China
could be the new owner of Venezuela's oil industry, by Nick Cunningham, 4/5/18, oilprice.com
Venezuela's
oil production fell by another
100,000 barrels per day (bpd) in March, a devastating blow that will only make
the country's economic crisis worse. Output is expected to continue its downward
spiral; the only uncertainty is over the pace of decline.
As
Venezuela comes apart at the seams, it will hand over more and more control of
its natural resources, and even more power over its institutions, to China,
according to a new report from the Washington-based
Center for Strategic & International Studies.
The
report argues that enormous levels of foreign investment may seem
beneficial, but that Venezuela's economic predicament has actually been made
much worse by China. Taking advantage of Venezuela's desperation, China has
managed to convince Caracas to sign "one-sided
financial agreements" that perpetuate the economic malaise afflicting the
country.
Over
the past decade, China has sent an estimated $62 billion to Venezuela in one
form or another, representing about half of all the money that China has lent
to Latin America. For years, Venezuela has been sending oil shipments to China
as repayment, and last year it shipped roughly 330,000
bpd to China, sales that earned Caracas little or no revenue.
China's
patience with Venezuela seems to have worn thin. Reuters reported last month
that China is likely to roll over a current financing arrangement it has with
Venezuela, allowing for lenient repayment terms, but that it won't lend the Venezuelan
government any more money than it already has. China remains Venezuela's
largest debt owner with $23 billion in outstanding debt.
But
CSIS argues that China remains a key piece of the puzzle propping up President
Maduro's repressive "narco-regime." The think tank says that China's
excessive influence is both bad for Venezuela and it also raises security concerns.
China's
hunger for commodities has led to "long-term dependency," essentially
preventing Venezuela - and other commodity-exporting countries in Latin America
- from ever developing more sophisticated valued-added sectors of the economy.
Venezuela will remain in a colonial-like state, serving as a place for resource
extraction for China's benefit. Indeed, China's appetite for commodities is
only expected to grow.
Moreover,
China's loans to Venezuela are particularly opaque. CSIS says that China has often
routed its investment in Venezuela through Hong Kong to undisclosed locations.
And oil-for-cash deals are especially difficult to track. Countries that overly
dependent on oil exports have historically been prone to corruption, but
China's effort at obscuring the money trail to Venezuela has added "yet
another layer to the entrenched corruption of the Maduro regime," CSIS
wrote in its report. "The international community should be skeptical of
the seemingly endless amounts of untraceable money pouring into a country with
a history of corruption, deep-state narco-trafficking, and without checks and
balances."
That
dirty money is then spent on military weapons, rather than food and other
essentials for the Venezuelan people. Even as the country crumbles and people
go hungry, CSIS says that Venezuela ranks 21st in the world in terms of
military expenditures, and first in Latin America. And all that hardware is
often put to use against its own people.
Meanwhile,
the lack of cash has already resulted in debt defaults. CSIS says that
Venezuela has not paid a sovereign bond since September 2017 and is actually in
a state of default on 16 sovereign bonds, totaling $1.81 billion in missed
payments. Still, up until now, the totals could be minuscule compared to what
might lie ahead in the near future - Venezuela has more than $9 billion in bond
payments coming
due in 2018.
A
full-blown debt default would result in a new stage of suffering for the
Venezuelan people. It would also leave Caracas with fewer options for selling
its oil if creditors around the world try to seize oil shipments. This scenario
would also likely result in even greater influence for China and Russia over
Venezuela's resources.
Chinese
and Russian state-owned oil companies "will probably market a significant
share of PDVSA's exports and operate an increasing share of its production,
guaranteeing the repayment of their loans," according to March report from
the Atlantic Council. In other words, Venezuela will have to more or less hand
over its oil to Chinese and Russian companies if it wants to sell any oil on
the international market at all.
Unfortunately,
there are few good options. The U.S. is reportedly considering sanctions,
although it is unclear when or what form those might take. While there is an
urge to do something, sanctions would likely only deepen the misery in
Venezuela, with uncertain odds of affecting change. Moreover, what is clear is
that U.S. sanctions could knock even more oil production offline, significantly
raising the odds of default, and potentially opening up Venezuela to more
control by China.
Norb Leahy, Dunwoody
GA Tea Party Leader
No comments:
Post a Comment