US engagement with Venezuela: a complex three-cornered trade

The Biden Administration seeks to craft a Venezuela policy that achieves geopolitical interests, energy security, and democracy promotion in the shadow of the Russia-Ukraine War

Nov 25, 2022

Venezuelan President Nicolas Maduro. Image credit: Agence France Presse

A significant turnaround in US policy towards the Socialist regime in Venezuela is gathering momentum this week. The Biden Administration is poised to allow US oil company Chevron to expand its existing lowkey operations in the country, easing the “maximum pressure” sanctions put on Venezuela by Donald Trump. In return, the government of Nicolas Maduro has agreed to resume talks with the US-backed opposition movement, broken off in October 2021. The endgame of this US shift from seeking to isolate Maduro’s regime to engaging with it is to prise Venezuela away from its alliance with Russia, China, and Iran, and to re-integrate it – and its energy resources, the largest on the planet at an estimated 300 billion barrels of oil – into the US-led Western Hemisphere bloc. This policy transition, involving complicated layers and interactions of geopolitics, energy security, and democracy promotion, is still unfolding.

This US shift to re-engagement has been spurred by America’s need for alternative sources of oil after the Biden Administration banned imports of Russian crude 8 days after Russia’s invasion of Ukraine. For much of the 20th century, oil was Venezuela’s primary export, and its primary customer was the USA. However, hostile relations between the two states have undermined the export relationship between them in the 21st century.

Up until now, US policy has deployed the promotion of democracy in Venezuela as a vehicle for removing the state’s Socialist government and re-integrating it into the US-led Western Hemisphere bloc. This dynamic began under Venezuela’s former leader, Hugo Chavez, who instituted direct government control of PDVSA, Venezuela’s state oil company, raised the amount of royalties payable by foreign oil companies in Venezuela, and was critical of US foreign policy. During his time in office, Chavez accused the US of spurring a coup attempt which briefly removed him from power in April 2002 and of supporting a strike by oil workers in 2003. More generally, Chavez argued that democracy promotion programs carried out in Venezuela by the United States Agency for International Development (USAID) and the National Endowment for Democracy (NED), an autonomous but Congressionally funded US democracy foundation, were aimed at supporting opposition parties to destabilize his government and defeat him at the ballot box.

The apex of hostility was reached under the Trump Administration, which made a concerted attempt to overthrow Chavez’ successor, Maduro, in 2019-2020. While Trump did not accept democracy promotion as a general principle of US foreign policy, he deployed pro-democratic rhetoric to criticize Maduro’s increasingly dictatorial regime. However, his hostility was more likely spurred by the Maduro regime’s increasing ties to Russia and China. These ties provided an opening for the two states tagged as the US’ key rivals for global hegemony in his administration’s 2017 National Security Strategy to increase their influence in Latin America – a region long seen by US policymakers as the USA’s “backyard”.

Trump’s campaign against the regime was multi-faceted. Economically, the Trump Administration intensified and added to US sanctions on the country to place “maximum pressure” on the already-crumbling economy. Politically, it supported an opposition group led by Venezuelan legislator Juan Guaido, who declared himself Interim President in January 2019. This top-down diplomatic pressure was supplemented through bottom-up aid to strengthen civil society groups and movements opposed to the regime. In 2019 and 2020, USAID allocated $9 million for these programmes, while the NED increased its aid for groups within Venezuela from $2.4 million in 2018 to $6.1 million in 2019.[1] The objective of these actions was either to pressure Maduro into resigning or to encourage mass popular demonstrations that would force him to step down, replacing him with a government more friendly to the United States. However, Maduro weathered this effort due to the continued support of the army and the security forces.

Juan Guaido speaking at a rally in Caracas, May 2019. Image credit: Daily Caller.

In its first year, the Biden Administration’s Venezuela policy seemed to be a dialled-down version of the Trump approach. Biden backed away from Trump’s attempt to seek an immediate regime change in Caracas but maintained a policy grounded in democracy promotion, explaining US policy in pro-democratic rhetoric and supporting negotiations between the Interim Government led by Guaido and the Maduro regime on a return to democracy through scheduled Presidential elections in 2024. He also maintained the “maximum pressure” sanctions imposed under Trump.

However, changes in the position of the Venezuelan regime and opposition, coupled with the changed global geopolitical situation in the wake of Russia’s invasion of Ukraine, has created a new situation for the key players. The Russia-Ukraine War has made it more imperative for the US to craft a policy toward Venezuela which allows sanctions to be eased or lifted so that oil exports to the America can be resumed. While Venezuela’s production capacity has fallen from a peak of 3-3.5 million barrels per day (bpd) in the 1990s to approximately 600,000 bpd this year, this would still fill a supply gap. The lifting of sanctions could also allow US oil companies to resume operations in the country to further tap its large reserves.

