‘What many are calling the end of the world’: The latest on the crisis in Venezuela

As pro-government forces prepare to re-write Venezuela’s constitution, the opposition faces an existential threat — and a desperate nation hangs in the balance. 

By: /
August 2, 2017
Flames erupt as clashes break out while the Constituent Assembly election is being carried out in Caracas, Venezuela, July 30, 2017. REUTERS/Carlos Garcia Rawlins

Venezuela is in crisis — the opposition faces liquidation as the country sits on the tipping point between authoritarianism and full-blown civil war.

Amid massive public opposition and an electoral boycott, on Sunday, the government of President Nicolás Maduro went ahead with the election of 545 delegates to a newly-created Constituent Assembly, a legislative body with the power to radically re-draw the geometry of the Venezuelan state. Electoral authorities said over eight million Venezuelans turned out to vote, while opposition leaders and independent experts pegged the turnout at between two and 3.6 million voters; the opposition is calling for an investigation into the official turnout figure. 

Within 72 hours of being elected, members of the Constituent Assembly are expected to take control of Venezuela, armed with the ability to dissolve public institutions, rewrite the country’s constitution and, according to Maduro, defeat an “armed insurrection.”

In response, 21 countries have rejected the formation of the Constituent Assembly, including Canada, with Foreign Minister Chrystia Freeland condemning it as “another step down the path to institutionalized authoritarian rule in Venezuela” and calling on the Maduro government to set an electoral calendar.   

The U.S. government has imposed a new set of sanctions on Maduro himself, after sanctioning more than a dozen senior current and former Venezuelan officials last week.

“Maduro is not just a bad leader, he’s now a dictator,” said U.S. National Security Advisor H.R. McMaster before a group of reporters on Monday. Hours later, in the dead of night, masked men from the state intelligence service raided the homes of prominent opposition leader Leopoldo López and Caracas mayor Antonio Ledezma, detaining the two men in a move widely condemned by the international community.

But on Tuesday, members of the opposition-controlled parliament remained defiant. 

“The dictatorship has threatened to take the parliament, to remove us by force, to take us prisoner,” said lawmaker Juan Requesens during the opposition’s round-the-clock occupation of the legislative palace. “But if they surround us with their armoured vehicles, if they beat us out, or they put us under arrest, we will multiply. We, the Venezuelans that want change, are more.” 

Countrywide street protests have been going strong since April, when the pro-government Supreme Court stripped the National Assembly of its legislative powers. And while the judges quickly reversed the decision, the opposition coalition, backed by millions of Venezuelans, took to the streets to face off against the national guard and government-backed militia known as colectivos. 

Both sides have violently lashed out — the colectivos attacked opposition lawmakers at the National Assembly while protestors attacked and burned the Supreme Court in response. The unrest has led to a wave of politically-motivated arrests, left thousands injured and at least 120 people dead in the streets.

As David Smilde, a fellow at the Washington Office on Latin America who has spent 25 years in and out of Caracas, put it, “It’s what many are calling the end of the world.”

Amidst a rising tide of international pressure and the creeping threat of civil war, here’s a look at how Latin America’s richest country fell apart, and how some hope to put it back together.

Chavismo at any cost

Venezuela rode a wave of incredible growth during the 1990s, bolstered by the largest proven oil reserves in the world. But while many benefited from the rise in foreign earnings, huge swaths of the population were left out of the country’s newfound success.

Then, oil prices tanked in late 1998, and within two months Hugo Chavez swooped to power on a popular platform targeting those left behind. After an attempted coup in 2002, Chavez began to nationalize key industries, from agricultural land, banks, cement and rice mills to the all-important oil sector. For over a decade, the populist leader amassed support through large housing and social programs, a rising government payroll and an armed militia — a movement and set of policies still known today as Chavismo. But as oil revenue poured into programs meant to tackle inequality, many of the country’s roads, power plants and telecommunications systems slipped into decay. 

With over 90 percent of the government’s cash flow coming in from overseas oil revenue, Chavez’s policies rested on a fixed exchange rate for the Venezuelan currency — the bolivar — in a move meant to keep prices down on imported goods. The fallout: domestic industry that wasn’t nationalized started to collapse as the artificial exchange rate made it nearly impossible to stay competitive. 

In March 2013, Chavez died after a two-year battle with cancer, and his successor, Nicolás Maduro, took the reigns of power. But by the next summer, the price of crude started to spiral and the Venezuelan economy with it.

Since then, price distortions have only gotten worse — inflation went from around 80 percent under Chavez to a projected 2,068 percent by 2018. Today, you need a stack of 50 one-hundred bolivar notes to buy a bag of rice, and a duffel bag of cash to buy groceries. This has created a bonanza for Maduro’s inner circle and anyone else with restricted access to the official exchange rate. 

“The dollars the government does get are fewer than before, but many of them don't go to actually importing goods, they go to capital flights, they go to corruption, they get back on the black market,” said Smilde. “There are people making huge amounts of money under this. That's the most fundamental problem of the economy. That's what brought everything down.”

