“Even though the U.S. has sanctions in place against Russia, much of the Venezuelan oil controlled by Russia ends up at refineries in the United States.”
This week, President Trump expressed his concern with the situation in Venezuela. His comments caused many rebukes from several Latin American countries, especially Venezuela. With the election of President Maduro, Venezuela is effectively a dictatorship.
Maduro’s socialist government is increasingly turning to Russia for the cash and credit it needs to survive — it’s offering prized state-owned oil assets in return. Venezuela is trying to deal with an economic meltdown and violent street protests, and Moscow is using its position as Venezuela’s lender of last resort to gain more control over the OPEC nation’s crude reserves, which are the largest in the world.
Venezuela’s state-owned oil firm, Petroleos de Venezuela, has been signing agreements with Russia’s biggest state-owned oil company, Rosneft. The Maduro government has offered ownership interests in up to nine of Venezuela’s most productive petroleum projects.
“Since 2008 we are seeing an increased Russian presence in Latin America through propaganda, military arms, and equipment sales.” – General Jon Kelly, President Trump’s Chief of Staff
Vladimir Putin is using Russia’s leverage in the negotiations. Cash from Russia and Rosneft is crucial in helping Maduro avoid a sovereign debt default or a political coup. Rosneft delivered Venezuela’s state-owned firm more than $1 billion in April alone in exchange for a promise of oil shipments later. On at least two occasions, the Venezuelan government has used Russian cash to avoid imminent defaults on payments to bondholders.
Russia expands control
Rosneft has already been sanctioned by the United States over Russia’s annexation of Crimea from Ukraine in 2014. Such actions require U.S. firms to end business relations with sanctioned entities. Even though the U.S. has sanctions in place against Russia, much of the Venezuelan oil controlled by Russia ends up at refineries in the United States. Through the use of intermediaries, such as oil trading firms, Russia can circumvent restrictions.
“Rosneft is definitely taking advantage of the situation,” said Elias Matta, vice president of the energy commission at Venezuela’s elected National Assembly. “They know this is a weak government; that it’s desperate for cash and they’re sharks.”
Russia’s growing control over Venezuelan crude gives it a stronger foothold in energy markets across the world. Rosneft now resells about 225,000 barrels per day of Venezuelan oil. That amounts to 13 percent of the nation’s total exports.
Maduro’s administration has grown increasingly dependent on Moscow. Venezuela gives Rosneft most of the oil as payment for billions of dollars in cash loans that Maduro’s government has already spent. Increasingly, Venezuela needs Russia’s money to finance everything from bond payments to imports of food and medicine amid severe national shortages.
Rosneft currently owns substantial portions of five major Venezuelan oil projects. The additional projects that Petroleos de Venezuela is now offering the Russian firm include five in the Orinoco area, Venezuela’s largest oil producing region, three in Maracaibo Lake, its second-largest and oldest producing area, and a shallow-water oil project in the Paria Gulf.
Russia is snapping up any and all oil projects it can in Venezuela. As other multinational firms worldwide scale back or shut down Venezuelan operations, Rosneft is doing the opposite. Russia sees Venezuela’s hard times as a buying opportunity for oil assets with potentially high long-term value.
“The Russians are catching Venezuela at rock bottom,” said one Western diplomat who has worked on issues involving Venezuela’s oil industry in recent years.
Last month, Reuters reported Rosneft would swap its collateral on 49.9 percent of Citgo, the Venezuelan owned, U.S.-based refiner, for stakes in three additional Venezuelan oil fields, two natural gas fields, and a lucrative fuel supply contract. Under the proposal, Rosneft would also benefit from increased management control over all the joint oil projects between the two firms.
The negotiations over a collateral swap are driven in part by a recent threat from U.S. President Donald Trump to sanction Venezuela’s oil sector as punishment for Maduro’s efforts to undermine the nation’s elected congress.
Maduro’s need for Russian cash played a key role in a move by his political allies earlier this year that destabilized Venezuela’s already teetering democracy. In a spiraling cycle orchestrated by Putin, Petroleos de Venezuela is repaying a growing portion of its mounting debts to Russia with oil. The oil payments are choking off the cash flow from its petroleum business, thereby creating the need for more loans and greater control of the Venezuelan economy and government by Russia.
Rosneft’s involvement in Venezuela can be traced back to a $4 billion arms-for-oil deal in 2006 that cemented the bond between the governments of Chavez and Putin. The U.S. once had a major part of the arms purchases in Venezuela, but since 2006 the U.S. has refused to supply parts for Venezuela’s fleet of United States-built F-16 fighter jets. To counter this, Putin sold Venezuela Russian Sukhoi fighter jets, helicopters, tanks, and guns.
Russia has been swift to defend Maduro’s government from international criticism after the nation’s Supreme Court moved to nullify Congress. Moscow issued a statement saying foreign governments should not meddle in Venezuelan domestic politics. This action has caused the Venezuelan government to vote with Russia on several matters in the UN.
Russian Influence Expands
Latin America is part of the United States’ geographical neighborhood — it is an area where the U.S. claims significant influence. But two years ago, Russian military cooperation began with countries in Latin America that are hostile to the United States — primarily Cuba, Venezuela, and Nicaragua. That cooperation included agreements between Russia and those countries which have enabled Russia to place naval logistic facilities within their territory. This was a clear move on Russia’s part to increase its political influence in Latin America at the same time as the U.S. has taken a back seat.
Countries such as Brazil, Argentina, and Venezuela have increased their cooperation with Russia. Brazil, a growing power, has pushed the recognition of the existence of many world powers as opposed to just one or two. In reality, this represents a reduction of American influence. The increasing military cooperation with Russia is a challenge to the traditional influence of the United States in the Western Hemisphere.
The United States has not been able to influence the Venezuelan dictatorship. The regime of Nicolas Maduro is not only anti-American, but pro Russian. Venezuela and other countries in the region are becoming clients of Putin’s Russia.
General John Kelly, formerly the head of the U.S. Southern Command and Secretary of Homeland Security, now Trump’s Chief of Staff, said “Since 2008 we are seeing an increased Russian presence in Latin America through propaganda, military arms, and equipment sales. As part of its global strategy, Russia is using power projection in an attempt to erode U.S. leadership and challenge U.S. influence in the Western Hemisphere.”
US Influence Fades
Military alliances with Latin American countries secure a Russian strategic advantage in our own backyard.
As in the Middle East, where Russia has taken the lead from the United States as the major power player, the same situation is occurring in Latin America. This situation has much more relevance to the actual security of the U.S. Russian influence and growing power in Latin America places them in a very advantageous position. With logistical bases, military exercises, and friendly states, the return of the Soviet-era doctrine of power through satellite governments is returning. Couple this with the Russian acquisition of the world’s largest oil reserves and it is clear Russia is moving to replace the United States’ influence throughout the world.
Europe, the Middle East, and Latin America are not the only areas where Russia is showing its designs on influence. The Kremlin is quietly making inroads in another region critical to the United States — the five North African states of the southern Mediterranean shore. If this trend continues, soon there will be no region where the United States has the dominating influence and our ability to project power will fade.