19 February 2019

Maduro's End Would Be Just the Beginning of Venezuela's Road to Recovery


Extensive U.S. sanctions on Venezuela's oil sector will sharply cut the Nicolas Maduro government's revenue over the next few months.

The Venezuelan president's continued reluctance to step down will increase the threat of U.S. military intervention, as well as the likelihood of a successful coup attempt in 2019.

Efforts to turn military forces against Maduro will require amnesty negotiations in which the United States and the opposition will have to agree to reduce the risk of prosecution and extradition for key Venezuelan military officials.

Though necessary to successfully unseat Maduro, the opposition's bargain with Venezuela's military could also cement corruption in the country's energy sector and further complicate its economic recovery.

An abrupt fall from power is becoming more and more likely for Venezuela's leadership in 2019. Venezuelan President Nicolas Maduro and his political allies are under siege by the resurgent national opposition and now face crushing economic pressure from the United States through heavy sanctions. As Venezuela's crisis advances, the opposition and the United States have all the more incentive to increase their pressure, placing the Maduro government in an untenable situation. There's a good chance that by the end of the year, an interim government — buttressed by military officers and their units that abandon their support for Maduro — will be in power in Caracas. But any new government will be left to fix Venezuela's crippled economy and end enduring corruption from the Maduro administration, risking its success.

The Ticking Bomb of U.S. Sanctions

Under the current economic and political circumstances, time is not on the Maduro government's side. Though Venezuela’s government has faced a declining economy for years, the United States struck a near-fatal blow in late January by dramatically shrinking the pool of Venezuela’s potential oil customers. By April 28, heavy sanctions placed on Venezuela will make it effectively impossible (except in select cases where the United States allows it) for companies involved in transactions with the state-owned oil company, Petroleos de Venezuela (PDVSA), to access the U.S. financial system. The sanctions enacted by Washington have already caused buyers to reconsider purchases of Venezuelan crude oil, sending the Maduro administration scrambling to find new buyers. Tanker companies are wary of signing contracts with Venezuela’s government to ship crude, lest they also come under U.S. sanctions. Even major oil purchasers in Venezuelan-allied countries, such as Russian firm Lukoil, have begun reducing their imports.

Foreign companies' reluctance to buy from or invest in Venezuela's oil sector is already affecting Venezuela's oil production. With fewer tankers agreeing to ship crude abroad, oil is piling up in storage terminals. This has caused PDVSA to slow production from 1.2 million barrels per day to about 1 million barrels per day. Oil is the lifeblood of Venezuela's economy, accounting for virtually all export revenue and government funding. The U.S. Gulf Coast, which until recently purchased half of all Venezuelan oil produced, will stop all Venezuelan crude imports within months. And with the threat of sanctions, it's unlikely that European and Asian buyers will readily purchase oil from Venezuela as well — setting the stage for a sharp contraction in food imports, even higher inflation rates and, most importantly, mass unrest.


The Economic and Political Blowback 

Though the extent to which revenue will erode remains unclear, it's apparent that major revenue-generating oil markets are now largely closed off to Maduro. Russian and Chinese buyers, who may be more willing to import Venezuelan crude despite sanctions because they're less exposed to the U.S. market, may not be an option for Maduro to generate immediate revenue. Venezuela's government has defaulted on loans from Beijing and Moscow that it paid for in oil shipments. Attempts at redirecting oil shipments to Chinese and Russian buyers may be met with demands from Chinese and Russian lenders for increased repayment of loans.

Venezuela's political opposition is also gaining ground among the country's poorer and traditionally less politically active citizens, whom the government could previously intimidate or safely ignore. Many of these poor communities embraced the populist Chavismo movement of Maduro's predecessor, President Hugo Chavez, because of the handouts offered under its programs — but those have dried up under Maduro. These more vulnerable populations have already suffered heavily under the country's economic decline in recent years. And with U.S. sanctions now threatening to eat into oil revenue, it will be these sectors of society that again will be hit hardest, and first.

As the economic crisis deepens, the opposition will offer an increasingly appealing alternative for economic recovery, increasing the likelihood of more frequent, often violent protests in support of a political transition. Snowballing demonstrations across the country also make it easier for dissatisfied military commanders, officers and enlisted personnel to lend their support, raising the risk for a forced removal of Maduro's administration. While military officials have previously received favorable treatment compared to the rest of the population, Maduro will not be able to shield them from the blow of U.S. sanctions this time. This means it’s unlikely that armed forces — whose families often suffer from the same shortages of food and medicine as the rest of the country — will uniformly follow government orders to repress the population.

