Can the West’s financial squeeze end the Maduro regime?

How long can Venezuela’s discredited, internationally-isolated leader Nicolas Maduro survive? He and his cronies have squandered and misappropriated billions, draining Venezuela of funds and now US sanctions are leaving him with even less money to run the country.

Access to money is a key factor in any consideration of his political longevity. He can probably withstand the international clamour for him to go but if sanctions squeeze government revenue sufficiently, pressures now building up in Venezuela could either force him from office or lead to a de facto dictatorship. All the signs are that he will try to raise funds wherever he can, but the US will try to close down every avenue.

Having already frozen the assets of Maduro and his acolytes, Washington has turned its attentions on sanctions against the country’s principal resource, oil, while at the same time supporting humanitarian aid efforts for the beleaguered population. The Trump administration has spoken of all options to remove Maduro being on the table but considers military intervention a high-risk option.

Yet such is the Venezuelan regime’s distrust of Washington that it sees aid shipments as a security threat. Over the weekend, army units deployed on the border with Colombia and Brazil clashed with Venezuelan opposition activists trying to bring food convoys into the country.

The violence led to the defection of some soldiers to the opposition, which the US hopes will gather pace as it tightens its economic noose around the regime. For a long time, Washington held off sanctioning the national oil company, PDVSA, which generates more than 90 per cent of government receipts.

But asset freezes have failed to rein in the authorities and the growing international support for a change of leadership appears to have prompted the late January ban on US companies doing business with PDVSA. And others have quickly followed suit. The Bank of England has blocked access to $1.2 billion of Venezuela’s gold assets. Switzerland and Canada are also freezing Venezuelan investments.

Cut off from the US, its largest oil customer, Venezuela has been turning to other international buyers, such as India and China. But the US has been ramping up pressure on Maduro’s trading partners to sever ties with his regime. India will be reluctant to defy America fearing the consequences of non-compliance with sanctions. And China’s relations with Caracas have cooled anyway.   

Maduro’s efforts to secure revenue from other sources are proving difficult too. When the US became aware of tonnes of shipments of gold being sent to Turkey, it made it very clear to Ankara and others of the consequences of conducting such business dealings with Venezuela.  International banks and firms now fear being exposed to secondary US sanctions.

The funding squeeze will hurt the Venezuelan population further but the real target is the army. Maduro depends on it for his survival, yet he can only count on the support of senior military figures by maintaining their alleged vested economic interests and continuing to pay army salaries. There is evidence of dissent, with some officers imprisoned and many fearful of being persecuted for expressing opposition sympathies.

The weekend defections in the border confrontations are a sign of the growing disaffection amongst the rank and file. Juan Guaido, recognised as Venezuela’s legitimate interim president by many governments, has sensibly continued to reach out to the army with the offer of an amnesty, not least because if and when he manages to oust Maduro it will be required to maintain law and order as democracy is restored.

It remains unclear how much longer Maduro can hold out. Internationally-isolated regimes have been known to survive for years, maintaining power through state-sanctioned smuggling and political repression. Some fifty countries now recognise Guaido as interim President and have urged Maduro to step down.

Alaco understands that leading international financial institutions are standing by ready to launch multi-billion dollar projects to reconstruct the country’s ailing infrastructure and institutions.  Our sources indicate that many are in watch-and-wait-mode, poised to return and re-invest. The US has already indicated its intention to end sanctions and unfreeze assets as quickly as it imposed them, once Maduro departs.

Yet resurrecting Venezuela’s once thriving energy industry will not be easy after years of mismanagement and underinvestment. Alaco understands that some $25-30 billion over over seven years will be needed for crude output to return to the levels enjoyed 20 years ago.

Jonathan Clare is a senior associate at Alaco, a London-based business intelligence consultancy.