted that, as a whole, Venezuelans were afflicted by chronic power outages, crumbling infrastructure, unfinished public works projects, double-digit inflation, food and medicine shortages, rampant crime and one of the world’s highest homicide and kidnapping rates.
Mr. Maduro won a razor-thin victory in a special election a month after Chavez’s death. But the nation’s opposition, famously wealthy and notoriously fractured during the Chavez’s reign, was determined to make a stand. Refusing to recognize the Maduro victory, several opposition leaders called for massive rallies in Caracas under the message that Chavez had spent years squandering the nation’s oil wealth and putting it on a path to financial ruin.
At first, it appeared Mr. Maduro might be able to weather the political storm. But Chavez left huge shoes to fill and demonstrations in Caracas soon spiraled out of control, resulting in the deaths of at least 43 people, including anti-Maduro demonstrators, his supporters and security officials.
The new president then began drawing the ire of international human rights groups by cracking down on the opposition. In February, his government arrested Leopoldo Lopez Mendoza, who had run for president against Mr. Maduro. The 43-year-old Harvard graduate remains in jail on charges of arson, terrorism and homicide.
More recently, the government indicted longtime anti-Chavez activist Maria Corina Machado, charging the former member of the Venezuelan parliament with conspiracy in connection with a suspected plot to kill Mr. Maduro.
Analysts say Mr. Maduro is acting out of desperation to send a threatening message to an opposition eager to seize on his own plummeting approval ratings. Polls put his approval ratings as low 24 percent amid reports that the Venezuelan has no serious strategy for tackling the nation’s more than 63 percent inflation rate and widespread shortages of consumer goods such as diapers, milk and laundry detergent.
The Obama administration’s strategy appeared until recently to be watching the unraveling while nursing a long-delicate balance in which the U.S. buys a small but steady stream of crude oil from Venezuela.
Analysts say President Obama has few strategic options to pursue without triggering a diplomatic confrontation with Caracas because serious criticism or policy shifts from Washington are likely to be seized by Mr. Maduro only as an example of U.S. bullying.
Chavez had a history of boosting his own popularity in the nation and in much of the Latin America by lambasting what he described as subversive U.S. imperialism toward the region.
However, the Maduro government’s jailing of Mr. Lopez and leveling of charges against Ms. Machado appear to have changed things.
Last week, Mr. Obama signed legislation to impose sanctions that could block visas and U.S. market access to Venezuelan officials accused of violating protesters’ rights during the anti-Maduro demonstrations this year.
It remains unclear whether the administration will name any Venezuelan officials with the sanctions. “These are sanctions that don’t have a lot of teeth and are not going to affect a lot of people,” said Mr. Shifter, who believes Mr. Obama support can at least partly be explained by politics.
The president, Mr. Shifter said, has effectively created political cover against criticism from human rights activists for pursing a historic detente this month with Cuba — another leftist bastion in Latin American and longtime ally to Venezuela. “It’s an astute play on Obama’s part to show that he does care about human rights while he’s moving to normalize relations with Cuba,” he said. “It lets the president say, ‘We do care about human rights, look what we’re doing in Venezuela.’”
While concerns swirl about the Maduro government’s human rights posture, Venezuela has grown closer to China.
As Beijing’s energy needs exploded over the past decade, Caracas emerged as a key partner by borrowing billions of dollars from the rising Asian superpower in exchange for cut-rate oil.
Some 95 percent of Venezuela’s exports to the rest of the world consist of crude oil shipments. According to a report by Business Insider, the exports account for more than 60 percent of the nation’s revenue stream.
But in light of its vast government expenditures, most reports maintain that the global price of oil needs to be as high as $120 a barrel in order for Venezuela to turn a profit extracting and exporting the commodity.
With the price having plummeted, Beijing is feeling the weight of risk associated with its investment in Venezuela. “China stands to lose a lot here,” said Mr. Isacson, who maintains that Venezuela owes Beijing $10 billion to $15 billion in oil shipments in exchange for cash doled out to Caracas during recent years.
“China’s stake in Venezuela’s economy is probably greater than the U.S. stake, and it’s not a really winning bet for them right now,” he said. “If they want to prop up a pro-Chinese government in the short term they’ve got to be very gentle about it.”
“China definitely has a reason to root for Maduro, and they have a stake in his ability to remain in office,” Mr. Isacson said. “But I don’t see them giving any more to subsidize their current course because they’re already losing. It would be like throwing good money after bad.”
With the danger of default looming, Venezuela’s ability to borrow more money is drying up. Without more credit, Caracas won’t be able to pay its own bills at home.
The ultimate result, Mr. Isacson said, will be “a huge cutback in basic services, including energy and public security.”
“There will be an immediate impact on housing and food subsidies, meaning the programs that have lifted people out of poverty will go away,” he said.
Such developments are likely to inflame the seething political tensions. Mr. Isacson and Mr. Shifter pointed to vexing uncertainty over who may take over if the Maduro government implodes.
“One should be cautious about predicting the imminent collapse of the Venezuelan government,” said Mr. Shifter, although he said the possibility is real that the nation’s military leaders may suddenly push for his replacement.
“But it’s unclear what the other options may be and who else can do a better job,” he said.
Mr. Isacson went further. “Venezuela’s never had a civil war before, [but] they’ve never been this polarized before, either,” he said. “Assuming things get so bad Maduro can’t govern, then the big question is who has the credibility with enough of the country to actually viably take over?”
“There’s no single figure within the opposition, except maybe the military, so you could be looking at a period of no clear successor, something like Libya after Gadhafi, which hasn’t risen to the level of a huge civil war but is chaotic like Egypt after Mubarak — but with a less-cohesive military.”