The U.S. and Russia Are Playing a High Stakes Game of Poker in Venezuela
Email

The U.S. and Russia Are Playing a High Stakes Game of Poker in Venezuela

by | published May 3rd, 2019

As the drama intensifies in the streets of Caracas, the future of Venezuela will play out in a high stakes game of diplomatic poker between the U.S. and Russia.

I have had a chance to compare notes with contacts in the policy apparatus of both nations, and will be conferring with colleagues in the global energy community upon return to my base in Florida tomorrow.

Suffice it to say, this is going to be one long weekend.

Yet three overriding matters of importance have already emerged from my conversations…

A Failed Military Coup

First, Washington wants to guarantee a transition of power without sacrificing U.S. hegemony in the huge Venezuelan oil reserves becoming available.

The heavy oil from the Orinoco basin, until recently considered exportable only at discount, is now an important element in crude mixes needed by refineries globally. That the Citgo network in the U.S. remains owned by Venezuelan state oil company PDVSA is also of concern.

Second, it is no longer enough that the current president there abdicate power and escape to someplace like Cuba.

The Trump Administration has belatedly concluded that allowing him a stage anywhere is tantamount to jeopardizing the transition back in Caracas. The clumsy switch of emphasis in midstream earlier this week out Venezuelan opposition figures in an embarrassing once the crowds flooded into a confrontation with military units still loyal to the incumbent.

Third, the U.S. needs to provide a way out for Russia.

Moscow has provided Caracas with significant financial support, has support troops in country, and will not allow Washington to control Venezuela after any transfer of political power there.

It is this last element that makes the current crisis a source of serious geopolitical friction.

That just happened to be the subject of one of my specialized briefings recently. Entitled “Russian-U.S. Tensions Increase over Venezuelan Oil Control,” it laid the situation out this way:

Venez-Faila

It seems we cannot escape focusing on the collapse underway in Venezuela and the impact that train wreck is having on the world of oil. Yet, there is on overriding reason why this attention is warranted. Unless international parties are very careful, this one is going to usher in some nasty collisions

In both my academic and intelligence careers, I spent a fair amount of time considering what happens in so-called “failed states.”

These are countries in which the government has lost three essential ingredients to rule: (1) sovereignty (determined by the application of central law) over the territory within national borders; (2) overseeing a functional domestic economy and fiscal system; and (3) acting as a working member of the international community. Put simply, a failed state has lost the ability to provide either legal or economic protection to its citizens.

Venezuela fell well within that definition some time ago.

Traditionally, a failed state was hallmarked by an internal administrative implosion – figuratively looking like a ball having its air sucked out. That, in turn, produced a power vacuum that tended to suck in both neighboring states and major global players.

As I came to recognize personally during the Cold War, failed states were dangerous as a cause of heightened tensions between dominant powers. Upon occasion, usually through the use of surrogates, that would even extend to hostilities.

More recently, there has been an alternative developing in which failed states are marginalized rather than targeted by the big boys. But that has not been the case when the states in question have something the major powers cannot ignore.

Like oil.

Monroe Doctrine, Monroe Problems

Venezuela need not be regarded as an emerging fire sale for this to occur. Yes, on paper Caracas has the world’s largest crude reserves and, until a few years ago, was regularly the second largest producer in OPEC (after Saudi Arabia).

But this is not a 1941 Japan desperately looking for a source of energy. Both primary countries in the current environment – the US and Russia – have ample domestic supply and are two of the three (once again, the other is Saudi Arabia) largest producers worldwide.

Today, my questions have two distinct elements. First, how does the condition and reliability of Venezuelan oil production and exports effect American or Russian market penetration and pricing?

Second, given that oil exports are the dominant driver of Venezuelan revenues, how does the collapse in that sector weaken the Caracas governments position in the Western Hemisphere?

Both elements impact on what Washington and Moscow do. The second also has echoes of how traditional failed states threatened to widen a conflict zone.

Russia continues to support Nicolas Maduro, the holder of the Venezuelan presidency following the last (highly suspicious) election. Maduro was the hand-picked successor of Hugo Chavez, He succeeded to the office after Chavez’s death in 2013 and subsequently won a contested election on his own.

On the other hand, the US is backing Juan Guaido. Guaido is the president (i.e., presiding officer) of the National Assembly, the country’s legislature that invalidated the election of Maduro. Thereupon, the Assembly invoked a clause in the country’s constitution to appoint their presiding officer (Guaido) as national acting president.

To nobody’s surprise, Russia and the US have been unable to reach any consensus on what to do. Talks in Rome resulted in a failure of the two powers to find common ground.

Russian sources have told me that they hardly anticipated a diplomatic breakthrough but used the occasion of talks to provide a very public warning to the US not to intervene militarily. Here, given matters of geography and troop disposition, Washington would clearly have the upper hand, at least initially.

However, aside from a few media pundits, none of my sources inside The Beltway (of all political persuasions) regard an American incursion into Venezuela a valid option. All of my contacts agree that moving US troops into Venezuela is easy enough. But extricating them would be a nightmare.

Yes, one keeps all options “on the table” in such posturing. Yet those alternatives having no realistic and calculable end games usually are moved to the back of the policy queue.

The danger emerges when events deteriorate a situation beyond initial major power intentions. Venezuela is starting to remind me of the Congo crisis in the early 1960s.

Come On Shake Your Economy, Do the Congo

Then, power vacuums, civil wars, and ethnic unrest led to several African “proxy wars” between Moscow and Washington during the 1960s. CIA and KGB/GRU were active as precipitating actors in all of them.

