Even as Cuba thaws its hardline communism, a new geopolitical chill may be settling in South America. In the midst of struggling with North Korea and Syria, the United States may have just been beaned with a retro curveball: Venezuela. The oft-unremembered cousin of authoritarianism, socialist Venezuela is suffering through an economic crisis and authorities have apparently just seized a General Motors plant in Valencia.
Since 1999, as Venezuela’s petroleum-dependent economy suffered, President Hugo Chavez began nationalizing greater and greater chunks of the nation’s industries. That trend has continued under Chavez’s successor Nicolas Maduro, who has blamed the United States for Venezuela’s economic woes. The country’s intense recession, combined with increasing public anger over authoritarian governance, has led to massive protests in recent days that coincide with the GM plant seizure.
The developing crisis in Venezuela appears to hinge on economics: The government is blaming capitalist corporations for the high inflation and shortages of vital goods that plague the public, while protesters are blaming the government itself. Since 2015, unemployment has soared from 7.4 percent to almost 25 percent. Its economic production is plummeting during this third year of recession, and the International Monetary Fund (IMF) is predicting hyperinflation of some 700% to occur this year. The double-whammy of rising unemployment and rising prices, known as stagflation, is particularly brutal to consumers.
Venezuela’s fiscal crises are not uncommon, but the developing protests and seizure of a GM plant come at a terrible time for President Donald Trump and his administration. First of all, the U.S. already has its hands full with Syria and North Korea. In terms of geography, the U.S. has to split its focus, and any resources, significantly. Given the intensity of the current focus on both ISIS and Kim Jong Un, can Washington spare any more resources to deal with Venezuela’s Nicolas Maduro nationalizing U.S. property?
Is Venezuela taking the opportunity to seize U.S.-owned property because it feels that we have our hands full with Syria and North Korea?
The Venezuelan issue is particularly thorny as well due to Citgo, the U.S. oil company that is owned by Petroleos de Venezuela S.A., a state-owned oil titan. Citgo was a major donor to Donald Trump’s inauguration, effectively meaning that the Venezuelan government was a major donor to Trump’s inauguration. Venezuela also put up its shares in Citgo as collateral to be taken by Russia’s state-owned oil giant, Rosneft, if Venezuela cannot pay its loans.
Basically, Russia will take ownership of an American oil company if Venezuela defaults on its loans, which has many U.S. Senators upset.
The deteriorating situation in Venezuela is compounded by traditional Venezuelan ally Russia, with which America’s relations are also deteriorating. Russia, an ally of both Syria and Venezuela, has sought to prop up both governments as a way to maintain its own geopolitical reach. Both Russia and China highly value operating bases in Latin America, especially Cuba and Venezuela, which allow them to keep a closer watch on the United States.
With the U.S. talking tougher under Donald Trump and trying to make aggressive inroads in the geopolitical backyards of both Russia (Syria) and China (North Korea), it is almost guaranteed that those two rival powers will try to put points on the scoreboard by backing up Venezuela in the face of U.S. condemnations.
Politics aside, Venezuela’s crisis also complicates things due to the nation’s status as an oil exporter.
Unlike other nations in severe economic quagmires, OPEC member Venezuela has a hefty impact on global trade due to its oil riches. Letting it collapse into a failed state will have a widespread impact, including on the U.S. domestic oil industry. Bankruptcy of the state-owned Venezuelan oil empire could have hurtful ramifications for the U.S., especially if Russia and China buy it out in a fire sale. Any change in Venezuela’s crude production could also trigger changes in production from the rest of OPEC, significantly affecting oil price.
OPEC lends yet another wrinkle to the problem: With whom will this controversial consortium side regarding the current crisis? OPEC states may offer support for Venezuela’s beleaguered president, hoping to win his loyalty when it comes to cutting oil production. They may try to hasten Maduro’s downfall and remove Venezuela from OPEC, allowing more profit for themselves in future years. Using the Venezuelan issue as leverage, they may try to make deals with Russia and China.
All of these possibilities could have substantial long-term impacts for the United States, meaning the Trump administration should be paying close attention. Knee-jerk reactions over the GM plant seizure could backfire and give Russia and China an opening to increase their power at the expense of U.S. interests. President Trump is faced with the difficult task of standing up for U.S. interests in Venezuela, supporting democracy and the rule of law, preventing Venezuela from devolving into a failed state, and maintaining its focus on both Syria and North Korea at the same time.