PONARS Eurasia
  • About
    • Contact
    • List of Members
    • Ukraine Experts
    • About Membership
    • Executive Committee
  • Policy Memos
    • List of Policy Memos
    • Submissions
  • Podcast
  • Online Academy
  • Events
    • Past Events
  • Recommended
  • Ukraine Experts
Contacts

Address
1957 E St NW,
Washington, DC 20052

adminponars@gwu.edu
202.994.5915

NEWSLETTER
Facebook
Twitter
YouTube
Podcast
PONARS Eurasia
PONARS Eurasia
  • About
    • Contact
    • List of Members
    • Ukraine Experts
    • About Membership
    • Executive Committee
  • Policy Memos
    • List of Policy Memos
    • Submissions
  • Podcast
  • Online Academy
  • Events
    • Past Events
  • Recommended
  • Ukraine Experts
DIGITAL RESOURCES
digital resources

Bookstore 📚

Knowledge Hub

Course Syllabi

Point & Counterpoint

Policy Perspectives

RECOMMENDED
  • The Baltic States Are Also Worried About Russia

    View
  • International Society Must Act in the Wake of Russia’s Failed Opposition

    View
  • The Collapse of the Soviet Union | PONARS Eurasia Online Academy

    View
  • Labor Migration in Russia | PONARS Eurasia Online Academy

    View
  • Did Russia Put Its Geopolitical Glasses Back On? It Never Took Them Off in the First Place

    View
RSS PONARS Eurasia Podcast
  • The Putin-Xi Summit: What's New In Their Joint Communique ? February 23, 2022
    In this week’s PONARS Eurasia Podcast, Maria Lipman speaks with Russian China experts Vita Spivak and Alexander Gabuev about the February meeting between Vladimir Putin and Xi Jinping, and what it may tell us about where the Russian-Chinese relationship is headed.
  • Exploring the Russian Courts' Ruling to Liquidate the Memorial Society January 28, 2022
    In this week’s PONARS Eurasia Podcast, Maria Lipman chats with scholars Kelly Smith and Benjamin Nathans about the history, achievements, and impending shutdown of the Memorial Society, Russia's oldest and most venerable civic organization, and what its imminent liquidation portends for the Russian civil society.
  • Russia's 2021 census and the Kremlin's nationalities policy [Lipman Series 2021] December 9, 2021
    In this week’s PONARS Eurasia Podcast, Maria Lipman chats with social scientist Andrey Shcherbak about the quality of the data collected in the recent population census and the goals of Vladimir Putin's government's nationalities policy
  • Active citizens of any kind are under threat [Lipman Series 2021] November 5, 2021
    In this week’s PONARS Eurasia Podcast, Maria Lipman chats with Alexander Verkhovsky about the Kremlin's ever expanding toolkit against political and civic activists, journalists, and other dissidents.
  • Russia's Legislative Elections followup [Lipman Series 2021] October 4, 2021
    In this week’s PONARS Eurasia Podcast, Maria Lipman chats with Tanya Lokot and Nikolay Petrov about the results of Russia’s legislative elections and about what comes next.
  • Why Is the Kremlin Nervous? [Lipman Series 2021] September 14, 2021
    In this week’s PONARS Eurasia Podcast, Maria Lipman chats with Ben Noble and Nikolay Petrov about Russia’s September 17-19 legislative elections, repressive measures against electoral challengers, and whether to expect anything other than preordained results.
  • Vaccine Hesitancy in Russia, France, and the United States [Lipman Series 2021] August 31, 2021
    In this week's PONARS Eurasia Podcast episode, Maria Lipman chats with Denis Volkov, Naira Davlashyan, and Peter Slevin about why COVID-19 vaccination rates are still so low across the globe, comparing vaccine hesitant constituencies across Russia, France, and the United States.  
  • Is Russia Becoming More Soviet? [Lipman Series 2021] July 26, 2021
      In a new PONARS Eurasia Podcast episode, Maria Lipman chats with Maxim Trudolyubov about the current tightening of the Russian political sphere, asking whether or not it’s helpful to draw comparisons to the late Soviet period.
  • The Evolution of Russia's Political Regime [Lipman Series 2021] June 21, 2021
    In this week's episode of the PONARS Eurasia Podcast, Maria Lipman chats with Grigory Golosov and Henry Hale about the evolution of Russia's political regime, and what to expect in the lead-up to September's Duma elections.
  • Volodymyr Zelensky: Year Two [Lipman Series 2021] May 24, 2021
    In this week's episode of the PONARS Eurasia Podcast, Maria Lipman chats with Sergiy Kudelia and Georgiy Kasianov about Ukrainian President Zelensky's second year in office, and how he has handled the political turbulence of the past year.
  • Policy Memos | Аналитика

