How the Novel Coronavirus Could Drive Policy Solutions in Long-Suffering Venezuela
COMMENTARY

March 6, 2020 by Craig Singleton
How the Novel Coronavirus Could Drive Policy Solutions in Long-Suffering Venezuela

As economists work to assess the full-extent of the coronavirus’ effect on both the U.S. economy and global markets, there are already serious indications that the oil and gas sector will be severely impacted for the first half of 2020, if not the entire year. In the last few days alone, anxiety surrounding the spread of the virus resulted in the steepest weekly fall in oil prices since 2008. As governments around the world grapple with how to respond to both the virus and a corresponding, sustained reduction in global oil demand, such uncertainty is likely to impact a number of ongoing foreign policy issues in the lead-up to the 2020 presidential election. Few seem as primed for disruption as the current diplomatic stalemate in Venezuela.

The standoff between the United States and Venezuela has lasted far longer than many in Washington initially expected. The Trump administration has prudently carved out a very small number of exemptions for U.S. companies seeking to maintain a limited footprint in the country, although indications are that such exemptions may be coming to an end. These moves have taken place within the context of continued sanctions pressure on foreign entities supporting the Maduro regime, to include recent designations on a subsidiary of Rosneft Oil Company, which Russia has used to throw Mr. Maduro a critical lifeline. Recently, however, there have been some indications that Maduro’s grip on power has strengthened. Maduro’s good fortune was further aided by pre-virus reports that Venezuela’s flailing oil infrastructure was experiencing something of a turnaround, with oil exports increasing from 800,000 barrels per day in August 2019 to nearly 1.1 million barrels in December 2019.

Although most Venezuela watchers have always believed that sanctions alone were unlikely to significantly alter Maduro’s willingness to enter into meaningful discussions with the fractured opposition, as with most things in life, timing is everything. So, what’s different now that the coronavirus has arrived on the scene?

Based on initial estimates, sustained downward pressure on oil prices will almost certainly result in belt-tightening in both Caracas and Moscow, thereby decreasing their leverage and reach. At the same time, China is facing a complex economic crisis of its own, one almost certain to impact its voracious need for oil in the short-to-medium term. Moreover, important voting blocks in South Florida, many of whom have grown disenchanted with Maduro’s ability to hold on, could be up for grabs come November unless the administration takes steps to alter the current diplomatic stalemate and force Maduro to the negotiating table. 

While it may seem counterintuitive to the broader goal of destabilizing the regime, the administration should consider extending exemptions for U.S. companies operating in Venezuela for several more months, if for no other reason than to deny Russian and other foreign companies an opportunity to assume control over potential revenue engines. Absent a politically fraught oil embargo, the administration could board a small number of oil tankers attempting to export Venezuelan crude. Doing so would signal a willingness to incrementally increase the temperature without risking a full-blown military conflict. Such moves could also alter the willingness of tanker companies, who have been somewhat immune to the pressure campaign, to continue doing Venezuela’s bidding.

While sanctions are not the only answer, they remain an important part of the solution. At present, the administration has levied designations against 40-60% of possible sanctions targets. Selectively increasing that number over the next six months, to include possible designations against both Russian and Chinese entities, would certainly increase the cost of business with Maduro. Lastly, the administration would be wise to re-focus the discussion on the socialist-driven humanitarian disaster in Venezuela, to include conducting coordinated humanitarian air drops with regional partners. Such a move falls far short of starting a war and would almost certainly force a reaction from Maduro and the Venezuelan military, neither of which would likely risk shooting down a humanitarian convoy consisting of South American-flagged planes.

If recent diplomatic success with the Taliban has shown us anything, it’s that we must not let “perfect be the enemy of good enough for right now.” At this juncture, the near-term likelihood of Maduro giving up control is slim to none. Why not leverage the ongoing volatility and aim for a more achievable middle-ground where Maduro is forced to the negotiating table in exchange for partial sanctions relief? Over time, if we play our cards right, we may be in a position to create additional opportunities to undermine his hold on power.

COVID-19 is already exacerbating Venezuela’s sickness – perhaps it’s time we adjust the medicine.

Craig Singleton is a national security expert and former diplomat who served under the Bush, Obama, and Trump administrations. He was posted to the U.S. Embassy in Caracas between 2011 and 2013. 

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