Chavez would be turning in his grave

If Washington does not officially recognise President Nicolas Maduro’s government in Venezuela, then why did a “high-level US delegation” fly to Caracas to meet him this week, especially so soon after he emerged as one of the very few international leaders to openly support Russia’s invasion of Ukraine? According to the Kremlin, he even called President Putin to “assure him of his strong support”, besides condemning the “destabilising actions of Washington and Nato”.

That’s not exactly when you’d expect a so-called brutal dictator of a pariah state, under indictment by the US justice department and being investigated by the Hague, to be cajoled by the leader of the free world, would you? The official line is that the effort was made to “discuss the possibility of easing sanctions” and all that, but the New York Times (NYT) soon reported that Washington wants to replace Russian oil imports to the US, just banned by the Biden administration, with Venezuelan oil.

That, and to drive a wedge between Moscow and Caracas, of course, because Nato cannot possibly send combat troops to Ukraine, but it can do everything possible to isolate and choke Russia for its transgression.

But surely Washington would have anticipated what the ban would do to the oil market, already up more than 60pc since the turn of the year and about 30pc since Russian troops entered Ukraine on Feb24.

The United Kingdom (UK) is not far behind, of course, promising to phase out all Russian energy imports by year-end. Yet the scramble to replace Russian supply, and the lengths to which Washington is apparently willing to go, shows that this move wasn’t thought through beyond wishing to appear tough on Putin.

Even before the war, and what it did to oil, Americans were suffering the highest inflation in more than 40 years. That raised expectations of the Federal Reserve tightening monetary policy aggressively and pretty much took the wind out of the sails of the equity market dream bull-run that was fed by the stimulus programs of the pandemic.

Then the Russia-Nato crisis deepened the sell-off with most sectors of the market turning and only energy sector stocks countertrending. This week started with the tech-heavy Nasdaq down more than 20pc from its Nov peak, which means the highest growth area of equities is effectively in a bear market even before the Fed’s tightening has begun.

Now the same investment banks, whose warnings of $100/barrel oil as the lockdowns eased were brushed off by analysts and governments, are pricing crude at around $200/barrel if sanity does not return to the market soon. Ordinarily, the US, also the world’s largest importer of oil, would count on blind support from Saudi heavy-sour crude flooding the market and bringing down prices in such times.

But that leverage is also no longer available since Putin moved his pieces far more effectively across the Middle East energy chessboard than successive American administrations over the last decade or so. Just this week Crown Prince Mohammad bin Salman (MbS) reaffirmed his country’s commitment to the OPEC+ agreement, which is diplomatic jargon for “no dice” as far as Washington is concerned.

The rush to Caracas came amid all this uncertainty. The move even took CIA client and Venezuelan opposition leader Juan Guaido, who’s recognized by Washington as his country’s legitimate leader, completely by surprise.

But even if this desperate gamble has the slightest chance to pay off, Venezuela’s oil industry would require billions upon billions in infrastructure investment to be able to cater to new demand because, despite boasting the world’s largest proven oil reserves, it’s been crippled by years of US sanctions.

Russia presently exports on average nearly five million barrels of crude oil every day, 671,000 or 13pc of which went to the US before the ban. Venezuela pumped only 755,000 barrels a day during January 2022.

Initial estimates suggest that it will take somewhere around a decade and something like $175-200 billion to ramp up production to the kind of levels that will be needed to replace Russia. That can’t be too easy for Biden to sell at home ahead of mid-term elections, where high fuel prices already threaten a wipeout that could imperil much of President Biden’s domestic agenda.

President Maduro’s predecessor and the main architect of the Bolivarian Socialist Revolution that swept through Latin America a couple of decades ago, the iconic Hugo Chavez, warned that it was “always about oil, never about democracy” when it came to America; as his decision to use Venezuela’s oil for Venezuela’s people triggered savage, vicious attacks from leading western democracies, their intelligence agencies and also Big Oil.

CIA even engineered a failed coup against him in April 2002, which saw President Chavez ousted from office for only 47 hours before the people restored him to power. It was his defiance that made America and its allies so obsessed with sanctioning the country’s oil exports, which then made for 96pc of its reserves.

The way Washington is now approaching Caracas after all this time, just because it’s got itself caught in a tangle and needs a way out, must be making Comrade Chavez turn in his grave.

Copyright Business Recorder, 2022