Venezuela, the United States’ third-largest foreign oil supplier, is quickly approaching the point where a wholesale change in government is going to be required to resolve the ongoing political and economic crisis gripping the country. In an exclusive interview with RiskHedge, Geopolitical Futures senior analyst Allison Fedirka outlines the path forward for the OPEC-member nation.
“We are reaching a point where civil unrest is going to be a very determining factor in the future course of Venezuela as opposed to elections,” explains Fedirka, “which may occur at some point, but not through your traditional means as outlined by the constitution.”
Nicolás Maduro, Venezuela’s current president, took over the top job in 2013 from ardent anti-American strongman Hugo Chávez. But ever since the drop in oil prices, the country has been in a tailspin that seems to be reaching a crescendo right now. Massive demonstrations have resulted in dozens of deaths since the end of March and the country’s murder rate has soared to amongst the highest in the world. To compound matters, Maduro just announced Venezuela will leave the Organization of American States, a multilateral institution that promotes democracy and solidarity in all 35 nations of the Americas.
“About roughly 96% to 97% of US dollars that come into Venezuela are through oil sales,” says Fedirka. “So that is a critical point, not only because of prices in general, but it’s really their only means of acquiring US dollars. It is also critical because they import a large amount of their food supply. They can’t actually produce it at home, and the purchase of those goods also is generally denominated in US dollars. So, one goes in hand with the other in terms of the domestic market.
The fall in oil prices from well over $100/barrel to around $50 has meant the traditional tools Venezuelan politicians used to keep the population under control—gasoline and food subsidies for example—are no longer possible. “When you’ve been subsidizing your country for over a decade and giving people benefits, it's really easy to introduce new benefits,” explains Fedirka. “It’s very difficult to take them away. And so, even something as small as changing gasoline prices, where you’re talking about several cents per gallon, would seem very logical for outsiders to say, ‘Well, sure, what’s the big deal if you change it to one dollar?’ But for the local consumer, it would be a catastrophic change and really cause a lot of upheaval.”
The loss of these subsidies has resulted in a groundswell of opposition that will ultimately lead to political change, according to Fedirka. “I would consider it very close to the end game. Maduro still has two more years left in power… the power of the populace, of the general public, to come out and manifest in protest… it’s great for putting pressure on the government. That is going to be something that will be the driving force for change.”
RiskHedge will continue to monitor the situation and post updates as the situation develops.