on geopolitics

Venezuela's on a Road to Nowhere Good

Reggie Thompson
Latin America Analyst, Stratfor
10 MINS READJan 24, 2019 | 06:00 GMT
Juan Guaido, leader of Venezuela's opposition-controlled National Assembly, declares himself interim president during a rally in Caracas against President Nicolas Maduro on Jan. 23, 2019.

Juan Guaido, leader of Venezuela's opposition-controlled National Assembly, declares himself interim president during a rally in Caracas against President Nicolas Maduro on Jan. 23. U.S. President Donald Trump quickly issued a statement recognizing Guaido as Venezuela's interim leader.

  • The United States and Venezuela's government opposition will increase pressure on the administration of President Nicolas Maduro in an attempt to further divide the country's ruling elites.
  • U.S. punitory measures, such as an oil import ban, will drive some military officers and key officials to consider pushing Maduro from office to avoid heavier sanctions and ease internal competition for scarce revenue.
  • The severity of Washington's approach, combined with the Venezuelan government's reluctance to voluntarily step down, make a violent exit for Maduro increasingly likely.

Venezuela is heading toward a chaotic, violent transition of power. The government is fighting a losing battle against declining oil output and its own voracious political elites. Low oil prices, high government spending and extreme corruption destroyed Venezuela's energy sector — the country's sole source of export revenue. Without vast sums of oil money to line their pockets — and fund populist social programs — Venezuela's powerful political leaders have no choice but to compete for what's left of the revenue. And what's left will not be enough to keep all of them happy for long. Irreconcilable differences are fast emerging. Impelled by U.S. sanctions and more intense opposition protests, divisions among the country's rulers are widening. The key questions to ask at this stage are how will members of the Venezuelan government settle their differences — and when.

The Big Picture

Venezuela's steadily imploding economy has concerned the United States for years. But Washington's reluctance to try to topple Venezuela's government was grounded on the fact that the cost of intervention likely outweighed the reward. Yet now, in Washington, discussions of a Venezuelan oil import ban are once again circulating. Venezuela's political situation is extraordinarily unstable and hawks in the Trump administration are pressing for heavier sanctions. Whether President Nicolas Maduro's government falls from within or gets a shove from Washington, a violent transition of power in Caracas is becoming a much more likely scenario. A transition away from Maduro would leave a weak government in power that is ever more dependent on outside powers for assistance.

We follow Venezuela closely at Stratfor for a variety of reasons. But chief among them is a simple fact: The nature of the current government's fall from power will greatly influence how important the economically isolated, deeply impoverished country will be to the outside world. How and when the country's elites settle their differences matters because Venezuela stands to suffer serious damage — both political and physical — as it transitions away from President Nicolas Maduro.

At this point, it will be almost impossible for Maduro to avoid a chaotic outcome. Allowing free elections — as the United States and Venezuela's opposition demand — is now off the table. Maduro is rightfully afraid the opposition, bolstered by former allies, will put him on trial for presiding over Venezuela's descent into dictatorship and economic crisis. Therefore, he will resist attempts to push him from power, raising the odds of a violent transition. The Trump administration's stance on Venezuela is key to the timing of Venezuela's transition of power. The White House is considering an oil import ban that, if enacted, would virtually guarantee deeper splits within the ruling party. But an oil import ban and even heavier sanctions are not inevitable — there are arguments within the U.S. government for and against such action. But a punitive scenario is worth exploring because it would drive Venezuela's relationship with the United States down a more complicated path.

A Consensus That Maduro Must Go

If there is one thing that the United States and its Latin American allies can generally agree upon, it's that Maduro must go. The Venezuelan political opposition, other Latin American states and the rest of North America all see Venezuela as a tinderbox awaiting a spark to force a regime change. The consensus is that Venezuela's social crisis has reached a point where applying more diplomatic and financial pressure will eventually force the Maduro government from power.

Venezuela's long-marginalized opposition made its intentions for 2019 quickly known. Its plan hinges on nationwide protests to try to force Maduro from power. Drawing on a clause in the country's constitution that allows Venezuelans to rebel against an illegitimate government, Juan Guaido, the president of Venezuela's opposition-controlled National Assembly, earlier this month said he was the legitimate heir to political power in Venezuela. On Jan. 23, he declared himself interim president. U.S. President Donald Trump quickly issued a statement recognizing Guaido as Venezuela's interim leader. Brazil, Colombia and other Latin American countries soon followed suit.

The conditions for Guaido's announcement were set on Jan. 4, about a week before Maduro was set to begin a heavily contested second term, when almost all Latin American states refused to recognize the Maduro government as Venezuela's legitimate governing body. Of more concern to Caracas, however, was news that the White House was seriously mulling the possibility of an oil import ban. While not a new consideration for the White House — officials have talked about an oil import ban for more than a year — the timing was particularly bad for Maduro. Though the ruling government could quickly look for (and likely find) buyers for some of its oil elsewhere, major producers — fearing a tougher sanctions regime is just over the horizon — would flee the country, worsening Venezuela's oil production decline. The Venezuelan government's only source of revenue would shrink further, placing more pressure on Caracas to find alternate sources of income to keep military commanders loyal and political alliances within the ruling party intact.

The Venezuelan opposition, other Latin American states and the United States all regard Venezuela as a tinderbox awaiting a spark to force a regime change.