Desperation has driven those with money to travel overseas, not only to escape the creeping chaos but to support those left behind. Tomás Páez, a sociologist from Universidad Central de Venezuela, coordinates a global tracking project that has mapped the migration of over two million Venezuelans abroad. He estimates about 200,000 Venezuelans fled the country in 2016, double the average annual rate during the previous years of the Chavez government. 

“We saw how the emigration grew, grew and grew, and in the last three years it has multiplied in an alarming way,” said Páez.

As many Venezuelans scrambled to get out, Associated Press reporter Hannah Dreier, was just settling in. 

“When I first got there in 2014, it seemed like it was very hard. But I had no idea how hard it was going to get,” she said. 

By then, the military was firmly in control of the country’s ports, and what food and medicine came through them. McDonald’s ran out of French fries; cosmetic surgeons struggled to source brand-name breast implants. In retrospect, Dreier said the shortages in 2014 felt whimsical. 

Fast-forward a few months and prostitutes were turning to money-lending because it paid better than sex work. People were shot in bread lines and died in hospital beds as flour and basic medicines gave way to shelves of vinegar.

“All of your friends are leaving the country or being kidnapped or losing their jobs,” said Dreier. “You don't have running water yourself. You can't find anything at the supermarkets and it's increasingly scary to walk around. It's not like there's a divide between what you're covering and what you're living.”

“All of your friends are leaving the country or being kidnapped or losing their jobs.”

After losing parliamentary elections in late 2015, and facing widespread unpopularity, Maduro suspended a vote to elect the country’s governors. Protests erupted onto the streets of Caracas. The national guard and colectivos attacked with tear gas, automatic weapons, grenades, knives and sticks. Armed guards patrolled hospital corridors, forcing journalists like Dreier to sneak through back doors at night only to find an endless stream of malnutrition and senseless death.

Those who can’t afford to fly have joined the thousands of refugees flooding over the border into neighbouring Colombia, Brazil and beyond. But with the desperation comes a rapacious ingenuity.

“You can buy a litre of milk here for 10 cents and then go and sell it in Colombia for a dollar. You can imagine how much money you can make for just one truck-load of milk,” said Smilde.

Targeted sanctions

While the list of Venezuelan officials sanctioned last week includes several politicians complicit in Maduro’s push to consolidate power, in the past, targeted sanctions have had unintended effects. Smilde points to Tareck William Saab and Tibisay Lucena Ramírez, two of last week’s 13 sanctioned lawmakers who had the power to replace Supreme Court judges. 

“If either of them split from the government then that could have been the end of this, that could have been the end of this Constituent Assembly, that could have been a real break in this authoritarian slide,” said Smilde. “But now, they can basically forget that, because now they see they have a target on their back and they're going to fight to the very end for the Maduro government.”

Targeted sanctions are about more than international brinksmanship. Back in the U.S., a core group of lawmakers — three of which happen to sit on the foreign affairs committees in the Senate and House of Representatives — have a vested interest in punishing any Latin American country they see as moving towards a Cuban-style government.

It's been a main campaign issue for them for their whole careers,” said Smilde. “It just slides in very perfectly to now take up Venezuela.” 

Considering Florida’s notoriety as a swing state — not to mention Trump’s continued post-inauguration attention there — it’s not a stretch to see why Florida politicians like Marco Rubio and Ileana Ros-Lehtinen have been such vocal advocates of targeted sanctions.

In Venezuela, after years of economic manipulation, factories are left empty and fields fallow. Oil, the lifeblood of the regime and what’s barely sustaining those left behind, is now squarely in the sights of the U.S. government.

On July 21, Reuters quoted unnamed sources in the White House confirming the Trump administration was considering expanding sanctions to target Venezuelan crude bound for the U.S.

Venezuela’s state-owned oil company, Petroleos de Venezuela SA (PDVSA), is down to exporting about 1.8 million barrels of crude a day, according to a recent report by economist Philip Verleger. About 800,000 of those barrels head to China every day to service over $50 billion in debt. Another 700,000 barrels a day cross the Caribbean and feed the refineries of five major oil companies. One of those, Citgo Petroleum Corp., is both a subsidiary of PDVSA and the biggest consumer of Venezuelan crude in the U.S.

That means any sanctions on PDVSA would likely knock Citgo’s three refineries, system of pipelines and chain of gas stations out of business. It would also squeeze out nearly 10 percent of the U.S. global supply of oil.

Some U.S. critics fear the Russian state oil giant Rosneft, which holds a 49.9 percent share in Citgo, might go ahead with a collateral deal that would give the company a greater stake in Venezuela’s oil assets as repayment for a loss in revenue.

Verleger, who has been following these kinds of risks since he worked for the Ford and Carter administrations, said slapping sanctions on Venezuela has all the hallmarks of U.S. sanctions on Iraq following the 1991 invasion of Kuwait. 

