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The Evolving Crisis in Venezuela

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Panelists discuss the political crisis in Venezuela, the continued economic fallout, and the ongoing humanitarian catastrophe for the people of Venezuela.


Shannon K. O'Neil

Vice President, Deputy Director of Studies, and Nelson and David Rockefeller Senior Fellow for Latin America Studies

Francisco Toro

Editor in Chief, Caracas Chronicles; Global Opinion Columnist, Washington Post


Robert McMahon

Managing Editor

MCMAHON: Thank you and welcome, everyone, to this Council on Foreign Relations conference call. I’m Robert McMahon, managing editor of CFR Editorial, and I’ll be moderating this on-the-record call on “The Evolving Crisis in Venezuela.”

We’re very pleased to have as our two expert guides Shannon O’Neil, who is CFR’s senior fellow for Latin America Studies and deputy director of studies, and Francisco Toro, editor in chief of Caracas Chronicles. Both have written smartly on Venezuela’s downfall in the pages of Foreign Affairs and CFR.org, as well as elsewhere. And during the next hour we’re going to be walking through what to look for in this crisis, and what’s at stake, and what has been the fallout across economic, humanitarian, and regional security lines.

I’m going to kick things off with a few questions, and a discussion for maybe ten to twelve minutes before opening up to your questions. There’s a lot of people on the call. We want to get to as many of your questions as possible. For starters, Shannon and Francisco, I wanted to ask both of you to address the prospects for the staying power of the Maduro regime. It is facing a tough new round of U.S. sanctions on its primary cash-producing sector, the oil sector. So starting with you, Shannon, how likely that Nicolas Maduro steps down or comes up with a power-sharing scheme, perhaps, with the opposition?

O’NEIL: Well, this is the big question today. And it’s probably the biggest test of his presidency, and of the last almost twenty years in Venezuela of the Chavez and then Maduro regimes. And it is a time when you have—almost for the first time, you have the international community broadly condemning the regime. You have nearly every neighbor, including Canada and the United States, all of them not recognizing Maduro’s presidency and turning to Juan Guaidó as the president. You see the European Union as well walking that direction if elections aren’t held, and Maduro said he will not hold new elections.

So you have this international condemnation and lack of recognition. And then as you said in your opening remarks there, we have sanctions. This is the first—we’ve had individual sanctions from the United States, and from a few other countries, particular sanctions. But this is pretty widespread sanctions across the oil industry, which is the main industry. So you’re going to have a lot less money coming in to fund this regime.

So what does this mean? Well, those will be big barriers for the regime to overcome. They will cripple the economy, but also cripple the way the regime runs, and the benefits to those who are part of the regime. But I would caution that this means definitively that we’re going to see an end to the Maduro regime. That’s what the United States thinks: We put on sanctions. We’ll make the economy scream, as someone unfortunately said back in the 1970s about Chile from the United States. (Laughs.) If we—if we sort of stop the economy. But I think we need to look at the regime, it will come down to what does the military do. Does the military stay with Maduro? They are part of this government. There are many governors, there are many ministers that are military officers and generals. Or do they separate and go the other way?

Guaidó has tried to appeal to them by saying there will be amnesty for those that help return the democratic order. But, you know, these military officers have been intimately involved in all the decisions there. They’ve benefitted from the flows of money and corruption. But they also, I’m sure, had not a small amount of fear of what comes afterwards. And particularly while Guaidó has offered amnesty, the United States pointedly has not offered these individuals amnesty. And they would be susceptible to all sorts of crimes—corruption, human rights abuses—and also many of them to drug trafficking, which it looks like they’re involved in. So I think it is—it’s a moment when we don’t know where they’re going to go, but I would be watching what does the military do? Because they are going to be the kingmakers for whomever—for the next presidency, between these two.

MCMAHON: So just to be clear on that—on that point, the military is not sort of this removed part of the country that operates independently and is supporting the regime. It’s actually embedded in part and parcel of the regime in lots of ways and holds lots of important positions. Is that right?

O’NEIL: It is. It’s running many of the ministries. It’s running—many of the governors are military officers. It is—at least, parts of the military are intimately connected and are the regime. They’re very hard to separate from the regime.

MCMAHON: Thanks, Shannon.

So, Francisco, all eyes are on the military. Could you talk a little bit more about how we should look at the viability of the Maduro regime?

