Venezuela beating the odds, but painfully

Venezuela is so far defying predictions of a collapse. Oil prices have crept back up, rain has started to refill a depleted hydroelectric reservoir and the Organization of American States (OAS) has backed away from an unprecedented call for scrutiny. Even on the football pitch, Venezuela is holding its own these days.

State-owned oil company PdV is beating the odds too. By its own admission, the company´s crude production is tumbling, but it is managing to clear some of the chronic backlog at its main oil terminal with creative payment terms like a recent swap deal with BP. More importantly, PdV is leveraging its US downstream subsidiary Citgo to push more of its logistical operations offshore, this time to Aruba, where the company will restart a refinery to blend its extra-heavy crude and secure naphtha to transport it. Further afield, energy minister Eulogio Del Pino is courting Beijing to reprogramme oil-backed debt.

This is a government that looks to be rolling up its sleeves to tackle adversity. Yet there is no denying the grim dispatches from Caracas. Deadly food riots, looting and violent clashes between unarmed demonstrators and security forces are becoming prevalent. A well-trodden smuggling route of cheap Venezuelan goods to Colombia has been reversed in response to alarming scarcity. The government of President Nicolas Maduro is resisting humanitarian aid.

In Washington, pundits say the market implications of a Venezuelan meltdown would amount to no more than a $10/bl spike in oil prices. Ironically, this would bring prices into the range of $60/bl that Del Pino has pegged as an ideal “equilibrium price”. Caracas is becoming the tragic instrument of its own oil price aspirations.

Up to now, Venezuela has fended off threats of a debt default, a government overthrow or civil war that might be defined as a collapse. But the Opec country is undergoing a slow-motion slide into chaos that will not be checked by financial patches stitched together with oil, because even when oil prices soared to triple digits, no handout was big enough to guarantee political support. Now that handouts are giving way to repression, the slide could be prolonged, with ramifications that transcend the oil price.

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