Venezuela: petrostate or narcostate?

Almost invariably news reports about Venezuela include some statement about oil. It has been claimed and repeated ad nauseam without much evidence that the country has the "world's largest crude reserves". Consequently, when the U.S. Treasury relaxed some of the sanctions in mid October, a cacophony of oil and finance experts threw caution to the wind, declaring that the worst had passed and production would be ramped up. This clearly ignores the fact that Venezuela is not Saudi Arabia. Chevron, the first company to obtain a license after Donald Trump's sanctions, came up with output predictions that time has proven to be totally unattainable. The tendency in oil and finance circles is to make Venezuela look far better than it is, thus rather than challenging the myth of the petrostate it gets perpetuated for obvious financial reasons.

But, of course, reality has nothing to do with finance. An unavoidable version of reality is that Chevron must consolidate cargoes in the vicinity of Lake Maracaibo's mouth because large tankers can no longer navigate to loading terminals. Before a Venezuelan crude cargo sets on its final journey to U.S. refineries two, and often three, StS transshipments need to take place. Chevron is even open to sell crude in/around Venezuela to third party buyers.

Then there's the myth that producing a barrel of oil in Venezuela costs $10. Inflation, corruption and mismanagement have annihilated infrastructure and Venezuela's economy to the point of no return, yet some experts claim that the cost of producing one barrel of oil at the end of 2023 is still the same as it was at the beginning of the century.

Venezuela has no spare capacity, it has just one operative drilling rig left. The refinery complex is down to unseen levels. As much as Maduro promises that Iranians are going to fix it, the fact of the matter is they haven't, and they won't. The entire oil industry is in a state of complete dereliction, just like the rest of the country. The amount of investment needed to bring Venezuela back to its mythical petrostate level will not materialise. Ever.

Caracas these days is abuzz with cowboys, folk chasing a quick buck. However the talk in town is that Maduro has already decided to run this temporary reprieve till its last day, and cash in as much as possible to keep necessary loyalties under control. No political concessions will be made. No free and fair elections are on the horizon. Within chavismo's high levels the belief is that what's coming is another Trump presidency (more sanctions), rather than Biden's second term. 

The International Criminal Court is busy with the Venezuela - Guyana affair and the case about crimes against humanity by Venezuelan officials. CITGO is about to be auctioned, however that won't make the myriad lawsuits go away. Whatever happens beyond Venezuela's borders is immaterial to Maduro, whose grip has been strengthened by sanctions relief.

A more apt and current description of Venezuela is that of a narcostate.  As the latest leaked information from Colombia's Prosecutor Office shows "Venezuela is now a major cocaine transport hub, shipping between 250 and 350 metric tons per year, with a street value of between $6.25 billion and $8.75 billion, much of it bound for the United States." 

The cartel controlling the drug trafficking operation is called Cartel de los Soles, where soles refers to the military insignia assigned to generals in the Venezuelan army. Hugo Chavez was army. Diosdado Cabello too. Historically, the army ultimately decides who gets to be president. The Maduro years have been extremely profitable for the Cartel. It is certain that it will continue in same vein. The growth of this cartel is a byproduct of chavismo. There is nothing the opposition can offer to armed forces that are so deeply involved in the drug trade and profiting through the chain of command. In such an impoverished country, the choice between the prospect of democracy and billions of dollars is clear.

Doing business in a narcostate is fraught with risk. Glencore, Trafigura, Gunvor and others of similar ilk know their way around places like Caracas. Given Israel-Palestine issue, Maduro is certain that his actions are not a priority.  Riyadh, Tehran and Moscow could not care less about Venezuela's alleged emergence. It is in Washington where concerns will have to be dealt with in the foreseable future, regardless of who sits in the White House.