Daily 26 January 2019

Russia’s toehold of influence in Latin America under threat amid Venezuelan turmoil

Over the last two decades, Russia has spent tens of billions of dollars supporting the regimes of Hugo Chavez and Nicolas Maduro in Venezuela, making the Latin American country Russia’s sole ally in the region. If Maduro’s regime does not survive, Russia will lose twenty years of effort and money, one senior Russian official told The Bell. Moscow’s support for Maduro in the current crisis has not been limited to economic aid: a Reuters report said that Russian mercenaries have been dispatched to Caracas to beef up Maduro’s personal security.

What Russia stands to lose

Over 20 years, the Russian government and state-owned companies have invested no less than $17 billion in Venezuela, mainly in the form of loans and investments. Rosneft was by far the largest Russian investor in the Latin American country.

  • Rosneft’s most important Venezuelan investments were loans to the country’s oil company, PDVSA. Since 2016, when Venezuela’s economic crisis began, Rosneft has begun to pre-pay Caracas for oil deliveries. Between 2014 and 2017, Rosneft gave (Rus) the Venezuelan state company $6.5 billion in loans this way. The company invested a total of $8.5 billion in Venezuela. Rosneft is like an “unlucky investor” who continues to hold an asset despite approaching bankruptcy, analysts from investment bank Sberbank CIS wrote at the end of 2017. “If the Maduro regime can hold on, Rosneft, in all likelihood, will continue to be the country’s donor. If the regime falls, Rosneft might lose all,” the analysts predicted.
  • The second major Russian business in Venezuela was arms sales — made with the help of Russian loans. Between 2001 and 2013, state company Rosoboronexport loaned Venezuela $11 billion to buy Russian arms. In 2006, Rosoboronexport agreed to invest $474 million in the construction of factories in Venezuela to produce Kalashnikovs.
  • These investments didn’t occur without corruption on both sides. The construction of the weapons factories was put on hold due to criminal cases. And one of Russia’s largest banks, Gazprombank, is being investigated over a transfer of $1.2 billion from PDVSA.

What did Russia get in return

Since Vladimir Putin became president in 2000, first Chavez, then Maduro, have been his most frequent guests in Moscow (if you exclude leaders from post-Soviet countries). Chavez came to Russia eight times and, from 2006 until his death in 2013, he visited Moscow every year. Maduro has visited Moscow four times since coming to power just over five years ago.

Putin has only been to Venezuela once. Instead, Sechin has been Russia’s most important link. Since the mid 2000s, Sechin has visited Caracas at least once or twice a year, first as deputy prime minister, and later as CEO of Rosneft.

    • In 2008, Venezuela became the only major country to recognize the independence of Abkhazia and South Ossetia after the Russian-Georgian war. Journalist Mikhail Zygar alleged in his book, All the Kremlin’s Men: Inside the Court of Vladimir Putin, that it was Sechin who convinced Chavez to recognize the republics.
    • However, Venezuela did not recognize Crimea after Russia’s annexation in 2014.

 

  • Russia began to discuss a military presence in Venezuela in 2016, but talks have not made progress. The only way Russia has used Venezuela to show its military presence was by sending Russian bombers to fly over Caracas (in 2008, 2013 and 2018).

 

Why the world should care

If confirmed, the presence in Venezuela of Russian mercenaries from Wagner, the private military company allegedly controlled by Putin’s former chef Yevgeny Prigozhin, means Moscow is doubling down on Maduro. While state loans are meant to be honored whatever the regime, it is unsurprising Russia is moving to protect its financial investment — and shore up its only ally in the region, cultivated over many years.

Peter Mironenko