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Has Venezuela’s Crisis Reached A Tipping Point?

Has Venezuela’s Crisis Reached A Tipping Point? thumbnail

051117_venezuelaunrest

Venezuela’s ongoing economic and humanitarian crisis has assumed graver proportions over the past five weeks and pressure is mounting for a regime change, even as doubts persist over the likelihood of the next presidential elections, originally set for October 2018. Fresh protests broke out after President Nicolas Maduro earlier this month signed an order aimed at forming a new constituent assembly of some 500 members and rewriting the country’s constitution to reshape his powers and those of legislators.

Many Venezuelans clearly saw Maduro’s ruling as a way to snatch powers from the opposition-led National Assembly and consolidate it in a constituent assembly over which he might have a better hold. “[Maduro] tried to do this as a way to unite the country, but it was seen as an attempt to retain power and sparked the latest round of protests,” said William Burke-White, director of the Perry World House and professor at the University of Pennsylvania Law School.

Venezuela’s crisis has probably hit a tipping point and Maduro’s days in power are numbered, said Burke-White. “The path forward is Maduro will be pushed out of power, or there will be a repressive, horrible crackdown where the death tolls keep mounting,” he noted. “It may be better to be moving in that direction [towards Maduro’s ouster] than be in an ongoing political quagmire that we have been in for the last few years.”

According to Dorothy Kronick, a political science professor at the University of Pennsylvania, “The best way forward for Venezuela would be elections and having a new government in power.” She noted that 2017 is the fourth consecutive year of negative GDP growth for Venezuela; last year, its economy contracted by more than 17%. “There are devastating shortages of food and medicine, and inflation is above 300%. And there is tremendous suffering.”

Burke-White and Kronick discussed the scenarios likely to emerge in Venezuela in the foreseeable future on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

Move to Consolidate Power

The recent crisis had its first flash point on March 29, when the country’s Supreme Court passed a ruling to assume the functions of the National Assembly, but strong protests forced it to subsequently backtrack. Meanwhile, protestors continued calling for elections and a regime change. Maduro, who was elected in 2013 after the death of Hugo Chavez, signed the executive order to form a new constituent assembly and rewrite the constitution on May 1. “We must modify this state, especially the rotten National Assembly that’s currently there,” he had said.

Opposition leaders are pressing for a removal of the Supreme Court justices who issued the March 29 ruling, general elections in 2017, the creation of a humanitarian channel for medicine imports and the release of all political prisoners, according to a BBC report.

“The oil industry is no longer able to provide the economic support that Maduro needs to consolidate, or buy off, power.”–William Burke-White

Burke-White did not expect elections to happen anytime soon. He noted that Maduro had indicated that fresh elections would be held as part of the new constitution. “His [United] Socialist Party [of Venezuela] would lose those elections if they were held today,” he said. “Much of this is a move to push those elections out indefinitely.”

Maduro’s plan for the new constituent assembly is to have about half of its 500 members elected directly from among all sections of Venezuelan society, including workers, youth, women, peasants and indigenous people, according to a CNN report. The other half would be made up of delegates chosen from among businesses and workers’ collectives. Kronick noted that the provisions in the rewritten constitution would “undoubtedly … favor the government.” She also predicted that the Maduro government would try to ensure that the convention “is full of delegates that are its supporters.”

Even so, with Maduro’s low approval ratings, Maduro is taking a big risk, according to Kronick. “His approval ratings are so low that even with electoral rules that are extremely favorable to the government, the opposition could potentially gain control of this constitutional convention,” she said. “That could be very dangerous to the government and lead to regime change.”

With growing protests, Maduro had his back against the wall, according to Burke-White. “He didn’t have many cards left,” he said. “This was a tactic that was legal within the constitutional structure — that the president can call for a new constitution — which you wouldn’t undertake if you weren’t in this moment of desperation.”

An Economy Embattled

Along with those political uncertainties, Venezuela’s economy is also in a sorry state. Oil accounts for 96% of the country’s exports, according to World Bank data, and low oil prices have taken a huge toll. Venezuela has the world’s largest proven supply of oil reserves, but much of that oil has high extraction costs, noted Burke-White. “When oil prices fall, those are the first to cease production because it is economically unviable to do so.” What makes that situation worse is the country has lost both technical talent (fired by the Chavez and Maduro governments) and investors, after foreign investments in the sector were nationalized. “They have lost a great deal of oil extraction capacity, which has both increased the cost of production and decreased the ability to keep production up,” he said. “The oil industry is no longer able to provide the economic support that Maduro needs to consolidate, or buy off, power.” Added Kronick: “Chavez had a windfall when oil prices rose, and raked in hundreds of millions of dollars, but they were not well invested and were squandered.”

