Maduro’s Crude Fate

Chavez’s 21st century socialism was built out of support from the poor and funded by high oil prices beginning in the early 2000’s. The ironic thing is that this experiment in 21st century socialism was only made possible thanks to the Free Market intrigues of Wall Street investment banks whose speculative activities contributed to about 60% of the increase in crude prices since 2003. The Revolution was financed by Wall Street. Supply and demand came 2nd. The great Bolivarian leader may have been reading those futile peak oil blogs (ASPO?) and imagining that his model of social development was guaranteed – the natural correction to societal collapse about to hit the western world as energy availability dwindled. Chavez died when crude prices were hovering around $100 a barrel – his successor Nicolas Maduro managed to ride the wave of post-Chavez sentiment for all it was worth but ultimately succumbed to the infernal logic of a socialist economy plugged into a capitalist framework – as these two graphs from Stratfor nicely demonstrate, Maduro’s popularity can be directly plotted against the global price of crude. Oil at $100 a barrel saw Maduro’s support at around 50% – $50 a barrel saw support drop to 50%. Vladmir Putin has also been unable to escape the horrid political logic of the petro-state, his country is experiencing a deep economic crisis. Putin and Chavez were cut from the same cloth – populist leaders struggling against American hegemony and NATO encirclement, providing unending vocal support for America’s Axis of Enemies and promoting vague concept of new world orders, which now appear bricked.

With the price of crude oil expected to remain between $50-$60 a barrel through 2017, it stands to reason that Maduro’s party will lose the upcoming election, but its not certain that the opposition will be able to turn things around without a herculean effort.

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Venezuela’s protracted crisis

The Bolivarian Republic of Venezuela is in the midst of a protracted crisis as severe economic recession and political repression contribute to social instability. Public frustration is rising due to a shortage of consumer goods and triple digit inflation, weakening support for President Nicolas Maduro and his United Socialist Party of Venezuela (PSUV). Parliamentary elections set for December 6 may well see significant gains by the opposition, but there are indications that the regime may not accept defeat peacefully.

Venezuela has been hit especially hard by the drop in crude oil prices since July 2014. Relying on crude oil for 96% of external revenues – priced at $117 a barrel to break even owing to the cost of social programs initiated by former president Hugo Chavez- has led to a GDP collapse of 10% this year. Price controls, a rigged exchange rate system and near hyperinflation have seen domestic industry as well as imports collapse, resulting in the country’s infamous “long queues” of people hoping to buy scarce necessities. Even hospitals are without key supplies. Frustration with high crime rates and economic woes led to the mass demonstrations that rocked the capital, Caracas in 2014, leaving over 40 people dead. Maduro’s response to the protests included the predictable denunciation of foreign interests attempting to undo the ‘revolution’ via economic warfare and conspiring with the opposition, leading to the arrest of key opposition figures, including Leopoldo Lopez of then Voluntad Popular, one of the 30 coalition parties comprising the opposition Democratic Unity Roundtable (MUD – a coalition housing “ideologies from Marxism to free-market conservatism, united only by a shared loathing of the government” – The Economist ) now led by Jesús “Chúo” Torrealba.

As a result of the crisis, Maduro’s approval ratings have dropped drastically: A poll taken in October reflected a 29% support base for Maduro compared to 44% in mid 2013. Another poll saw support for Chavismo – the left-wing ideology associated with Chavez – drop from 55.9% in 2013 to 21.3% in September 2015. Identification with the opposition increased from 31.6% to 68.3% in the same period. Defeat in the legislative elections pose a personal threat to many high officials being investigated for drug trafficking charges including the president of the National Assembly, Diosdado Cabello. In an attempt to attract support, the regime has increased imports of much needed resources and Maduro recently announced a 30 % increase in the minimum wage. The PSUV also benefits from the use of state resources for partisan campaigning as well as powerful media support while a number of MUD candidates have been disqualified, others arrested on spurious charges.

The months ahead may witness clashes between demonstrators and colectivos – armed civilian government supporters, especially in the aftermath of expected electoral fraud. The Ministry of Defense has declared that security forces are authorised to use lethal force against protesters. Maduro may be tempted to suspend the elections on the grounds of a national security crisis should defeat appear likely. Should the MUD emerge with a supermajority, the PSUV and military may refuse to recognise the win. This is consistent with Maduro’s recent statements that he will refuse to accept defeat. Discontent within the regime-entrenched military is growing however and is likely to support Maduro since the army has itself been deeply implicated in drug trafficking charges. A MUD majority will give the coalition the power it needs for a referendum on recalling the president in 2016, as well as replacing cabinet ministers and chavismo Supreme Court Judges. Another scenario involves the PSUV dominated legislature voting a reduction in its power before handing over the reigns, thus leaving the executive in a stronger, almost dictatorial position. These moves may aggravate the already unstable political environment expected in 2016.


U.S. – China relations

The U.S. – China relationship is an interesting example of the strategic consequences of globalization. Consider the seemingly bizarre situation in which the American superpower is actively investing in and thus facilitating the rise of China, which is becoming a greater threat not just to American interests around the world, but to global order itself?

Increased military spending and armaments production, as well as newly awakened strategic ambitions are all the result of a China with new-found capabilities and confidence, which followed the reforms of Deng Xiapoing. The problem is that these ambitions are bringing the country to loggerheads not only with the states in its maritime neighbourhood, but with the U.S. itself. Tensions over China’s island building activities in the South China Sea, threatening the internationally recognized legal frameworks that govern maritime affairs is one example of a rising power that sees world order as fluid, changeable, and changing.

Edward Luttwak, the brilliant strategic thinker and author of The Rise of China vs. the Logic of Strategy argues that the U.S. supports this arrangement at an unacceptable cost. Free trade may mean higher corporate profits in the short to medium term but comes at the cost of the slow deindustrialization of America. Luttwak writes it is “beneficial for Americans as consumers, borrowers, and financiers above all, while being harmful to Americans as workers and producers”. The CCP aim is to perpetuating this “unbalanced economic relationship for as long as possible, or rather until China emerges as the richer and more advanced country.”

Luttwak explains that there are three China policies at work in the United States; those of the Treasury, the Pentagon, and State Department; policies which often work at cross purposes.

The Treasury Department “in its everyday bureaucratic operations the U.S. Treasury is indifferent to the condition of U.S. industry, and specifically to the sharp decline, or outright disappearance, of entire industrial sub-sectors because of the unconstrained inflow of cheaper imports, notably including imports from China”. They are primarily interested in the trade imbalance which generates huge surpluses on the Chinese side, some of which flow into Wall Street. He writes that “the U.S. Treasury, under its current leadership as before, actively favors China’s economic growth and technological advancement –having no departmental responsibility, or perceptible concern, for the inevitable relationship between China’s overall economic and technological capacity and its resulting military aggrandizement.”

In the middle is the State Department, which maintains a balanced policy according to Luttwak, including:

  • proactive cooperation with China on a multilateral initiatives
  • containment , or an “energetic coalition building.. which is to be available to our friends who are threatened by the rise of china”
  • polite “ideological warfare” against the CCP invoking human rights etc.

On the opposite side is the ‘excessively antagonistic ‘Pentagon policy which emphasises the ‘containment’ side of State Department policies, putting China as the prospective “Main Enemy” justifying calls for increases in military spending and procurement programs. It also gives the “enthusiastic” Department of Defence a real enemy for the first time since the end of the Cold War, the elusive Islamist bogeyman providing a frustrating experience in high altitude bombing, dead end nation-building and the terrors of urban warfare.

The question is at what point do the benefits of interdependence outweigh the strategic costs of a Rising China?