Venezuela's Final Chapter
Venezuela is rapidly collapsing under its dictator’s extreme folly and malevolence. Changing market conditions will accelerate the demise. What next?
Some further research confirms that sanctions are unnecessary.
Shortages to the Point of Famine
The situation is so desperate in the capital that the zoo animals that are not starving to death are being routinely rustled and slaughtered for food. Venezuelan journalist Sabrina Martín reports in the Panama Post that dogs, cats, and pigeons are being hunted in Caracas (and we assume most everywhere else).
Through Twitter, Muchacho (Mayor of Chacao in Caracas) reported…
…there are people “hunting” cats and dogs in the streets, and pigeons in the plazas, to eat. This is not a joke. It is a very painful reality.
The situation created by the corrupt incompetents has already visited horrors on the Venezuelan people and there is little we can do to help. Donations of food and medicine are being seized by the regime and food distribution is now under military control. International mail has been suspended because the regime will not pay foreign airlines that carry it.
The Chavez/Maduro subjugation of Venezuela is a clear example of a Soviet-style class-warfare program aimed at reducing the population to a poverty-stricken dependent remainder that will be easy to control. Any resistance will be met by creating a population of gulag-resident absolute slaves -- to take care of all the “dirty jobs."
To sum it all up, there is little we could do to make things worse and no need. Maduro’s malevolence is driving the populace to abject servitude and the economy to ruin.
Catastrophic Oil Production Decline
Notice the graph of total U.S. imports of crude, below:
Figure 1: Imports to the U.S. by suppliers
Clearly, U.S. oil imports are down significantly between 2005 and 2015.
Just as clearly, the suppliers have all lost ground except for Canada, which has about doubled. A recent article by Tom DiChristopher reports that Venezuela’s total exports have dropped 21-25% between Dec 2015 to Oct 2017 (see graph below) and that the state oil company Petroleos De Venezuela S.A. (PDVSA) has trouble paying its bills and fulfilling its orders.
Figure 2: Since the end of that U.S. import graph, Venezuela’s production has plummeted still more.
Banks have refused to issue letters of credit to PDVSA customers, leaving cargoes stranded. Some big refiners have reportedly canceled orders or demanded discounts because the oil PDVSA sent them didn't meet their standards. The company has been blocked from some export terminals over unpaid bills.
Another aspect is the pending completion of the Keystone XL pipeline segment. Estimates for crude to be delivered to the U.S. Gulf Coast range from 590,000 to 820,000 barrels per day. Venezuela’s exports to the U.S. are in that range and falling.
Canadian Heavy Crude is about the same as the Venezuelan stuff and quite adequate for the many refineries geared for that input. Even if Venezuela was not overrun with corrupt incompetents, their tanker shipments cannot compete in price with pipeline delivery. Add in that production has dropped to nearly a 30-year low and the Chavez-corrupt-incompetents are now being replaced with Maduro-corrupt-incompetents and it is pretty much a done deal. We are about the only cash customer for them and we have another supplier with rapidly increasing output. As pointed out by Monica Showalter, some of their own exiled “Petroleros” are up in Alberta helping to maximize efficiency for that operation.
Yet another factor is that companies are beginning to retool their refineries (many geared for the Venezuela/Alberta heavy) to accept the now-plentiful light sweet crude being produced from shale plays. It is an expensive process that will take many years, but that will also reduce the market for heavy crude. This requires the approval of the EPA and DOE, by the way. But, that should be practical now that sanity has returned to lead the federal government.
Venezuela’s oil production is falling precipitously despite increased demand and rising prices. Quality is dropping. The market for their heavy crude production is diminishing and won’t rebound anytime soon.
The regime won’t pay their bills or invest in their own infrastructure or maintenance. They have chased away international business by seizing assets or demanding services they won’t pay for. The Maduro regime has run out of “Other People’s Money.”
Their population is suffering horribly from shortages of food, medicine, and human rights. There has been no uprising only because the regime has so far treated the military better than the general population.
Given a few years and a fair shake for the U.S./Canada oil industry (i.e., the end of Obama sanctions against our own economy), the Venezuelan problem -- left alone -- will resolve itself in one of several ways:
It is apparent that Maduro will never relent. He will drive the nation to absolute ruin. A great deal of the money sucked out of the economy has gone to Russian weapons. He seems to be following the pattern of North Korea -- belligerence while armed to the teeth and starving the populace into slavery. That could easily become the nation’s ultimate fate.
Now that almost every public and private company has been ransacked and China has cut off its easy-credit loans (backed by oil production) he may move even further toward Iran -- which may already have a missile base in Venezuela. Iranians would no doubt be happy to supply nukes to point North.
On the other hand --
A home-grown revolution putting in place some semblance of liberty and something resembling a free market economy. This is not Afghanistan. The Venezuelans had a rich economy blessed with natural resources and investment that brought jobs and prosperity. They remember that and would welcome such a realignment.
While the fortunes of heavy crude are waning, there is a huge potential shale play in and around Lake Maracaibo that could save the day. Maduro’s cronies don’t have a clue how to develop it. The great hope for the future of Venezuela lies with the exiled Petroleros who could return -- assuming the successful overthrow of Maduro -- with enhanced competence to reconstruct the nearly destroyed industry. Some are at this moment working shale plays in the U.S.
Obviously, this is the last best prospect. So, how does that happen?
Steve Campbell is a Geophysicist who worked in Venezuela between 1989 and 1993. See his writings at Goingwalkabout.Blog