“Certain actions [the U.S.] might take against the government help [Maduro] to be able to more credibly say, ‘This is the imperialist U.S. that is responsible for the problems of the country.’”–Dorothy Kronick

In addition to low oil prices, the Maduro government’s decisions “to maintain some destructive and expensive exchange control measures, and price controls” are responsible for the food and medicine shortages, Kronick said. “Economists have been urging Maduro to introduce “common sense” reforms for years such as lifting price controls, she added, noting that “price controls create shortages.”

Pressures Closing in on Maduro

Meanwhile, Maduro could face other threats as he tries to cling to power. For one, it is critical for him to ensure the military’s support. However, as the economic misery widens, it also affects the families of members of the military, Burke-White noted. “It is much harder to maintain a military-based regime when you have to point your guns at your own people,” he said. “Maduro realizes that that’s the support base he can’t let slip, and if it does slip, it could well be the end of his regime.” Kronick noted that a popular chant during protests translates from Spanish to English as: “Soldier, listen. Join the protest, join the fight.”

Expectations run high that the Trump administration could impose sanctions on the Maduro government. Sanctions might not work well on an economy that is “already devastated,” and “very much isolated and closed from the rest of the world,” Burke-White said. However, if sanctions are targeted at specific individuals or supporters of the Maduro regime, they might work, he added. “Many of those people have bank accounts and condominiums in Miami, and getting them to feel some of the pain a little bit more might work.” However, targeted sanctions against Maduro’s supporters “could raise exit costs for members of the regime” said Kronick. “If they were to leave power, they won’t be able to go to Miami and enjoy their post-government life, and that could actually make regime change more unlikely.”

The U.S. does not seem to have sufficient “diplomatic capacity” to engage with Venezuela, given the understaffed State Department, said Burke-White. But he did note Thomas A. Shannon, Jr., undersecretary for political affairs, is well versed with the region’s problems. In February, Donald Trump and Mike Pence met with Lilian Tintori, the wife of jailed Venezuelan opposition leader Leopoldo López. “The Trump administration is much more willing to be much more openly critical of Venezuela than the Obama administration was,” he added.

U.S. involvement in working with the Venezuelan opposition or trying to influence a regime change could backfire and strengthen Maduro’s hand, Kronick said. “Certain actions [the U.S.] might take against the government help [Maduro] to be able to more credibly say, ‘This is the imperialist U.S. that is responsible for the problems of the country.’”

Pressure could build up on Maduro also within the region. Venezuela has been an important trading and energy partner in the northern part of South America, and it has provided aid to many countries in the region in the form of oil or cash. But its current status has left it unable to drive economic growth in the region. It has socialist-leaning countries as neighbors, including Cuba, “but those countries are leaning in different directions at the moment,” said Burke-White. He expected Cuba to be more susceptible to U.S. pressure “not to be as supportive a trading, economic or even health care partner for Venezuela” as it has been in the past. Kronick said pressure could come on Maduro from regional forums such as the Organization of American States.

Indeed, some of that has begun. Burke-White noted that the Argentine foreign minister has openly criticized Maduro’s call for a new constitution. “That is unusual given that Latin American and South American states have traditionally been hesitant to criticize one another,” he said. “We’re starting to see the edges of that tacit alliance begin to crack.”

Knowledge@Wharton



24 Comments on "Has Venezuela’s Crisis Reached A Tipping Point?"

  1. Ghung on Sat, 13th May 2017 9:39 am 

    Trump needs to issue an executive order to make Venezuela great again. That should do it.

  2. Hubert on Sat, 13th May 2017 9:49 am 

    Useless garbage.

  3. onlooker on Sat, 13th May 2017 10:45 am 

    Perfect time for the Capitalist vultures to sweep in ala “The Shock Doctrine: The Rise of Disaster Capitalism” https://www.amazon.com/Shock-Doctrine-Rise-Disaster-Capitalism/dp/0312427999
    Remake the country into a capitalist paradise—–for the 1% that is

  4. bobinget on Sat, 13th May 2017 11:14 am 

    Evidently, ‘People Power’ is working.
    Less certain, who or what takes power when Maduro
    steps (or pushed) aside.