But Washington did not arrive at this strategy because Maduro's removal holds strategic significance. Venezuela is a geopolitical small fry, located on the southeastern periphery of the Caribbean and of low importance to the outside world until the discovery of oil there in the early 20th century. The country's relevance to global oil markets and lenders peaked in the late 1990s, as its daily oil output hit more than 3 million barrels per day, enough to cement a position as a relatively important member of OPEC. As former President Hugo Chavez increased public spending to curry favor with voters to ensure the survival of his government, public finances and oil output suffered. Foreign investment dried up as expropriations, currency allocation mechanisms and corruption made Venezuela a riskier place to do business. Venezuela faded from the world scene as its oil output declined.

A timeline of recent key events in Venezuela

When it comes to Venezuela, the Trump administration's policies are shaped primarily by events on the ground and disparate security concerns. The country matters to the United States only in niche terms. One specific area of interest involves the bondholders, arbitration claimants and creditors trying to keep Venezuela on track with payments owed. The other key concern is monitored by tactically focused agencies and officials in Washington. The Venezuelan government's less salubrious activities — which include drug trafficking, funding of militants in Colombia, human rights abuses and disastrous economic policies that drive mass emigration into neighboring U.S. allies — place it on a collision course with policies espoused by different parts of the U.S. government. These tactical-level interests serve to prod the Trump administration in a certain direction, namely the one that could drive Maduro from power.

The Risk of Creating Bigger Problems

The concern motivating the administration's position is that left alone, the Maduro government will endure in a shaky political form in which political elites continue to profit from illicit activities. It would take years for Venezuela's competing elites to turn on one another in this scenario. Members of the White House who espouse rapid regime change, such as national security adviser John Bolton, see Maduro's government as being weak and likely to fall sooner if more pressure is applied. The rationale behind this is simple. If the military and political allies buttressing Maduro's rule perceive a more immediate future where oil revenue is scarce and they are left to compete over scraps, they will turn on the president and remove him. The remaining elites would then be more likely to open negotiations with the United States to achieve a form of political coexistence.

But the most serious sanctions being considered by the Trump administration to raise the stakes for Maduro and his allies run the risk of making Venezuela more unstable in the long run, all but ensuring that the United States or other outside powers will play a much larger role in administering Venezuela and funding its reconstruction in the 2020s. Weakened by years of economic mismanagement, any Venezuelan government that succeeds Maduro would be incapable of fulfilling basic governance functions. It would face deficient public infrastructure and a destroyed private sector. And with the country's oil production greatly reduced, it would have a diminished tax base. Washington would sink billions of dollars into Venezuela's reconstruction, but political and economic stability would not quickly emerge. The publicly owned energy sector would require billions of investment dollars to simply maintain oil production. A new government would inherit the problems of the old, and the very issues that irk Washington — such as endemic cocaine trafficking — probably wouldn't improve.

Successfully turning the military against Maduro also risks creating bigger problems for Venezuela and its neighbors. Maduro's political survival — and that of his accomplices — depends on opaque alliances with key military commanders who uphold the status quo out of self-interest. Some of them profit directly from illicit activities and others are monitored heavily to ensure their loyalty. A tougher sanctions regime would significantly weaken key alliances, but if the military were to turn on the state, the situation would quickly devolve into a violent, messy confrontation between factions of the armed forces. Even a short conflict risks damaging roads, bridges, government buildings and electric infrastructure. A prolonged conflict would drive even more Venezuelans into Brazil, Colombia, Ecuador and Peru, raising the financial burden on these governments as they struggle to monitor and assist hundreds of thousands of new arrivals.

No Soft Landing Ahead

The Trump administration's eventual course of action will largely come down to the White House personalities driving policy as it pertains to Venezuela. Whichever officials argue most effectively for or against heavier sanctions will sway Trump's eventual decision on how and when to put Venezuela in a tighter spot. Domestic political factors — such as concerns from Gulf Coast legislators about the effects of sanctions on U.S. refiners, their employees and domestic fuel consumers — will also weigh on Trump. But the mounting tension inside Venezuela will also determine how the outside world reacts. The opposition is ready to stage more protests against the government. Even if these demonstrations fail to unseat Maduro, they will keep the issue of Venezuela on Washington's radar. Events on the ground will also feed back into U.S. officials' perception of what needs to be done about Venezuela. For example, if security forces kill hundreds or even thousands of demonstrators in a short period of time, Venezuela hawks in the Trump Cabinet will immediately make the case for heavier sanctions, and, if the situation is bad enough, military intervention.

Even with heavy sanctions and insurrection looming, Venezuela's leaders can't easily change course to please their opponents. They are too deeply involved in wildly profitable illicit businesses and too well-established in powerful state institutions. Two decades of authoritarian rule have created unresolvable animosity between all concerned. The costs of leaving power voluntarily are far higher than the country's leadership can tolerate. Imprisonment at home or extradition to the United States are likelihoods for many. So they cling to power in the face of massive external and internal disapproval. In this volatile environment, neither the Venezuelan opposition nor the United States can facilitate a soft landing for the Maduro and his supporters. The conditions for a relatively uncomplicated change of government passed years ago. Exactly how and when Venezuela's transition of power comes is an open question, but it's going to be soon and it's going to be a disorderly and potentially violent process.


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