First Oil

On July 30, either through their own free will, or through coercion and intimidation by their president, Nicholas Maduro, the citizens of Venezuela approved a new “Constituent Assembly.” Unfortunately, while it may sound like a democratic process, it was not. In the last few days before the election, Maduro and his socialist thugs threatened government workers—and other ordinary citizens—if they did not go to the polls and vote for the new assembly.

Bogus vote totals and a new reality. It appears that the intimidation worked, as Maduro claimed that the “official” count showed 8 million-plus voters went to the polls, and that another 2 million people would have voted, if they hadn’t been blocked by anti-government protesters. Using Maduro’s math, this means that 10 million-plus Venezuelans went out to vote, but that’s a rather high, unlikely total for a country that has 31.8 million people.

Indeed, the software company that has provided voting technology to Venezuela since 2004, Smartmatic, alleged that widespread voter fraud had occurred. Smartmatic CEO Antonio Mugica said that the National Electoral Council voter turnout figure was off by at least 1.0 million. He told the media that "it is, therefore, with the deepest regret, that we have to report that the turnout figures on Sunday, July 30, for the constituent assembly in Venezuela were tampered with.”

Regardless of the turnout figure, the reality is that Maduro now has his rubber stamp, 500-member Constituent Assembly, which will rewrite the country’s constitution. And that rewrite will allow Maduro to target his opponents and solidify the socialist system first installed by the late Hugo Chavez. Thus, the plight of the Venezuelan people, who suffer from shortages of food, medicine, toilet paper and (ironically) fuel, will continue. It should be noted that the duly-elected, opposition-controlled legislature, the National Assembly, refused to participate in the July 30 election and has vowed to continue meeting in a different chamber of the Legislative Palace. But one wonders how that will be possible.

The military props up Maduro. One factor keeping the Venezuelan president in office is a high degree of loyalty among the military. Stories abound of how the Maduro regime has pillaged state oil company PDVSA, diverting large sums of money to their own purposes. And some of that money has been used to buy the military’s loyalty. Top officers have been given special status, and they hold positions throughout governmental agencies. More sinister is the fact that they are in charge of strategic functions like food distribution.

Russian support, via oil and gas. Meanwhile, Venezuela’s oil and gas sector is a mess. Despite extensive oil reserves, the country has high-cost production. Furthermore, since Chavez was first elected in 1998, national output has fallen a full 1.0 MMbopd, and recent reports said that production had slipped to 1.9 MMbopd. Some analysts project that output will fall to between 1.7 MMbopd and 1.8 MMbopd later this year, but one might wonder if Venezuela isn’t closer to that figure already. After all, maintenance on existing fields has been spotty, and PDVSA has failed to plow back enough of its revenue into drilling, to keep output level.

The answer to how the Venezuelan upstream sector has lasted this long is Russian support, via Moscow’s own state company, Rosneft. Back in 2016, Rosneft advanced $2 billion to Venezuela, so the latter could pay its bills. Now, comes word that Rosneft advanced another $1.015 billion to Maduro’s regime in April 2017. To pay back a portion of these loans, PDVSA is sending some 70,000 bopd to Rosneft. While this arrangement is not particularly profitable for Rosneft, it does give Russian President Vladimir Putin something much more valuable—a sphere of influence in the backyard of the U.S. And as long as Russia continues this cozy relationship, there is no end in sight to the suffering of the Venezuelan people, short of a civil war to hash out all the problems. 

About the Authors

Kurt Abraham

World Oil

Kurt Abraham kurt.abraham@worldoil.com