While the government of Venezuela has looked increasingly shaky because of the coronavirus and a shortage of gasoline, Vladimir Putin is emerging again as a critical lifeline for the embattled regime. As the United States pushes for political change in Venezuela, the Russian state owned oil company Rosneft has helped Nicolas Maduro circumvent American sanctions by exporting as much as 70 percent of its oil through its subsidiaries when few companies dared to touch it. When Rosneft finally announced its departure from Venezuela a few weeks ago, American officials were quick to claim a win for the sanctions campaign. But their victory dance was premature.
Putin is often at his best when he projects a resurgent Russia on the world stage and the Kremlin formula of foreign adventures to distract from its domestic failures is well known. Intervening to shore up a crumbling dictatorship in Venezuela may create a bit of a diversion to boost morale as Russia loses its battle with the coronavirus. A recent foiled raid intended to capture Maduro and his cronies with a small mercenary force has handed Putin another reason to double down on Maduro. Russian troops in Venezuela are already operating drones to protect against another maritime incursion.
While American sanctions have decoupled Rosneft from Venezuela, the departure of the oil company does not signal Russian abandonment of Maduro. It is only a desire to avoid further American sanctions at a time of economic downturn when oil markets have bottomed out. Instead, the divestment of Rosneft was to sell its Venezuelan assets to none other than the Russian government itself.
The result of this financial chicanery is that while Putin still controls Rosneft, the oil company has likely maneuvered itself outside the reach of American sanctions. American officials have fallen for the trap, promising to lift sanctions on the subsidiary companies involved once they wind down their Venezuelan operations.
A deeper look reveals Putin has an interest in the strategic opportunities offered by Venezuela. The workings of the relationship could not be worse at present. With the most oversupplied oil market in a century, Venezuelan oil occasionally costs more to produce than it fetches on the market. But Putin values the geopolitical rivalry with the United States above all else.
Transferring the Venezuelan assets of Rosneft to Zarubezhneft, the new Russian entity, allows Rosneft to avoid further American sanctions that are part of the broader list of Western sanctions on Moscow. The risk of additional sanctions on Rosneft had risen considerably as frustration among American officials increased. Such sanctions would have devastated the bottom line of the oil company.
Instead, the Kremlin scheme fortifies the Russian foothold in the Western Hemisphere and resurrected what amounts to another Rosneft in Venezuela. The success of the new Russian entity will remain unknown until oil prices recover. But to ensure the best chance at a smooth resumption of operations once market conditions permit, Rosneft workers with experience in Venezuela have already been seconded to Zarubezhneft.
The choice of chief executive officer for the new company is revealing. Nikolai Rybchuk is not likely to strike anyone as promising managerial material, certainly not to head a $4 billion company. He has no oil industry experience whatsoever. His speech is halting and the occasional grammatical error indicates a not terribly well educated Russian. Something else, apparently, qualifies him for the job.
Video archives show Rybchuk to be an ardent unreconstructed Soviet patriot, a former officer in Angola who fondly remembers his days there working alongside Cuban troops and intelligence. Today, with Cubans entrenched in key Venezuelan institutions, it is possible that several familiar faces will be among the emissaries sent by Havana to greet him in Caracas. Most importantly, Rybchuk is a comrade in arms of another Angola veteran, Rosneft chief executive officer Igor Sechin, who has found in Rybchuk a loyal lieutenant and figurehead. Rosneft control of Zarubezhneft seems assured.
Despite the corporate musical chairs in Moscow, Russia is no less committed to the brutal regime of Maduro now than it was several months ago. Indeed, the Russian ambassador to Venezuela was quick to reassure Maduro that Rosneft exiting did not signal a weakening in Russian commitment to ensuring his survival.
The United States should not delude itself. Even the best targeted sanctions are unlikely to convince Putin to abandon a Russian role in shaping the future of Venezuela. Putin has shown an enduring commitment to this beleaguered oil industry. It is perhaps the best way to ensure the regime hangs on. His remarkable indifference to the damage inflicted on the Russian economy will cost his country dearly, but it is a cost Putin will bear to avoid abandoning allies in trouble, even the most problematic one.
Leon Aron is a resident and director of Russian studies with the American Enterprise Institute in Washington. Ryan Berg is a research fellow in Latin American economics at the American Enterprise Institute in Washington.
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