    Our President Trump either has far too much on his plate already or has orders from China and Russia to stand back on Venezuela. Indeed, have you heard a single word about Venezuela from this White House?

    Between China and Russia (remember this mantra: “It’s Always About Oil”)… Russia and China have ‘invested
    over 50 Billion$ in Venezuela’s Orinoco.
    To put it mildly neither has any intention to ‘write off’
    Venezuelan investment having gained some control of White House foreign policy.

    Agreed, matters could spin out of control for the Russians and Chinese if the US President is indicted.
    The way it looks now, Democrats need to control Congress, articles of impeachment won’t happen for a year and a half at best.

    On Topic, This week’s US oil imports from OPEC and Russia will greatly exceed previous last four week’s
    by several million barrels, thereby driving and Venezuelan crude lower.

    Experts are expecting at least a five million barrel surplus. We will know Wednesday.

    Everything is in place to topple Maduro—– replaced by who or what? Expect China to step in with
    big time ‘foreign-aid’. Food, medicine, emergency power, yuan renminbi credits, later, once BAU is established, consumer goods and full-on dictatorship.

  5. Plantagenet on Sat, 13th May 2017 11:46 am 

    I think Maduro has intentionally engineered the economic collapse and famine in Venezuela because there was no toilet paper. The inability to produce toilet paper is a common side effect of socialist regimes, but Maduro figured out that if people are starving then they don’t need toilet paper. Problem solved!

    Cheers!

    Cheers!

  6. Anonymouse on Sat, 13th May 2017 12:26 pm 

    Off your retard meds again plantatard? Maybe you should waddle over walgreens and get your prescription refilled. AND, you can pick up some god-fearing amerikan capitalist asswipe while they getting your retard pills ready.

    Problem solved

    (well not really, no amount of pills can fix retard plant).

  7. Ghung on Sat, 13th May 2017 12:30 pm 

    Funny that, Plant. When I studied in the USSR in ’74 one of the things on our essentials list to take was toilet paper. TP and American blue jeans were like gold on the black market.

  8. rockman on Sat, 13th May 2017 12:33 pm 

    looker – “Perfect time for the Capitalist vultures to sweep in…” I must assume you’re being sarcastic. Venture capitalists (Chinese and Russian) swooped in years ago. And watching them in the process of losing their asses folks shouldn’t hold their breath for another round of capex infusion. At least not until Maduro is out and a new AND STABLE regime takes over.

    If you don’t believe that then maybe you should buy some Vz bonds: their 9.25% bonds are selling for $0.41 on the dollar. LOL:

    “Venezuela’s dollar bonds fell the most in two years on Friday as rising political uncertainty in the South American country rekindled concern over a default ahead of a multibillion-dollar payment due next month.

    The country’s benchmark bond due in 2027 declined 3.4 cents to 46.1 cents on the dollar at 10:08 a.m. in New York, the biggest decline on a closing basis since Jan. 2015, according to data compiled by Bloomberg. Bonds issued by state oil company Petroleos de Venezuela SA were also down significantly, with the $3-billion of notes due in 2035 declining 3.7 cents to 41.3 cents on the dollar”

    Well, ready to become a venture capitalist ready to take advantage of those poor Venezuelans? LOL.

  9. Cloggie on Sat, 13th May 2017 12:38 pm 

    When I studied in the USSR in ’74

    Jeez man, you are a caricature, even better than I had hoped for. Probably Lithuania?

    Forget it, rhetorical.

    Why don’t you start a Stalin fan club with joe, he is still a self-admitted groupie.

    https://drinks-dvq6ncf.netdna-ssl.com/wordpress/wp-content/uploads/2013/05/m62.jpg

  10. onlooker on Sat, 13th May 2017 12:58 pm 

    Rock, you should peruse the book “Confessions of an Economic hitman” If you haven’t already
    At least not until Maduro is out and a new AND STABLE regime takes over. —Let’s face it we all know the pros at intervention and regime change are not {Chinese and Russian) but the West. The carrot and the stick is the tried and true method. Black Ops and some unsavory behind the scenes stuff should finally rid Venezuela of Maduro or should I say rid us. And leave a blank slate for a Western friendly new regime. Then yes, it will be safe for the trans-nationals to come in and especially of course the Oil companies

  11. Kenz300 on Sat, 13th May 2017 1:08 pm 

    One trick pony that relied too much on ONLY OIL for their economy.