Chinese and Russian Creditors in Venezuela: Oil Collapse and Political Survival

  • September 16, 2019
  • Stephen B. Kaplan

(PONARS EURASIA Policy Memo) Nicolás Maduro has managed to contain a “military-backed challenge” from interim National Assembly President Juan Guaidó in April, but his grip on power remains tenuous given the historic economic crisis his country faces. Oil production, the backbone of its economy, has collapsed from 2.4 million barrels per day in 2013 to less than 1 million barrels today. Despite the wide-eyed promise that first accompanied new financial endowments from China and Russia after the 2008 financial crisis, they proved insufficient to adequately repair Venezuela’s infrastructure and catalyze its oil production. Today, China and Russia are instead “biding their equatorial time” in the South American country, hoping eventually to benefit from a refurbishing of Venezuela’s national patrimony.

Chinese and Russian investments in Venezuela thus share a long-term horizon. However, these two creditors have distinct foreign policy aims, with Russia more willing to challenge the United States geopolitically. To some extent, their divergent approaches reflect their respective roles within the international system. In many ways, China aims to project an image of being a defender of the status quo of the global economic system, while Russia has overtly aimed to upend it.

Covering Up the Mismanagement of National Patrimony

A two-hundred-year-old golden, bleached sundial anchors the center of El Venezolano, one of Caracas’ oldest public squares. The equatorial sun clock, constructed in 1803 by German scientist and scholar Alexander von Humboldt, was considered one of the most accurate in the globe given its unique location on the equator. Recognizing the importance of this national patrimony, the Venezuelan government moved it from the corner to the center of the plaza during the 1960s, though it was ostensibly reinstalled incorrectly. Today, Venezuelan scholars estimate the sun clock’s gauge is faulty, miscalculating the time by nearly one hour. Rather than fixing the problem, President Hugo Chávez instead built an adjoining red, metallic obelisk celebrating the 2010 bicentennial of Simon Bolivar’s independence revolution. Towering over the aged timepiece, the Bolivarian obelisk casts a shadow over the historic sun clock, further impeding its operation.

Reminiscent of this public square endowment is Venezuela’s investment in oil, another national patrimony. After succeeding Chávez in the prelude to the 2014 commodity downturn, Nicolás Maduro massively expanded the state balance sheet to obscure the economy’s growing dislocations. However, Maduro could not revive Venezuela’s oil economy.

Enter China and Russia

While the United States has pushed for immediate regime change in Venezuela, Russia and China have preferred, in the short term, to help Maduro resist a political transition. Russia in particular has helped Venezuela circumvent U.S. oil sanctions, provided security cooperation, and spearheaded negotiations in the international community to favor the official party’s quest for longer-term political control. With such an outcome, China and Russia would be able to protect their oil and commercial interests in the country, which by now are larger than those held by the United States. However, their strategies in the context of Venezuela’s economic collapse and political crisis also differ from each other in some important ways, with China being more willing to hedge its political and economic risk.

China in a Creditor Trap

During its miracle growth years, China’s economy greatly benefited from global trade and investment flows, and today, the Asian titan has placed them at the center of its flagship foreign economic policy program, the Belt and Road Initiative (BRI). China’s policy banks are charged by its government to help finance infrastructure, foreign direct investment, and international trade, in order to stimulate growth and ultimately China’s international economic ties.

China has banked its international reputation on the success of such development strategies, increasing its sensitivity to failed state-to-state investments. While many U.S. practitioners have suggested that China’s foreign investment reflects the pernicious pattern of debt-trap diplomacy, China was entangled in a creditor trap more than Venezuela was captured in a debt trap. Rather than using its financial offerings to create an unsustainable debt spiral to gain cheap strategic assets, Chinese policy banks have been lending defensively to Venezuela to keep the country afloat so it could repay its debts.

