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  • Writer's pictureNik McNally

Can Venezuela Return From The Cold?

The Biden Administration is signalling a potential rapprochement with Venezuela following years of its "maximum pressure" approach and economic sanctions. The Red Line's Nik McNally guides us through the calculus facing Washington and Caracas as both sides determine their goals for the future.


Over the past decade, Venezuela has experienced one of the world’s most severe economic and humanitarian crises. Hyperinflation, mass starvation, political repression, and world-leading murder rates have led to the largest refugee crisis recorded in the Americas. Following a contested presidential election in 2019, where many Western and Latin American nations disputed the legitimacy of President Nicolas Maduro’s leadership, US-led sanctions against Venezuela further paralysed the nation’s oil-dependent economy and strained diplomatic relations between Caracas and others in the region.

President Nicolas Maduro at the COP27 U.N. Climate Summit. Credit: AP Photo/Nariman El-Mofty

Now, after years of deepening turmoil and isolation, new dynamics in the Americas offer hope for Venezuela’s economic and diplomatic revival. Newly-elected leaders in neighbouring Colombia and Brazil have restored diplomatic relations with Venezuela, seeking closer collaboration on security, immigration, and trade. Amidst a global energy crisis, the US has provisionally eased sanctions on Venezuelan oil exports, with further relief from sanctions on the table.


Can Venezuela achieve rapprochement with other powers in the Americas? Can closer ties translate to sustained economic growth, democratic strength, or higher living standards and security for its citizens? To understand the outlook, it’s worth exploring the issues that have driven Venezuela’s crises and are decisive to its recovery.


Boom, Bust

Venezuela has the world’s largest proven oil reserves—a fact inseparable from its fortunes. Venezuelan leaders throughout history have used oil to build diplomatic bridges, whether by supplying the Allies during the Second World War or establishing PetroCaribe in the 2000s to trade subsidised oil for goods and services with Caribbean and Central American countries.


In times of high oil prices, Venezuela has thrived. Government revenue surged following the Arab-Israeli War in 1973 and during the 2000s commodity boom. Presidents Carlos Andrés Pérez and Hugo Chávez used oil revenue to pursue massive spending on measures intended to spur economic and human development—food, fuel, and housing subsidies, expanded access to healthcare and education, and the nationalisation of key industries (telecoms, electricity, oil).


High inflation, debt, and widespread corruption increasingly stymied these developments during the Pérez and Chávez governments, but oil dependence proved most lethal. Sharp decreases in oil prices in both the 1980s and 2010s sent Venezuela into collapse. Under President Nicolás Maduro, Venezuelans have experienced severe shortages of food, drinking water, electricity, and medical supplies; by 2021, 77 per cent of the population lived in extreme poverty, the highest rate in Latin America.


International sanctions have exacerbated Venezuela’s economic and humanitarian crises. In 2017, the US applied sanctions prohibiting the Venezuelan government from borrowing in US financial markets. Sanctions deepened an ongoing decline in oil production and caused foreign currency revenues to fall, limiting food and medicine imports. In 2019, the US applied further sanctions to Venezuela’s petroleum, gold, mining, food, and banking industries, with Canada, the EU, the UK, Mexico, and Panama freezing Venezuelan assets in their territories.


Venezuela's oil dependence is a source of instability. To achieve sustained human development, sanctions relief and government policy must combine to attract investment into other sectors and diversify the economy.

Relief from sanctions is essential to bolster Venezuela’s oil revenues and expand access to healthcare and nutrition. Yet oil dependence remains a source of volatility—despite dwindling production, oil revenue was responsible for 89 per cent of Venezuela’s export earnings in 2021, roughly a quarter of its GDP. For sustained economic and human development, sanctions relief and government policy must combine to attract investment into other sectors and diversify Venezuela’s economy.


The catch for further sanctions relief? Democratic reform.


Crackdowns and Crises

Venezuela is one of the few Latin American nations to have remained a stable democracy throughout the Cold War when many of its neighbours suffered through military dictatorships and civil wars. But in recent years, democratic backsliding has driven tensions between Venezuela and others in the region.


In the mid-late 2000s, President Chávez pursued multiple referenda to abolish term limits and increase presidential powers, including the ability to suspend media rights and hold citizens without declaring charges during states of emergency. Human Rights Watch was expelled from Venezuela in 2008 for criticising Chávez’s human rights record, reporting political discrimination against citizens and crackdowns on judicial and media independence.


In 2018, President Maduro won re-election in a vote deemed fraudulent by the US, the EU, and many Latin American nations. Recognition of the election’s legitimacy has been polarised, with EU and US analysts citing a lack of process transparency, biased electoral conditions, the disqualification and imprisonment of President Maduro’s political opponents, and the use of food subsidies to coerce voters. While states including Russia, China, Turkey, Iran, and Cuba backed Maduro, nearly sixty countries led by the US subsequently rallied behind opposition figure Juan Guaidó, head of the National Assembly, as Venezuela’s legitimate leader.


