Venezuela at risk of losing sovereignty over oil

NGO study says oil-backed debt to China impacts governance in struggling petro-state
<p>Oil tanker crossing the Lake Maracaibo, Venezuela (image: <a href="" target="_blank" rel="noopener">wikimedia </a>)</p>

Oil tanker crossing the Lake Maracaibo, Venezuela (image: wikimedia )

Venezuela is in danger of losing sovereignty over its energy resources because of the terms of loans deals it has signed with China, according to a study the Colombian NGO Asociación Ambiente y Sociedad, “China en Venezuela: préstamos para el petróleo“.

“Paying the debt is unsustainable in the long term, and in the future Venezuela will not be able to depend on having its oil to sell to other clients,” the report says. Some US$ 50 billion of loans made to Venezuela by China Development Bank are repaid with oil. With the drop in global prices, the country led by president Nicolás Maduro is at a something of a dead end.

Diálogo Chino carried out an exclusive interview with the author of the study, Ana María Cardona of Universidad del Rosario in Colombia.

Diálogo Chino (DC) – The study concluded that Venezuela may lose sovereignty over its oil because of agreements with China. Did former president Hugo Chavez and current president Nicolás Maduro not know the risk they were running?

Ana María Cardona (AMC): What lead us to state that Venezuela may lose sovereignty over its oil market are the shocks this commodity has suffered in recent years. When president Chavez made the first loan [agreement] with China, the price of oil was $100 a barrel, which made paying the debt much easier. Since 2014, this has changed. The price of a barrel of oil fell, which led Venezuela to use its production to pay its debt to China and no other consumers. This, of course, prevents the Latin American country from maintaining sovereignty over this natural resource.

If Chavez and Maduro knew the risk they were taking, it must also be said that these presidents benefited to some extent because of a policy of nationalization of oil companies in accordance with the agreements on creating joint enterprises. We must remember that 60% of the mixed-ownership oil companies are in the hands of the state and that limits were set on how many barrels of oil could be sent to China each day to repay the loans depending on the price per barrel.

Even so, I do not believe that the presidents were prepared for a drop in oil prices like the one that occurred during the last few years. They did not consider the burden of creating this kind of debt.

DC: Did China pressure Venezuela in some way to sign these loan agreements?

AMC: In the document I emphasize the fact that exchanging credit for oil led to the signing of other treaties between the two countries. I’d like for us to be really careful here, because more than pressure, I believe that China correctly used the discourse of cooperation as a tool from which both countries benefit.

In this case, China needs the oil to ensure its energy security, and therefore sought Venezuela as a trading partner.

Meanwhile, closer relations with China have allowed Venezuela to achieve various goals. First, it was able to move away from the United States and have a new business partner. Second, the loans made with China provide liquidity for the country. And, finally, it is an important step towards a multipolar world when Venezuela can supply China with oil.

When Chavez began his policy of “21st century socialism” his primary interest was to create a world in which the United States was not the main actor, where there were other centers or poles. To do this, “helping” China is important since the Asian country has the right profile to become a power.

This is why I do not believe that Venezuela was forced to sign agreements with China; the problem is that he didn’t see the tax burden he imposed on the country with the signing of these contracts.

DC: Has China used this contract format with other Latin American countries?

AMC: I understand that it did the same thing with Ecuador: it traded loans for oil.

DC: Do you think China is trying to increase its influence in the subcontinent?

AMC: I believe that China’s major goal, at least in the short term, is not to dominate South America and take the place of the United States, because there is still a very large cultural difference and China still needs to change its image of totalitarianism and not respecting human rights, which still predominates the Latin American perception.

For now, I believe that China’s goal is a little smaller and focuses on ensuring its energy security. To have this guarantee, it must control at least part of the oil market, and to do so must approach countries that produce this resource.

DC: How can Venezuela get out of this mess?

AMC: To get out of this mess, Venezuela has a problem: it depends on these loans to maintain the liquidity of its currency. Today few nations are willing to buy Venezuelan debt or grant the country loans. This is a situation it cannot get out of easily.