“The invasion came and people started hoarding,” he said. “The price increase incident cost George Bush his job because it led to a recession.” 

This time around, the U.S. could mitigate price increases by releasing its strategic petroleum reserve — something Verleger is a major proponent of — or turning to Canadian producers.

“The Canadian heavy stuff is a perfect substitute for these places that process Venezuelan crude. This works for the benefit of Canadian heavy crude producers, clearly.”

While the U.S. oil industry has options to work around U.S. sanctions, so does PDVSA. The company, which clears its payments through China’s CITIC Bank, could pre-sell shipments before the oil leaves port, or even use other non-dollar transactions to get around U.S. sanctions, confirmed Verleger. 

“They could say, ‘For an extra 500,000 barrels a day, you'll pay us in cash.’ They could do that,” he said.

That might not match the cash flow coming in from Citgo, but PDVSA could also park tankers in the middle of the Atlantic and sell oil piecemeal on the global spot market — another source of income that could very well be enough to continue buying tear gas, weapons and food for Maduro supporters.

"It's entirely possible that Venezuela could become a Russian client state."

Then there’s the strong risk the U.S. is overplaying its hand in the region.

“It's hard to overestimate just how much distaste there is in Latin America for unilateral U.S. actions,” said Smilde. “If this were to happen, I can perfectly imagine Uruguay sending ships full of chicken or milk to help the Venezuelan people.”

But even with help from Maduro’s allies, Smilde said ordinary Venezuelans will pay the heaviest humanitarian cost.

“Suddenly having the U.S. stop buying oil would send the economy into an absolute tailspin. I think it would cause widespread starvation and probably a refugee crisis. It would also backfire in a sense — a lot of people would blame the United States for their suffering,” said Smilde.

“I think it's very likely that Russia and possibly China could come in and provide a lot of aid. It's entirely possible that Venezuela could become a Russian client state.”

What's next

How to stem widespread starvation, how to avert a refugee crisis, how to prevent civil war and salvage some semblance of democracy: these are some of the intractable problems facing Venezuela’s leaders, its neighbours and the international community.

Some have put forward the idea that the progressive halo around the Trudeau government would give it enough credibility to act as a mediator. But according to some, after years of quiet criticism, Canada is in no position to mediate with the Maduro government. Smilde points to how Canadian ambassador Ben Rowswell — who served from early 2014 up until last week — consistently backed Venezuelan human rights groups and made bold statements against the Maduro administration. 

“All that earned the ire of the government, who occasionally accused [Rowswell] of being a conspirator,” said Smilde, “The Canadian slate is not as clean as most people would assume. They're seen as U.S.-lite.”

The Organization of American States has been another vocal critic. OAS Secretary General Luis Almagro has consistently led criticism of the Venezuelan government, calling for free and fair general elections, the release of political prisoners and humanitarian assistance to relieve the shortages. But while over a dozen OAS states have pushed for more fair and free elections, the world’s largest regional organization has failed to build consensus. It has been consistently handcuffed by Venezuela’s allies in Bolivia, Ecuador and a handful Caribbean states suborned by Venezuelan oil money.

One promising sign has come from Peru, whose foreign ministry has proposed a meeting on August 8, and has invited foreign ministers from such countries as Brazil, Canada, Colombia and Mexico. 

“Even though neighbours like Colombia struggle with internal problems, this could be an opportunity for solidarity that would be to the entire region’s benefit,” said Smilde. Something like what happened during the Contadora process in the 80s, when several Latin American countries came together to bring an end to the conflicts in Central America.” 

Over the last couple of months, the words “parallel government” and “civil war” have been increasingly uttered with baited breath.

When Venezuela last re-wrote its constitution in 1999, the first thing Chavez did was temporarily disband the National Assembly. This time around, critics fear the Constituent Assembly would effectively wipe out the opposition by once again disbanding the National Assembly, sacking the attorney general and getting rid of municipal governments. That would clear the path for a “communal state,” a kind of pyramid-shaped Soviet model with the president wielding dictatorial powers from the top.

If threats to wipe out the opposition and rupture the legal bedrock of democracy were not enough, the Constituent Assembly has deepened fractures within Chavismo itself.

On Tuesday, former Maduro ally Eustoquio Contreras announced to parliament that he and two other deputies would be breaking away from ruling United Socialist Party in an effort to work across party lines and diffuse the crisis.

“We all have to make a great effort to understand each other,” said Contreras. “We are at the beginning of a civil war and we have to tell the country — we must avoid it.”   

But for other politicians, pushing the Constituent Assembly forward is in their interest — none more so than Diosdado Cabello, a long-time Maduro rival and one of the biggest power brokers within the Venezuelan government.

“Cabello is a military man, he's sort of ruthless, corrupt, and he's always been waiting in the wings vying for power,” said Smilde. “There's a real fear that this could be his opportunity to marginalize Maduro and put himself in power.”