But the attempt to effect regime change has failed. In December 2022, Venezuela’s National Assembly voted to dissolve Juan Guaidó’s “interim government”, having stalled in its aims of ousting President Maduro. Following Russia’s invasion of Ukraine, embargos on Russian oil and gas imports have led Western nations to negotiate closer with Maduro. Under President Biden, the US brokered a prisoner swap with Venezuela and issued Chevron a six-month license to resume oil operations.


Democratic strength and economic recovery in Venezuela are intertwined. Rapprochement must achieve both sanctions relief and guarantees of free political participation to improve living standards in Venezuela, which will be crucial to address the displacement crisis.

These are promising but small steps towards the prize outcome of negotiations: democratic opening for sanctions relief. The US and EU have demanded the release of political prisoners, restored press freedom and judicial independence, and, chiefly, free and fair presidential elections in 2024 with independent electoral and observatory bodies. But Maduro is only prepared to make guarantees when all international sanctions on Venezuela are lifted.


Democratic opening and economic recovery in Venezuela are therefore intertwined. Rapprochement must achieve both sanctions relief and guarantees of free political participation to improve living standards in Venezuela, which will be essential to address the displacement crisis.


Insecurity and Displacement

Repression and economic turmoil have borne exceptional violence and insecurity—a distinct source of regional conflict and a trigger for the largest known refugee crisis in the Americas, with estimated numbers of Venezuelans displaced surpassing those displaced due to the Syrian Civil War.


Murder rates in Venezuela quadrupled during Chávez’s presidency and are high by regional and global standards—in 2021, Venezuela’s murder rate was second only to Jamaica in the Americas. The lethality of state security forces increased significantly under Maduro, to the extent that one in every three homicides in 2019 arose from the intervention of state security.


From the late 2000s, drug trafficking and organised crime groups in Venezuela drove increasing friction with the US and Colombia. Under President Bush, the US placed an embargo on arms sales to Venezuela, remaining to this day. In response to the US’ use of Colombian military bases for counternarcotic operations, Russia opened a $2.2 billion line of credit for Venezuelan arms purchases in 2009.


Relations with Colombia further deteriorated due to alleged collaboration between the Venezuelan government and Colombian guerilla groups such as the FARC and the ELN, which have expanded into Venezuela. Mercenaries and armed groups operating transnationally became a point of significant tension and insecurity during Maduro’s presidency, as attacks targeted the leaders of both nations and displaced thousands of civilians close to the Colombia-Venezuela border.

Brazil, Colombia, and Venezuela must coordinate closely on security policy to tackle the deep entrenchment of criminal groups in their border regions. The violent outflows of organised crime threaten local communities, encourage displacement, and further disenfranchise vulnerable refugees.

Colombia and Brazil both refused to recognise the re-election of President Maduro, leading to the breakdown of diplomatic relations between Caracas and its neighbours. Venezuela closed its land borders with Colombia and Brazil in 2019 after Maduro blocked the passage of food and medical supplies from either nation, deeming the aid a pretext for a military invasion coordinated with the Guaidó-led opposition. Brazil and Venezuela both ramped up their military presence at the border, host to violent clashes between Venezuelan security forces and demonstrators protesting aid blockades and between asylum seekers and residents in Brazilian border communities.


With the 2022 election of Gustavo Petro in Colombia and Lula da Silva in Brazil, Colombia and Brazil restored diplomatic relations with Venezuela, and its land borders have since reopened. In a constructive step, Colombia and Venezuela are partnering in peace negotiations with the ELN. But the challenge is steep. Organised crime groups are now deeply entrenched in Venezuela’s border regions, engaging in drug smuggling, human trafficking, contraband, and armed conflicts over territory.


All three nations should coordinate closely on security policy to reduce the violent outflow of criminal activity that imperils border communities and refugees.


Going Forward

World Bank senior mission chief Peter Breuer, right, speaks with Masahiro Nozaki, mission chief for Sri Lanka, by his side during a media conference in Colombo.
Venezuelans cross the border into Colombia. Credit: Ferley Ospina/AP

The human impact of successful rapprochement is clear: a safer, more prosperous and democratic Venezuela, with reduced outflows of migrants and organised crime to other countries in the Americas. The choice of dialogue over hostility from the US, Colombia, and Brazil puts Venezuela on a path to salvage its economic misery and deep insecurity. But the trade of concessions that will have the most substantial impact—democratic opening for sanctions relief—currently sits at an impasse.


Negotiations should build on the modest progress made to stabilise Venezuela while the political will in the region favours collaborating with Maduro. But like the price of oil, politics in the Americas remains volatile.


 

Written by Nik McNally.

Edited by Wade McCagh.

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