China clearly has increased its influence in Venezuela despite more than 50 other countries questioning the legitimacy of President Nicolas Maduro’s 2018 reelection, speakers generally agreed during an Oct. 22 discussion at the Atlantic Council.
Speakers were less certain, however, about whether the government in Beijing plans to expand its companies’ commercial presence when so much of Venezuela’s oil production and transportation is in shambles after years of neglect.
“If China had a look at all the issues on its plate, Venezuela would fall somewhere in the middle. It doesn’t look as urgent as dealing with Taiwan and Hong Kong because of their proximity,” said Carrie Filipetti, deputy assistant secretary at the US Department of State’s Bureau of Western Hemisphere Affairs. “But the Chinese government also values relationships. In the case of Venezuela, it may feel it needs a beachhead in the US’s backyard as long as the US provides assistance to Taiwan.”
“They see Hong Kong and Taiwan as parts of China and want to make sure other countries don’t interfere. When they look at Venezuela, they view Maduro’s election as legitimate and worry that countries like the US, if [the Chinese] interfere there, will start interfering in China,” said Ann Lee, an adjunct professor at New York University.
“There is an important strategic reason for China and Latin America to have a massive trading relationship,” said Francisco Monaldi, a Latin American energy policy fellow at Rice University. “China imports mineral and agricultural commodities. Latin America exports these things. When it comes to energy and minerals, copper and lithium are highly concentrated in Latin America, which the Chinese consider very important. In the long term, China will want to be involved there.”
Alejandro Grisanti, a director at state-owned Petroleos de Venezuela SA (PDVSA), said, “It makes sense for the country with the fastest growing economy in the world—China—to be interested in the country with the biggest pool of oil in the world, Venezuela.”
Grisanti said, “We’ve built an oil program for the future that looks at all the investment that’s needed and the potential that exists in the country’s oil fields. We expect it to increase production to 2.7 million b/d in 2 years, but it’s going to require substantial outside investment.”
Surveillance technology
Filipeti said, “We know that China is exporting surveillance technology which is helping the Maduro government control the Venezuelan people. They now have trouble communicating with each other. The Chinese also provide a sense of international legitimacy to the Maduro regime. They were very vocal in seeing Venezuela being elected to the Human Rights Council, which the US opposed.”
Lee noted, “China certainly is providing surveillance technology to countries across Asia with its Belt and Road Initiative, but the Chinese see that the US and other countries are doing the same around the world. They think that if they’re helping governments maintain peace and stability in the region, they’re helping matters there.”
Filipeti said, “China certainly also provides surveillance technology to countries across Asia with its Belt and Road Initiative, but the Chinese see that the US and other countries are doing the same around the world. They think that if they’re helping governments maintain peace and stability in the region, they’re helping matters there.” Much of Latin America has backed Juan Guaido, whom they believe unseated Maduro in the most recent election, since January, she added.
Grisanti said, “We also know that we’re part of a geopolitical game between China and the US, but I believe that China could be a bigger part of a political solution than a problem. We are looking again to have a partner that can fully invest in Venezuela. China could have a substantial profit as the Venezuelan oil industry is rebuilt. But the signal China is giving to the rest of Latin America as it does this could be costly.”
Monaldi said, “The threat of secondary sanctions clearly is having an impact. The Chinese clearly are wary of this. But it’s still unclear how much Venezuelan oil will continue to flow to China. We’re seeing less of this directly, but much of it is going through other countries where it’s blended with other crudes.”
Less onshore capacity
Monaldi continued, “Because there has been so little maintenance, Venezuela doesn’t have much onshore capacity. In that sense, secondary sanctions seem to be working. Oil that’s being produced is sitting on tankers, and it’s hard to find more of them to take inventory. Venezuela has had to close some production that will be very costly to restart.”
Asked if the US government sees a red line for Chinese involvement in Venezuela, Filipeti conceded that anything that would prop up the Maduro regime would qualify. “We’re also seeing less of a direct economic investment, which is useful,” she said. “I wanted to point out that the Chinese constantly use the term neutrality in discussing their relationships with other governments. But it can be problematic when a government like Maduro’s uses revenue to support itself instead of the Venezuelan people.”
Filipeti added, “Russia’s involvement is significantly more problematic. When it comes to the question of Rosneft taking control of PDVSA, this goes back to the question of sovereignty and a foreign country taking control of a significant national asset. Russia might want to consider how doing this fits with its sovereignty position.”
Lee noted, “We’ve seen that Chinese will deal with authoritarian governments in Africa and elsewhere because they’re not pushing their ideology or governance, but simply want to deal with the people in charge. The US approaches policy by believing that it doesn’t have permanent friends so much as permanent interests. China already has been airlifting humanitarian aid to the region and has moved a hospital ship offshore in case violence breaks out.”
Monaldi said the average amount of Venezuelan crude going directly to China so far this year is 300,000 b/d, adding that more could be going there after being blended with other crudes in Indonesia. “There are three players in the Venezuelan oil industry today: Russia, China, and Chevron Corp. If there’s a transition and the Venezuelan oil industry begins to recover, China stands to benefit,” he said.
Nick Snow
NICK SNOW covered oil and gas in Washington for more than 30 years. He worked in several capacities for The Oil Daily and was founding editor of Petroleum Finance Week before joining OGJ as its Washington correspondent in September 2005 and becoming its full-time Washington editor in October 2007. He retired from OGJ in January 2020.