China’s policy banks have steadily unwound their financial links over the last half- decade amid President Maduro’s economic mismanagement, the state oil company’s collapse, and mounting investment failures, ranging from a home appliance factory to a high-speed railway. At its peak, between 2010 and 2013, Venezuela accounted for an average of 64 percent of China’s new approved lines of credit to Latin America. But from 2014 to 2017, Venezuela represented 18 percent of China’s total new regional credit lines.

With an eye on its regional reputation, China has been willing to extend some temporary debt relief and new loans to Venezuela. A complete cessation of financing was not an option. However, with indebtedness concerns mounting across the globe from Ecuador to Pakistan, China negotiated a two-year moratorium on Venezuela’s state-to-state debt in 2016, and extended new funds into Chinese joint-ventures to boost oil production and recover its outstanding oil collateral under its state-to-state loans.

China thus has to manage its soft power optics in developing regions like Latin America that were targets of Chinese infrastructure-building but also tied historically to the United States. China’s political influence in Venezuela had already suffered a marked deterioration, with more than half of the population deeming China “untrustworthy” in 2016, compared to a mere third in 2012.

Beijing has also attempted to brandish its “non-intervention” image by dealing with governments from across the political spectrum in Latin America. Chinese leaders had courted Venezuela’s opposition leaders during both the 2012 presidential and the 2015 parliamentary elections, and also largely stayed on the sidelines during the recent political crisis. China sent humanitarian aid to the Maduro regime, but also refrained from absorbing the Venezuelan oil that was diverted from US-based Citgo after the Trump administration’s January 2019 sanctions (India and Singapore were less compliant).

By hedging politically, China could foster its long-term commercial interests beyond the current crisis. It could also avoid the perception of being a defender of autocracy in a largely democratic region that had become increasingly critical of the Maduro regime. Eleven out of fourteen Lima Group nations, charged with finding a peaceful exit from the crisis, had supported Guaidó’s bid to become Venezuela’s legitimate leader. In turn, Guaidó has recognized China’s discrete overtures, saying its “support will be very important in boosting our country’s economy and future development.”

Russia: Speaking Loudly while Carrying a Shrinking Stick

Compared to China’s hedging strategy, Russia has been more willing to intervene politically in Venezuela. Although it shares China’s long-term commercial horizon, it has prioritized its geopolitical goals, including its desire to challenge U.S. hemispheric power and upend what it perceives to be an unfair and Western-dominated international system. By openly backing the Maduro regime, Moscow has shown its anti-U.S. meddling stance, condemning “the cynical, overt interference in the internal affairs of a sovereign state.”

During the initial stages of the Maduro-Guaidó standoff, Russia could thwart U.S. geopolitical interests on multiple dimensions politically, militarily, and financially. The political cornerstone of the Russia-Venezuelan relationship had been military ties, with Venezuela buying more than $4 billion in Russian arms and military equipment. More recently, Venezuela’s military, an ongoing supporter of the Maduro regime, has relied on Russia for military equipment—circumventing U.S. sanctions. More broadly, Russia also helped Venezuela avoid international sanctions by facilitating gold transport and sales to Uganda, the United Arab Emirates, and Turkey.

Apart from these actions, Russia also flubbed its nose at Washington’s hard line stance in Venezuela by sending two air force planes with one hundred military “personnel” during a national blackout in March. Despite the Trump administration’s warnings during the time that “all options [were] on the table,” President Vladimir Putin showed that the Russian military could freely enter Venezuela to support Maduro.

Beyond these military ties, Russia also employed its state-owned enterprise, Rosneft, as a geopolitical instrument to support the Maduro regime. Beginning in 2015, as China grew more cautious and concerned about its financial exposure in Venezuela, Rosneft provided about $6.5 billion in new funds to Venezuela’s state-owned oil company, PdVSA. In exchange, PdVSA provided 49.9 percent of its total shares from its U.S. subsidiary, Citgo, as collateral to Rosneft to guarantee future payments. Furthermore, Rosneft has increased its equity stake in the Orinoco’s heavy oil belt joint venture and has also received access to the largest gas reserves in Venezuela.

Rosneft has also benefited from the ongoing political stalemate in Venezuela. On the one hand, it has eased Maduro’s ability to bypass U.S. sanctions by helping PdVSA sell displaced exports to Europe and Asia. On the other hand, it has profited from the net reduction in oil supply due to both Venezuelan and Iranian sanctions. Russia has also received preferred borrower status on oil repayments, even relative to Venezuela’s arrears to Chinese creditors. Lofty investments in Venezuelan oil fields may also pay future dividends.