The Sooner the Transition, the Better

But any opposition-led challenge to the government must succeed as soon as possible, or else risk losing momentum. If opposition leader Juan Guaido doesn't make progress in pressing his claim to the presidency within the next few months, the opposition protests risk losing attendance as poverty-stricken, hungry Venezuelans return home to tend to their basic needs. Aware of this, Maduro will take steps to blunt the opposition's advance to power. Though prolonging his stay in power will not free him from the overall political and economic instability plaguing the country, it will buy him time to craft a plan to escape without falling into the hands of hostile political forces. To accomplish this, Maduro will enlist the Bolivarian National Police (a key Venezuelan national police force) to further squash protests, and will also continue relying on Cuban intelligence to monitor and arrest dissident military officials. However, he will be fighting a losing battle.

The longer Venezuela's government remains under sanctions, the more likely a chaotic transition of power will become. A deepening economic crisis with no hope of recovery (if Maduro stays in power) will cause opposition protests to grow and spread across cities — pressuring the armed forces still loyal to the government to respond with greater force. However, such a scenario would likely raise concerns among Venezuelan military and police commanders because of the United States' warning that mass casualties among protesters could spark military intervention.

A hungrier and poorer population makes for angrier protesters, increasing the likelihood of a violent, military-backed challenge to Maduro's rule.

The timing of any power transition in Venezuela, however, will depend on closed-door negotiations between the opposition and key armed forces commanders. For a transition to come quickly and relatively painlessly, it will need to gain the support of most regional and national military commanders in the country. Otherwise, the change in power could escalate into a conflict between dissident military units and those that remain loyal to the Maduro government.

It's unlikely that Maduro will be able to call on his armed forces to quickly stomp out a rebellion. He's already shied away from deploying Venezuela's National Guard to conduct heavy repression of protests, suggesting he has doubts about military loyalty when ordered to disperse protesters. That being said, the military's national leadership and regional commanders have pledged loyalty to Maduro, and will not switch sides without ensuring their safety in a post-Maduro world. Therefore, persuading more commanders to join the opposition will require an expansive amnesty agreement backed by the United States, which is where many fear being extradited.

Otherwise, commanders will continue to resist — giving Maduro more time in office, as well as more time for the economic crisis to deepen. Citizens will face more severe food shortages, and even soldiers may start to go unpaid. A hungrier and poorer population makes for angrier protesters, increasing the likelihood of a violent, military-backed challenge to Maduro's rule. And while time is not on the government's side, nor is it on the opposition's side. The longer Maduro stays in power, the more likely it is that their offensive to remove him will collapse. And should that happen, the government's political opponents would then have to regroup and reconsider their path to power.
Maduro's End Is Just the Beginning 

With that said, if the opposition is able to strike a bargain with military commanders and successfully unseats Maduro, the Guaido government and its successor will first focus on revitalizing the country's dilapidated oil and gas sectors. Oil will remain Venezuela's main driver of export revenue for decades. And with the private sector largely in shambles after years of hyperinflation, the energy sector will also be the main source of the government's fiscal revenue. To increase this revenue, Maduro's successor will attempt to make investing in Venezuelan oil as low-risk as possible. But that will be a tough sell, to put it lightly.

As part of a successful transition from Maduro, the opposition's amnesty bargain with the armed forces will likely involve allowing the military and political elites that turn on Maduro to retain a degree of influence in strategic sectors of the economy — most notably, in the energy sector. This means a new government will not only have a difficult time rooting out corruption, but that it may have to turn a blind eye to it to safeguard political stability. Though fixing Venezuela's energy sector will inevitably involve sending some corrupt figures to jail, an opposition-led government won't initially be able to press too hard against fraudulent imports related to the energy sector, diversion of state revenue or extensive criminality abetted by the military. After all, its survival will depend on a well-armed military, which could easily turn on Maduro's successor should commanders' interests be affected.

Regardless of when and how it happens, Maduro's exit is on the horizon. Momentum is building for regime change in Venezuela. The opposition will use the coming months to increase pressure on the Maduro administration, which is already under the weight of U.S. oil sanctions. And the longer sanctions and opposition protests last, the weaker Maduro's grasp on power becomes, since he will lack the ability to fight back against opposition leaders or protesters without risking U.S. military action.

But even if and when the opposition successfully unseats Maduro, it will only mark the beginning of Venezuela's long road to recovery. Bound by the bargains it made with Maduro-era elites to secure its rise to power, a new government will inherit a politically unstable, economically damaged country that will prove challenging to its rule and continued popular support.

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