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  • Hanseul Lee

Venezuela’s Petrostate in 2023/4: Blessing or Curse?

This briefing examines the position of the Venezuelan state and its reliance on oil products in light of the upcoming 2024 election and wider world politics. This article was written by Hanseul Lee and edited by Ruyi Liu.



Nicholás Maduro, the president of Venezuela since 2013, strives to stay in power as the 2024 presidential election approaches. Facing various types of United States’ sanctions – targeted, financial and sectoral (oil industry) sanctions –, Maduro aims to undermine US influence and ensure regime survival by forging an enduring bilateral tie with China. Ultimately, he hopes to secure his position as a powerful counter against hegemonic US-led world order.

The key factor that has enabled Maduro’s strategic cooperation with China is his resource diplomacy based on abundant oil reserves. Venezuela is largely considered as a petrostate – meaning that government revenue is highly reliant on natural resource rents, concentrating economic and political power among a minority of elites. This situation leads to widespread corruption and weak political governance. In this regard, the so-called ‘oil diplomacy’ is a double-edged sword for Venezuela. On the one hand, it weakens his ability to handle domestic governance, adversely affecting the national economy and the environment. On the contrary, it opens doors for Maduro to build a stronger bilateral relationship with China because China promised investment of $20 billion in Venezuelan housing, technology, energy and infrastructure projects. Yet, this deal inevitably sets an unsustainable relationship between Beijing and Caracas in the long term.

Economic impacts

The Venezuelan economy largely depends on oil prices. Since oil exports finance almost two-thirds of the 2023 government budget, Maduro seeks foreign investments and infrastructure in return for said oil exports. Yet, the oil commodity price continues to fluctuate in the global market. When the oil barrel price plunged to under $30/barrel in 2016, the Venezuelan economy was (and still continues to be) stuck in a serious debt crisis. While Venezuela holds the debt burden of $150 billion or higher, it also suffers from hyperinflation of 234% (2022). The unfavourable oil price to the Venezuelan economy led to a GDP contraction by approximately 75% between 2014 and 2016, resulting in stagflation.

Venezuelan economic growth is structurally dependent on oil, but its oil production is also declining over time and given its non-renewable nature, will eventually end altogether – the oil productions in 2022 was ”616,540 barrels per day (bpd) of crude and refined products, a 2.5% drop from 2021”, and reached the lowest level of production in 75 years in 2023. Adding insult to injury, the Venezuelan economy lacks diversity, and its agriculture is not self-sufficient unlike its oil reserves. In other words, the absence of alternative industries in Venezuela poses an unsustainable path once the crude oil runs out. Venezuela’s current strategy to align with China, which rests on Venezuela offering natural resources to attract Chinese direct investment, may deteriorate Caracas-Beijing ties in the long term when resources deplete.

Environmental and Social Impacts

Relying on crude oil production not only affects the Venezuelan public, but also has significant environmental consequences. Apart from being one of the largest contributors to global temperature rise, mismanagement of oil reserves has deadly effects on the ecosystem. The oil seeping from underwater pipelines has contaminated the lakes of Venezuela, threatening freshwater organisms, and jeopardising food security of nearby residents. Poor maintenance of fuel production machinery also increased the likelihood of oil spills along the coastline, thereby depriving Venezuelans reliant on the fishing industry their livelihood.

Despite the alarming environmental tolls, the Venezuelan government is unenthusiastic about improving rusty pipelines and storage tanks. Residents suffer from chronic respiratory diseases from gas flares. More importantly, Caracas struggles to leave some portion of the produced gas available for home – Venezuelans themselves ironically find it difficult to access gas and electricity. Nevertheless, the government prioritises steady output of crude oil production rather than processing and use domestically, so that it can achieve its diplomatic aims and sustain the regime at the expense of Venezuelan citizens’ health and living conditions. As long as Chinese investments persist, Maduro believes that it could relieve the economic crisis and hopefully garner domestic support for his regime.

Weak Political Governance

With the combined impact from the economic crisis and dire environmental impacts, a significant proportion of Venezuelans flee from their home country for better human security and living conditions. As of August 2023, about 7.71 million Venezuelans have left, and another 25% of those who remain require humanitarian assistance.