However, eight months into the political stalemate, Russia is finding it more difficult to balance its geopolitical and commercial ambitions. Facing mounting financial arrears, vulnerable supply chains, U.S. court battles over Citgo shares used as loan collateral, and U.S. sanctions on the Rosneft CEO, there are limits to how far Rosneft can extend its financial exposure in Venezuela. Like China, Russia’s largest oil producer has reportedly unwound its financial ties to Venezuela, with only $1.8 billion outstanding today.

Russia thus appears to be counterbalancing its tough geopolitical rhetoric with a softer push supporting negotiations, including the recent secret talks in June between the Maduro regime and the democratic opposition movement in Norway. Russia’s support of Maduro rests on the assumption that the country needs a change of course—especially in economic policy—just one that neither is fully guided by Washington nor jeopardizes Russia’s influence over the Venezuela military. This explains why, once made public later this summer, Russia vocally supported the secret talks between Maduro and Guaidó seeking a negotiated democratic and electoral solution to the current crisis.

More Flexibility Likely over Time

Similar to China’s tepid support for the status quo in Venezuela, Moscow likely senses that Maduro’s political tenure is limited due to the oil industry’s collapse, the humanitarian crisis, and the international condemnation against his autocratic rule. For both countries, given their large stakes in Venezuela’s oil and gas industries, their long-term commercial interests are dependent on economic, political, and social stabilization. Despite their role in prolonging the political stalemate in Venezuela, both China and Russia are likely to become more flexible over time, as they jockey for long-term strategic collaboration in a country that is home to the world’s largest oil reserves.

Stephen B. Kaplan is Associate Professor of Political Science and International Affairs at the George Washington University and a Global Fellow at the Wilson Center in Washington, D.C.

[PDF]

Homepage image credit. 

Memo #: 610
Series: 2
PDF: Pepm610_Kaplan_Sept2019.pdf
Author [Non-member]: Stephen B. Kaplan
Stephen B. Kaplan
+ posts
    This author does not have any more posts.
Related Topics
  • 2019
  • Kaplan
  • Russia
  • Venezuela
Previous Article
  • Recommended | Рекомендуем

Джон Болтон оказался слишком радикальным политиком даже для Дональда Трампа

  • September 11, 2019
  • Mikhail Troitskiy
View
Next Article
  • Recommended | Рекомендуем

Annual Policy Conference 2019 [Thank you!]

  • September 16, 2019
  • PONARS Eurasia
View
You May Also Like
View
  • Policy Memos | Аналитика

The Limits of Authoritarian Learning: Deconstructing Kazakhstan’s 2022 Coup Attempt

  • Azamat Junisbai
  • May 20, 2022
View
  • Policy Memos | Аналитика

The Expanding Russian Cossack Movement: A Social Base for Putinism

  • Richard Arnold
  • May 18, 2022
View
  • Policy Memos | Аналитика

Is Putin’s Popularity (Still) Real? A Cautionary Note on Using List Experiments to Measure Popularity in Authoritarian Regimes

  • Timothy Frye, Scott Gehlbach, Kyle L. Marquardt and Ora John Reuter
  • May 3, 2022
View
  • Policy Memos | Аналитика

Russia’s Right-Wing Reactions to the War

  • Katharina Bluhm and Mihai Varga
  • April 28, 2022
View
  • Policy Memos | Аналитика

Time to Question Russia’s Imperial Innocence

  • Botakoz Kassymbekova and Erica Marat
  • April 27, 2022
View
  • Policy Memos | Аналитика

Witnessing Ukraine, Watersheds in the Balkans

  • Veljko Milonjic
  • April 25, 2022
View
  • Policy Memos | Аналитика

Similarities Stain the Kremlin’s Warfare on Chechens and Ukrainians

  • Marat Iliyasov and Yoshiko Herrera
  • April 24, 2022
View
  • Policy Memos | Аналитика

Rebuilding Ukraine: Pre-War Trends and Post-War Priorities Should Inform the Process

  • Ralph Clem and Erik Herron
  • April 18, 2022
PONARS Eurasia
  • About
  • Membership
  • Policy Memos
  • Recommended
  • Events
Powered by narva.io

Permissions & Citation Guidelines

Input your search keywords and press Enter.