Cold reality: Venezuela now a Russian puppet state

Investment banker Russ Dallen at Caracas Capital Markets points out a painfully obvious truth about Venezuela: it's no longer a sovereign state.  It's actually a Russian puppet state.

In a market note via email, he writes:

While the usual Venezuela cast of rogue acolytes – Cuba, Bolivia, Nicaragua – came out in support of the Maduro Regime after the fraudulent Constituent Assembly vote, from a geopolitical and economic point-of-view, there were only going to be two nations whose support really mattered: Russia and China.  And even after the revelation by Venezuela's voting machine software and hardware provider Smartmatic that Venezuela had misstated turnout by at least one million, both Russia and China came out in support of the Maduro regime.

While China has already invested and loaned $60 billion to Venezuela but has not been sending any new funds, early this morning, we got Russia's state controlled oil company financials for the second quarter (2Q2017), and they help us solve one of the puzzles we had been pondering in where Venezuela and PDVSA sourced funds to pay $3.7 billion in April and May.

As you know, Goldman Sachs and Nomura provided Venezuela with around $900 million by buying $2.9 billion of PDVSA 6% of 2022 bonds from Venezuela in May.  After advancing $2 billion to Venezuela in 2016, Rosneft's second quarter 2017 financials reveal that Rosneft advanced another $1.015 under the "PDVSA crude oil purchase contract" in April.

So in other words, Russia has been paying Venezuela's bills all along.

This might explain why the State Department has paid so little attention to Venezuela – and so much to Russia – even as the Monroe Doctrine is so blatantly violated.

Russia has sold arms and provided diplomatic cover to the Chavista hellhole since at least 2005.  We all know its reasons: to provide a check on the U.S. in exchange for its perceived meddling in areas it considers its own backyard, which is to say former Soviet and Warsaw Pact countries and probably a few other real estate holdings.  This is the blowback from the old power relationships of the Cold War.

That said, there's a conscionabilty factor here now.  The Maduro regime is the world's foulest – intentionally starving its people into submission and turning the brains of the regime over to the monster Castroite Cuban communist government.  The nation has no future other than becoming another failed Cuba and stands to make itself a pariah state among its South American neighbors, causing nothing but crime, refugees, and international begging.  But so long as Russia keeps writing the checks, apparently this can go on for a long time.  Venezuela serves a useful purpose to Russia solely in terms of checking America, and Russia apparently doesn't care what the consequences are for the Venezuelan people.

The hideous thing about this is that the Venezuelan opposition, were it to gain the power it deserves, would hardly be disposed to hate Russia or refuse to deal with it.  That Russia has thrown its lot with the Chavistas, however, ensures that the opposition will do those very things.  The whole thing suggests that Russia is getting something mighty valuable it might not be able to get with the opposition and is willing to risk Venezuelans' permanent enmity should the opposition eventually take power.

The only thing holding up the regime from utter economic collapse (its inflation is now above 1,000%, by the way) is Russia. And it might be propping up the regime to preserve this status quo by arming Venezuela's government street thugs, known as "colectivos," described in this article here.

It's an immensely penny-wise, pound-foolish stance for Russia to take.  Will it get sanctions lifted?  Not in the least when this gets out.  Will it earn Venezuelans' friendship?  Exactly the opposite.  Will it give Russia moral authority?  Absolutely not.  Will it help the Russian bank book in times of low oil prices?  Not on your life.  In fact, it will bleed Russian finances dry.

What it will do is give the U.S. ideas about how to dislodge the Russians from the hemisphere.  The U.S. has a long history of defeating the Soviets by bankrupting them.  This was described well by Peter Schweizer in his book Victory.  It raises the incentive for the U.S. to carry on as it did in the Reagan era to destroy the regime without firing a shot.  

Incredibly, Vladimir Putin knows this well, yet we are still seeing the same opportunity for this dynamic to play out.  Either he thinks the U.S. is not paying attention to this new Russian role in holding up its Venezuelan puppet state, or else it thinks the cost of the payoffs is insignificant.

Time will tell what the U.S. does and whether it seizes on this opportunity.  But the U.S. knows who's running things now and knows how to make things hurt from the backdoor, too.  Time will tell if this is what is seen in coming months.

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