None more so than in the Congo, where three contesting presidents clashed, assassinations ensued, and a nation was thrown into an ugly bloodbath. The current Democratic Republic of the Congo (which is neither genuinely democratic nor a republic) still bears the scars of the earlier period.

A few years ago, as part of a government assignment, I was drawn into this ongoing mess. The issue involved a dispute between the DRC and neighboring Uganda over oil rights abutting their border in the lake region sourcing the White Nile. The underlying disagreements had not changed much in fifty years.

Shocking Footage Reveals Master Plan
Recently released satellite images have confirmed a dire threat on the horizon – one that has nothing to do with Kim Jong-un or North Korea’s nuclear arsenal.

There’s a deadly situation unfolding that hasn’t received anywhere near its fair share of coverage from the mainstream media.

In fact, we have reason to believe North Korean nukes are just a “deep state” cover story for something much more devastating.

You see, the Chinese are constructing a series of mysterious, hexagonal structures at strategic locations in the South China Sea.

These new structures are part of a disturbing battle plan the Chinese have already set into motion.

It all centers on a horrific new “Doomsday Machine” capable of killing thousands of Americans in a deadly sneak-attack bigger than 9/11 and Pearl Harbor… combined.

Frankly, you need to see this to believe it… before it’s too late.

Back then the Soviets supported one president (Lumumba), the Americans another (Mobutu). Moscow sent in troops (mostly Cuban) while Washington responded with increased covert operations. One of these operations was the killing of Lumumba.

Matters in Washington reached a head one evening when members of the Congressional leadership forced President Lyndon Johnson to recall regular US troops already in air transit across the Atlantic for deployment in the Congo.

Crises have a way of starting out as small calculated steps only to morph into snowballs racing down hills out of control.

We are at such a juncture today with Venezuela.

Cit-Come, Citgo

That US and Russia could not agree in Rome is hardly news. Nonetheless, the abortive talks have highlighted one main issue. Central to the disintegration of the domestic economy has been Venezuela’s inability to control the revenue flow from its own oil exports.

And it is of some interest that this issue currently centers on one aspect of that oil control…one on which both Moscow and Washington can agree.

As I have noted previously, continuing Russian and Chinese loans to the government in Caracas have resulted in Venezuelan losing control over its oil export revenues. Nonetheless, those loans remain in default.

Both debt holders have moved “upstream” to acquire effective control over Venezuelan oil assets. Among those elements of interest has been acquisition of the crude oil itself. That has set the stage of the latest flash point between Russia and the US.

PDVSA, the Venezuelan national oil company, has confirmed that oil contracted to the US has been redirected to Russian state oil major Rosneft. This is in response to US sanctions, according to my PDVSA contacts.

But the gravamen goes deeper. The oil exports in question are intended for Citgo, the refinery and retail network in the US still technically owned by PDVSA. In addition, much of the PDVSA debt associated with Citgo is already held by Rosneft.

The disposition of that debt has been the source of some concern in Washington. As presently constructed, a Rosneft move to acquire compensation for defaulted credits extended to PDVSA would effectively mean Rosneft would acquire control over assets in the US.

For American policy makers, Rosneft obtaining control over crude oil still under Venezuelan export authority is preferable to the Russian company acquiring US domestic assets (and/or revenue flows from them).

As a result, the Rosneft move has led to a rather muted response from Washington.

Meanwhile, PDVSA has been losing a series of US court challenges on matters ranging from nonpayment to bribery. This is accentuating the crisis, promoting straight seizure of PDVSA assets in the US, and likely to divide further American and Russian positions.

In short, one shot evaded. But there is a barrage forming on the horizon.

Sincerely,

Kent

P.S. The above excerpt came from my weekly confidential Dark Files briefing that is sent out to my Energy Inner Circle readers. The Dark Files contains behind-the-scenes insights from inside the world of global geopolitics, including my contacts in intelligence, the military, governments, and energy. If you’d like to get access to these special briefings (and receive my recommendations as well), just click here to get started.

Please Note: Kent cannot respond to your comments and questions directly. But he can address them in future alerts... so keep an eye on your inbox. If you have a question about your subscription, please email us directly at customerservice@oilandenergyinvestor.com

  1. anthony van luyn
    May 3rd, 2019 at 20:46 | #1

    This appears to be almost identical to what happened with Gadaffi and Hussein in the Middle East. Just substitute the word USA instead of Russia. So far so good but the flash points keep increasing and the blame game never ends.Energy is the name of the game. Only one country gains from all this conflict and hatred.The increase in their oil and gas exports (instead of imports) gives a clear prima faece case against them. Yes the USA is the winner.Russia is supporting a failed state as has the USA many times in South America etc. Money Talks all else is irrelevant.

  2. CHRISTOPHER BOWEN
    May 6th, 2019 at 15:43 | #2

    Vicious triangle? Always interested in exaggerated estimates of Russian strength and influence as it deals with issues far from their mainland. I would guess most of the Russian part of the triangle is bluff. No Russian would start a war for Venezuela and Russia has no economic/financial leverage. China likewise is hardly positioned to intervene. No Navy. No financial leverage. US can call the shots but must refrain from appearing a leader rather than a supporter of change. We rely on some fortuitous shift in power among Maduro supporters. Just close all economic resources available to Maduro. Atrophy is less controversial than force.

  1. No trackbacks yet.