    Diversify, diversify, diversify.

    All fossil fuel countries and companies need to look to the future and see a world using less fossil fuels.

  12. efarmer on Sat, 13th May 2017 1:54 pm 

    Watcha gonna breathe? Russia and China have $50B plunked down on Orinoco basin plays. Chump change for U.S. Government or Industry. Lifeblood for the Venezuelan people.Cuba played a desperate Cold War card AFTER hoping the U.S. would put it’s human rights and freedom schtick above political influence from folks who like Havana as a sin city and casino and whorehouse as easy to hit as South Florida without the rule of law from the East Coast in the heady 1950’s. Are we over the mob doing the nasty in the 50’s for the WWII victor nation recreation destination yet?

    http://saferenvironment.files.wordpress.com/2008/08/world-rainforest-map.jpg

    I am not sure building the Great Wall of America on our Southern Border shows the continent South of us that we are evolved much 1955. The world is though…

  13. rockman on Sat, 13th May 2017 3:45 pm 

    Looker – “…the pros at intervention and regime change are not {Chinese and Russian) but the West.” Pros…today? As Dr. Phil would ask: “How’s that working for us?”.

    How much tax money and military lives has the US spent over seas and Canadians are still our largest source of oil. Hell, we could have them as easy as a john flashing a $100 bill at a crack whore. And the second largest supplier…Saudi Arabia. Can you name a more stable government in Middle East? Hell, much of that stability the result of buying hundreds of $billions in US military hardware over the decades. I suspect the Saudis have more concerns about potential regime in the US then we have about their stability. Especially after the last election. LOL.

  14. bobinget on Sat, 13th May 2017 5:40 pm 

    “Saudi Arabia Implodes”

    There’s your headline.

    Fact: Saudis with US assistance have been bombing, blockading, starving to death millions of Yemenites for two years.
    https://en.wikipedia.org/wiki/Yemeni_Civil_War_(2015%E2%80%93present)

    As for selling arms, it doesn’t stop there.
    https://www.usatoday.com/story/news/world/2015/04/08/saudis-air-refueling-yemen-uae-houthis/25468119/

    If you believe the US is helping Saudi genocide out of the goodness of our hearts, you don’t know where US oil imports come from.

    http://www.military.com/daily-news/2017/02/15/2-years-yemen-war-us-ramps-up-refueling-saudi-jets.html

    “Worst food crisis in UN history”
    http://www.aljazeera.com/news/2017/03/famine-united-nations-170310234132946.html

  15. Davy on Sat, 13th May 2017 5:43 pm 

    Bob, is Iran playing a part? Just curious how biassed you are.

  16. bobinget on Sat, 13th May 2017 5:47 pm 

    AS for price of oil– PoO—
    The world is one successful missile strike* away from
    all out war between Iran and Saudi Arabia.

    Just roll that around on in your minds.

    *http://www.zerohedge.com/news/2016-08-26/oil-spikes-iran-report-saudi-aramco-facilities-hit-yemen-missiles

  17. bobinget on Sat, 13th May 2017 6:09 pm 

    Davy,
    Did you read any of those links?
    Biased?
    The war on Yemenis, tearing Saudi Arabia to shreds.
    Making war criminals of the US military. Davy asks if I’m biased?

    How many Black Muslim children do Americans, Israelis, and Saudi need to murder before the Arab Street rebels?
    What business does the US have intervening ?
    Oil business, that’s what.
    Was it worth a million black Muslim lives to secure a shipping choke point?
    Was/is there another way?

    So far, KSA/Iran are still backing ‘proxy’ wars. Because the Saudis are burning money and any islamic good will supporting these wars. At some point, proxy wars go out of control.
    https://en.wikipedia.org/wiki/Proxy_war
    This has nothing to do with President Trump, BTW.

  18. Davy on Sat, 13th May 2017 6:53 pm 

    Bob, did I say KSA was not involved in a criminal war with US support? No because I didn’t. I merely commented on your bi-ass point of view. Iran is part of this criminality and you never say one word in regards to them.