On the other side, the Maduro regime has calculated that it needs an accommodation with the United States to create the long-term stability in Venezuela necessary to maintain itself in power. The combination of the fall in oil prices from 2013 until recently, the regime’s mismanagement, and Trump’s “maximum pressure” sanctions have combined to produce an economic and humanitarian crisis in the country, with 96% of Venezuelans living in poverty and 5.6 million having fled the country.[2] While the Venezuelan economy has recently begun to improve due to a raft of currency and free market reforms implemented by the regime in 2021, the level of economic growth is not sufficient to end this crisis, raising the risk that the regime will become unstable.

Raising levels of oil production is fundamental to avoiding this, but Venezuela’s oil infrastructure requires substantial repairs and an investment of around $250 billion over 7-8 years to bring oil production back to 1990s levels. Neither Russia nor China can supply these. Instead, spare parts, technology, and investment from Western oil companies are needed. Therefore, the Maduro regime needs to establish a rapprochement with the US, and the Biden Administration’s increased need for oil imports due to the Russia-Ukraine War has provided it with a possible opening.

Image Credit: The Toronto Star

In addition, the Venezuelan opposition has grown weaker and Guaido has lost much of his initial support within and outside Venezuela. Within Venezuela, the opposition has split into contending factions divided over whether to participate in elections organized by the regime, which are likely to be fraudulent, or to negotiate for fairer electoral conditions. Guaido’s external support has also diminished, with the EU withdrawing its recognition of him as Venezuela’s interim president in January 2021. This has made Guaido’s Interim Government a weaker ally of the US than previously.

These factors have led to increasing diplomatic signalling since Russia’s invasion. This began days after Putin’s attack, when a delegation of US national security officials landed in Caracas to negotiate with the regime over a prisoner swap on 5 March and continued in May with the Administration’s decision to allow Chevron to open talks with the Maduro Administration on future ventures in the country. At first glance, the increased salience of Venezuela’s energy reserve to the USA, the Venezuelan regime’s need for Western investment, and the weakness of the opposition, opens up the possibility that Biden and Maduro could strike a simple geopolitical deal, trading a lifting of sanctions by the US for an end of Venezuela’s ties with Russia and China, which would drop democracy promotion as a component of US policy.

However, this would be too sweeping a conclusion. The Biden Administration has so far maintained its position that the Maduro regime and Guaido’s Interim Government negotiate over conditions for the 2024 Presidential election in Venezuela. This means that a democracy promotion-based approach which seeks to remove Maduro through the ballot box and replace him with friendlier leadership is still on the table, for three reasons. Firstly, US policymakers have come to believe strongly since the end of the Cold War that democratic government is the most effective guarantee of stability – and this applies especially strongly to the liberal internationalists who make up much of the Biden Administration’s national security personnel. Maduro’s polarizing dictatorial regime is unlikely to deliver political stability and end the spillover of Venezuela’s crisis into the region. Secondly, stability, in turn, will likely be necessary to convince Western oil majors to make the massive investments in Venezuela’s oil infrastructure which are necessary to raise its production. Without these investments the US would gain a small and immediate replacement for oil exports, but it would lose out on the greater energy security gains that would be supplied by a return to high levels of production and the tapping of new reserves. Thirdly, Maduro, if he continued in office, might seek to play the USA off against Russia and China to maintain his freedom of manoeuvre, thus posing a continuing geopolitical risk.

The period until the 2024 Venezuelan Presidential election, then, is likely to feature complex manoeuvring on all sides, as the participants seek to horse-trade geopolitical alignment, political space in Venezuela, and energy exports. Maduro will negotiate with the Guaido-led opposition over conditions for free and fair elections to keep the door open for US or other Western investments, while seeking to make only minor concessions that will not affect his ability to game the electoral system and hold on to power. The US will alternately issue sanctions waivers to allow oil companies to work in Venezuela and Venezuelan exports to go to the US to fill supply gaps, while clamping down at other times to force concessions from Maduro. The Administration and the Interim Government will have a common interest in using this lever to pressure Maduro to agree to conditions for the 2024 election which make it feasible for him to lose it, while also allowing more open political organizing, supported by NED and USAID programs to unify and strengthen opposition groups over the next two years. Maduro may be willing to risk this, on the assumption that maintaining a trajectory of economic growth will allow him to win the election. However, he will almost certainly turn out to be overconfident.

Although US democracy promotion in Venezuela will sometimes be slowed by the need to boost US energy supplies in the near-term, the US approach to Venezuela under Biden will seek to utilise the promotion of democracy as a vehicle to create a Venezuela that is a stable, friendly provider of energy to the United States.

Leviathan

Discussion about this post