The final political stage of the socialist collapse in Venezuela will be a brutal dictatorship run by Nicolas Maduro. The final economic stage will be a fire sale of Venezuela’s assets to prop it up. Guess who’s snapping up the oil reserves from Maduro? Come on — three guesses, and the first two don’t count:
This is a survival technique in more than one way. Right now, Venezuela isn’t benefitting from its oil reserves because of low prices, but also because the expropriations of assets by foreign firms has led to a brain drain. The political apparatchiks who now run PDVSA don’t have the talent to boost production, even if the financial incentives still existed to do it. That situation has gotten much worse over the past year, as this chart from Trading Economics shows:
Note when the decline in production started for Venezuela. The country had built up its oil industry in the early 1990s with international partnerships, with production peaking in the late 1990s as Hugo Chavez came to power. Except for a few brief bursts of production in 2012-14, it’s been downhill ever since, and is rapidly crashing now. The assets don’t do Maduro any good if they remain in the ground, and partnering with Putin and Rosneft makes sense if they can ramp up production. It does, however, completely negate everything Chavez and Maduro have claimed about their expertise since ramping up the socialist utopia that now has the country starving and marching in the streets. Maduro needs hard currency, and he needs it now before the people put him up against the wall. The opportunity for Putin to get in on the cheap is certainly attractive, but it’s not clear why Putin would want to increase Venezuelan production. Russia’s problem at the moment is low crude prices, which has hammered their energy-centered economy. OPEC is trying to instill production discipline, and may be finally succeeding a bit, thanks to oversell of US supply, as Bloomberg reported yesterday. The consortium will have to deal with rebounding production in Libya and Nigeria, and possibly in Iraq, while reducing overall daily output by over 250 million barrels among the other producers, including Venezuela. He might have more incentives to keep Venezuelan production low to increase domestic production prices, in which case Maduro’s about to really stiff Venezuelans. Mostly, though, Putin’s snapping up these assets because they’re cheap, and because he can. And if Maduro thinks he can play the expropriation game with Putin, well … good luck trying it. He’s about to find out that becoming a client state of Russia is a lot more permanent than partnering up with ExxonMobil. Unless the Venezuelan people act to eject Maduro soon, they’ll be stuck in that position for a long, long time. |
Poster Comment:
I think the next big rush of illegals for our border will be Venezuelans.
This is a readily foreseen tragedy in the making.
#1: misterwhite To: Tooconservative (#0)
Sounds like a solid, secure investment -- until Venezuela simply decides to take it back.
An even better investment would be some farms in Zimbabwe. Or Cuba. Invest a couple of million in businesses in Cuba. Another solid opportunity.
misterwhite posted on 2017-08-11 15:11:27 Reply Private Reply