  19. Davy on Sat, 13th May 2017 6:55 pm 

    “Black Muslim children” are you losing it Bob? Yemen is not black.

  20. deadlykillerbeaz on Sat, 13th May 2017 8:45 pm 

    The people in the photo don’t look like they’re starving to death, are wearing clothing that is in good shape, not dirty, nice colors on that flag, they have hats and sunglasses, it looks more like a picnic than a protest.

    You’d think the Chinese could ship the Venezuelan folks some toilet paper for some oil.

    Those are clean cut local yokels, they must have a soap glut. They don’t appear to be suffering, wallowing in misery.

    Not buying any of it.

  21. Davy on Sun, 14th May 2017 6:02 am 

    Venezuela is what is coming to the rich world once globalism breaks down for multiple possible reasons. The starvation is what is coming to the 3rd world. Once the rich world goes 3rd world then starvation is coming to it. Who knows the combination and the recipe but it is pretty obvious how things fall apart and the nature of that unraveling depending on the starting point. Some reasons alone can cause this breakdown other circumstances may be multiple reasons over time. However we get there it may not be we are starving in the beginning.

    There is no starvation in Venezuela other than on the very fringe. I imagine the people are starting to shine because obesity is down. I have met some hot Venezuelan women. The issue is modernism is decaying. Dysfunction, economic abandonment, and physical decay is creeping into a complex system. Irrational actions combining into a break in normality.

    Venezuela is lucky because the global system is still humming. They have oil and oil still has value. Those with money can skip over to neighboring countries. What is likely coming is the bad without the relief valve because this is going to be all of us together in a world in overshoot with lower economic activity. Problems will magnify and new ones surface. There will be few places people will be able to go. The trip may be worse than making due with what at home. How that shakes out and when is an open question because we just don’t know what minimums will be breached or what black swans will hatch. We likely have time if we can avoid destroying globalism in a war. We have a lot more earth to destroy before we destroy ourselves.

    Now is the time for life boats and hospices. Venezuela is not really at that stage because they are a localized failure with the ability to reboot with a still humming globalism. The hospices and life boat planning is for when nowhere will reboot much if any. It will be a vortex of decline at some point and with a velocity of crisis. It is likely if some Venezuelans had prepped they would be in much better shape than those who were oblivious to this process. This is a valuable lesson if you are smart. Make some basic efforts and it will pay off. We may have some years but I doubt more than 10 years of normal. Also realize this is a slow boil so normal is a daily decline. Our Venezuela is coming then it will be our Darfur.

  22. Hubert on Sun, 14th May 2017 10:52 am 

    Nobody cares. World needs to downsize by -6 billion people.

  23. rockman on Sun, 14th May 2017 12:13 pm 

    Just a side bar about potential military conflict with Iran. Last week the Iranians tested the HOOT torpedo. Reported to have a 6 mile range and a speed of 250 mph No, not 25 mph…250 mph. Based upon tech they got from the Russians. A “cavitation” tech: uses jet fuel to produce an air bubble around it and reducing friction. About 3X as fast as our Navy torpedoes.

    That’s has to be some concern for our boys in the Gulf. Especially with those Iranian fast boat head fakes they’ve been testing for a while.

  24. Anonymouse on Sun, 14th May 2017 3:31 pm 

    I am sure the world wishes the Iranians all success on their torpedo tests. After all, Iran has a right to develop and test weapons for self-defense. The same right all nations tend to reserve for themselves. And while we are here rockerman, maybe you can explain what ‘your boys’ are even doing in the gulf 1/2 a world a way from amerika in the first. Im sure many in the world would agree, that ‘your boys’ (CIA, Mossad,) amoung them, have long over-stayed the welcome they never had in the first place. The ones that ‘invited’ the uS the area, are regimes the uS, Israel and the Uk primarotly, installed in the first place. The uS has no mandate to base its farces in the area, from anyone other than uS installed tyrants and retrograde monarchies that is.

    Time for yankee to go home, and stay there. And if it takes sending a few of ‘your boys’ to the bottom of the ocean to drive that message home, well, so be it. Far better to just have the uS economy(and its petro-dollar hegemony) implode and force amerika to retreat more or less peacefully. But, never hurts to be prepared if they wont. (and amerika never retreats voluntarily, and seldom peacefully – see Vietnam, Afghanistan Iraq etc.

    If

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