In addition to the aforementioned failure of Maduro to handle the domestic economy, corruption and anti-democratic governance keeps the Venezuelan political climate unstable. Power is unevenly distributed within the country and despite rampant corruption among elites, state officials were rarely arrested for their wrongdoings. Maduro himself is a controversial figure, especially debates regarding whether or not he should be classified as a dictator. While his supporters claim that Maduro is a “loyal defender of legacy” from the Bolivarian Revolution (1999), he has shown tendencies of violent repression and authoritarian rule. Notably, anti-government protestors were violently repressed and killed after clashes with security forces in 2014. In addition, Maduro established a new constituent assembly in August 2017 that granted him power to rewrite the Constitution and dissolve the National Assembly at his will.

According to the US, these actions undermined the value of liberal democracy and seriously violated human rights. Simultaneously, Washington wanted Venezuela to distance itself from China, Russia and Iran. This led the US to reinforce the targeted and financial sanctions on Venezuela. Yet, given that China remains as the biggest financial creditor to Venezuela, Maduro plays on the US-China competition dynamics to his own benefit, hoping to increase the chance of his regime’s survival.

China as a Breakthrough Against US Sanctions

Despite all those aforementioned costs of using oil as a diplomatic leverage, Maduro justifies his pursuit of oil diplomacy due to his perception of the US as a hindrance to Venezuelan economic development through various types of sanctions since 2005. Noteworthy sanctions include targeting individuals and groups engaging in anti-democratic campaigns, human rights violations and corruption. For the same normative reasons, financial sanctions, lasting since the Trump administration in 2017, blocked Caracas’ access to US’s financial markets. Ultimately, sectoral sanctions were imposed on the Venezuelan oil industry, banking sector and gold mining industries in 2019. The Maduro government’s assets in the US were frozen the same year.

In October 2023, the US offered a deal of lifting their sanctions on Venezuela for six months, aiming to foster a free election, but it has thus far proven insufficient to steer Maduro away from China. According to Maduro’s envoy, the deal does not involve agreements to lift US bans on presidential candidates including Maduro himself. Therefore, Maduro perceived that the lift of US bans on the oil industry will only be temporary – it could be re-imposed at any time according to the wills of Washington. Given this uncertainty, Maduro continues to tap into the narrative of US-China competition; in September 2023, he forged an “all-weather, enduring strategic partnership” with China. Maduro will continue to align with China as long as the sense of uncertainty vis-à-vis the US does not resolve.

These ties benefit Beijing by granting access to Venezuela’s oil reserves and petrodollars that would enable further investments under the Belt and Road Initiative. The Venezuelan ally is crucial for China in exerting influence on the American continent, thus challenging the US-led Western international order. Maduro also expects benefits from the economic infrastructure funded by China, while firmly rejecting US-led liberal values. Even though the resource-based relationship may increase Venezuelan dependency on China, Maduro has no other strong alternative as long as the US maintains an aggressive stance against Venezuela. If oil motivates China to keep this bilateral tie with Venezuela, Maduro needs to use oil as his top diplomatic tactic so that it could serve both nations’ interests.

2024 Venezuelan Elections: Maduro’s Chances

With the looming presidential election in 2024, Maduro’s utmost task is to alleviate the domestic consequences from oil diplomacy. Although leading opposition candidates have been disqualified, there are chances of Maduro losing the election. Maduro holds just a 22% approval rate in 2023 (compared to 27% in 2022), notably from his failure to properly handle the economic crisis from oil dependency, corruption, and US sanctions. If he cannot prove that his foreign policy initiatives of aligning with China could bring tangible benefits to the majority, his chances of re-election are greatly hindered as long as the opposition stays united and he genuinely allows a free election.

Venezuela is at a national crossroad, envisaging change versus a continuation of oil-based economy and diplomacy. Will the world see Venezuela as a Latin American ally of China in this time of deepening US-China competition? How will the next president, if not Maduro, balance the financial source of the Venezuelan economy between the two powers?

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