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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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Can Biden Pull Venezuela Back From The Brink Of Collapse?


Maduro’s latest actions, hinting at his desire for a détente with Washington, have left many geopolitical analysts and Venezuela watchers confused as to what is occurring in the pariah Latin American state. Caracas recently undertook unilateral measures that deviated considerably from past hardline policies aimed at protecting the ruling United Socialist Party of Venezuela, maintaining state control of the oil industry, and censuring political opposition. In late March 2021, Venezuela’s armed forces commenced operations against dissident Colombian guerillas of the 10th FARC Front in the western state of Apure. This, many observers including Colombia’s defense minister claim, is the result of a dispute over control of lucrative trafficking routes and profits but Caracas’ motivations could be far more complex. While Maduro has successfully secured his grip on power and undermined the legitimacy of his opponents, including internationally recognized interim president Juan Guaido, Venezuela is a near-failed state on the brink of collapse. A prolonged oil price slump coupled with strict U.S. sanctions, which were steadily ratcheted up since 2015, have sharply impacted Venezuela’s economy causing it to rapidly contract over the last six years. During 2013, when Maduro took power, Venezuela’s gross domestic product according to IMF data, expanded by 1.3% annually, and then the economy entered a terminal decline. For 2014, GDP fell almost 4% year over year and continued to tumble lower at ever greater rates, plunging by a devastating 35% in 2019 as harsher U.S. sanctions progressively bit deeper. Those developments have precipitated the worst modern economic and humanitarian crisis to occur outside of war. These events have accelerated the disintegration of Venezuela’s economically crucial petroleum industry causing fiscal revenues to collapse, essentially bankrupting Caracas. Chronic corruption, malfeasance, mismanagement of limited resources, and open participation by various elements of the government apparatus in illicit activities have further undermined the Maduro regime’s legitimacy. The unraveling of the Venezuelan state has hastened a sharp increase in lawlessness in many parts of the petrostate as an ever-weaker national government and overly stretched security forces fail to deliver basic public goods including policing, utilities, and transport infrastructure. 

Consequently, Caracas is unable to control large swathes of Venezuela’s geographic territory or maintain a monopoly of violence within its borders, allowing armed non-state actors to flourish. This has aided the rise of criminal groups in many parts of Venezuela, which have emerged to battle over ever scarcer resources and intimidate local communities they seek to profit from the country’s rapidly accelerating disintegration. Armed non-state groups from Colombia, a South American country with a long history of internal conflict, sensed an opportunity to carve out domains of their own. It is battle-hardened Colombian guerilla group the National Liberation Army (ELN – Spanish initials) and FARC dissidents who are proving most adept at exploiting the unraveling Venezuelan state. They now control large tracts of Venezuelan territory, acting as de-facto governments in their respective zones, with some analysts claiming Colombian guerillas are operating in half of Venezuela’s territory. The FARC and ELN are U.S. designated terrorist groups that for decades were involved in kidnappings, ambushes of security forces, and bombings in Colombia as they waged a vicious low-intensity asymmetric war against the strife-torn country’s government. The strength of Colombian guerillas in Venezuela is underscored by the considerable resistance displayed by the dissident FARC 10th Front when attacked by Venezuelan security forces in the western state of Apure in March 2021. The dissident Colombian guerillas killed at least eight Venezuelan soldiers and kidnapped eight other soldiers who were eventually released late last month. Meanwhile, the ELN has taken control of territory in western Venezuela near the Colombian border, even providing basic services, policing, and other social goods to the communities, abandoned by Venezuelan authorities, in their territory.

Related: U.S. Claws Back Millions From Pipeline Ransomware Attackers

The severity of the crisis facing the Maduro regime is growing. A lack of a state presence, lawlessness, and the existence of illegal armed groups are not only confined to remote parts of Venezuela. Criminal gangs and other armed non-state actors are encroaching on Caracas, threatening Maduro’s control of Venezuela’s capital. According to the New York Times, large well-armed gangs now control various shantytowns and working-class neighborhoods in the capital, even providing basic services including food and water shipments as well as security and justice. Local police are unable to enter the zones controlled by the better-armed and financed gangsters, instead, being forced to negotiate an uneasy truce. This indicates Venezuela’s unraveling is accelerating with the national government even lacking the resources to maintain control of the capital.

The latest developments in Venezuela demonstrate that despite Maduro defeating his opponents, gaining control of the National Assembly, and cementing his grip on power, he is struggling to control an increasingly fragmented Venezuela. This is another reason for the autocratic socialist regime’s attempts to open a discourse with the Biden administration and seek a détente with Washington. Caracas urgently needs to significantly bolster spending on basic infrastructure, utilities, healthcare, education, policing, and security if it is to blunt the threat posed by illegal armed groups and prevent the collapse of the Venezuelan state. That can only occur if the OPEC member’s shattered petroleum industry and state oil company PDVSA are rebuilt, allowing Caracas to substantially boost fiscal income. While Maduro has proclaimed that Venezuela is open for business and that private control of energy projects is possible, that has proven insufficient to attract the considerable capital required. The only means of enticing major energy companies, like Chevron, which are capable of funding the massive capital required, to invest in Venezuela is if Washington eases sanctions allowing them to operate profitably in the embattled OPEC member. 

Thus far, regardless of Maduro’s olive branches, the Biden administration has stated it will continue to back internationally recognized interim president Juan Guaido and will not consider dialing down sanctions until democratic elections occur. That means there is now the very real chance of Venezuela completely collapsing and becoming a failed state. Such a cataclysmic event will trigger an enormous catastrophe with significant environmental and humanitarian implications along with the potential to further destabilize a region already fraught with conflict, poverty, and lawlessness. For those reasons, President Biden needs to act now and implement a sustainable strategy that will prevent the final implosion of Venezuela.

By Matthew Smith for Oilprice.com

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  • Mamdouh Salameh on June 08 2021 said:
    Lifting US sanctions on Venezuela will definitely pull the country back from the brink of collapse.

    Sitting on the world’s largest proven oil reserves estimate at $21.82 trillion at current oil prices, Venezuela isn’t short of suitors but suitors wouldn’t dish out their money without a lifting of the sanctions. That is where Biden can help.

    It is estimated that Venezuela needs some $58 bn to revamp its oil industry and its economy. This amounts to only 0.27% of the current value of Venezuela’s oil reserves.

    I am optimistic that some rapprochement between Venezuela and the United States is possible and desirable particularly if Venezuelan President Maduro opens the door for private investment in the oil industry and invites many supermajors including Chevron which has more than 100 years of cooperation with the country and other American companies to help revamp the country’s oil industry.

    Along with lifting the sanctions, President Biden could also drop the farce about a so-called internationally recognized interim president like Juan Guaido who is neither a president nor is he elected president.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • George Doolittle on June 08 2021 said:
    The entire Continent exploded into chaos save for Argentina just prior to the covid-19 ... is it all over now already? Hard to imagine it ever happened in the first place now which is really hard for me anyways to wrap my mind around.

    Anyhow the USA continues to flood the World with dirt cheap propane goes without saying.

    "Oil still matters in a huge way" if you're outside the United States and need US Dollars absolutely but as for the oil itself and all subsequent iterations as product refined from oil...yes, expensive in the USA at the moment but obviously no shortages of the product.

    What this means to anyone and not just Venezuela (Russia, all of Central Asia!, the KSA, Libya, Borneo) says to me "no US Dollars" is what that says to me.

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