TORO: Well, the Maduro regime is kind of a funny way of saying that, because you have the Maduro part and the regime part. I think the Maduro part is a lot more precarious right now than the regime part. From the point of view of the upper echelons from the military, these are people who have joined Maduro, basically for patronage reasons—because they get allowed to traffic drugs, to traffic illegally mined gold, to control the oil industry, to import food. There are a lot of rents associated with that. There’s a lot of money associated with that. This is—you know, at heart, it’s a kleptocracy.

What good is a kleptocracy, what good is being a participant in a kleptocracy where there’s no money flowing through it, very little? So from the point of view of the upper echelons of the military, I think the viability of keeping Maduro in power must now be really in question. They’re under a lot of pressure from the middle ranks and from, like, the enlisted men in the military because there’s not enough food in the barracks. And that’s something that’s been widely documents. And we hear these stories all the time, you know, WhatsApp messages and the stories on Twitter circulating.

There was very—it was very difficult to stop them. And there is this ongoing rumble coming from the enlisted soldiers, pressuring the middle ranks, the middle ranks pressuring the upper ranks. And the upper ranks need the money from these illegal operations, but especially from oil, in order to send some money down the line and to keep a minimum of quiet in the barracks. That entire edifice of patronage and support for the regime becomes unviable if Venezuela can’t sell oil—well, if Maduro can’t control the flow of rents from oil sales to the United States.

So I think if you’re a member of the military high command right now, you’re asking yourself: Well, what is my best option? It’s to keep the regime but with a different face. So either install a high-ranking member of the military—maybe Vladimir Padrino Lopez or Ceballos Ichaso, the commander of the High Command. I don’t know how to translate it into English. Or a civilian figure that you see as client and that’s someone that you can control. Now, the question is, is that going to be enough for Elliott Abrams and John Bolton and the people in the administration to ease some of the sanctions or to open up a negotiation on the basis of that? I think the regime’s staying power—the regime has more staying power than Maduro himself. Maduro himself is in deep trouble.

MCMAHON: So one follow-up to that, Francisco. The—so you’ve, like, kind of laid out what the external pressures are doing, internally at the upper echelons. What about from the lower echelons? Is the scale of the protest we’ve now seen, the way the opposition appears to have pulled together in ways that they haven’t before, as reported by people who report on Venezuela a lot? Can you talk a little bit about what’s happening domestically from the protest level all the way to the slums?

TORO: Well, this is very different round of protests than what we saw in 2014 and 2017. In those two big rounds of protest, there was a familiar rhythm and a familiar kind of urban geography to protest. I think in each of the four or five biggest cities, there tends to be a middle-class enclave, a place where you have better-built apartments and a more formal city. And those were the protest hotspots. That’s where people were going out to protest. And then the regime would send out the national guard riot gear—in riot gear, or colectivos, these neighborhood groups, to terrify them or to beat them up, and to try to stop the protests. So it was tear gas, it was sticks, there was some guns for sure but it wasn’t mostly that.

This time around, it’s entirely different. You’re not seeing protests in Plaza Altamira in Caracas and the typical middle-class protest hotspots. You’re seeing a lot of protests in the slums. Why? Because the young people, the young guys who are protesting in those middle-class enclaves, have largely left the country. When you see protests, or you see events in the middle-class areas now, it’s a very different, much older demographic. It’s those protestors’ parents they left behind and who have an empty room at home. So the protests have sort of migrated to the slums, which are the demographic base of support for the regime. And the regime’s response has been much, much, much more violent than in 2014 or 2017.

In 2017, we had 150 people killed after four months of daily protests. And in just the first week this year, we already have forty people killed just this week, and up to a—I think I read 960 people arrested in the first week. So the other part of this, I said, the regime is no longer sending out colectivos, these sort of arm’s length groups that provide some plausible deniability, or national guard troops with tear gas. They’re sending out a new special unit of the national police, called FAES, the Fuerza de Accion Especial, the special action forces from the national police, which are acting essentially as death squads. They have this long record of going into slums, finding people that they see as undesirable for crime reasons or general now for political reasons, and just shooting them.

And they—and if you look at some of the reporting that’s been by human rights organizations, already FAES has thousands of casualties under their belt. And they are the people front and center in repressing the slum protests now. And that’s why you see this very, very violent firefights going on in various slums in Caracas night after night. So it’s a very different kind of feel to the protests. The geography is different. The level of violence is different. But also, the regime seems less interested in preserving plausible deniability, and doing repression through people that they indirectly control but are not sort of uniformed and thus far not part of a formal chain of command.

MCMAHON: Well, thank you. I wanted to ask you one—both a final question, then, and then open up the call to questions. And this is one of the ones that everybody keeps talking about, which is, you know, if there is—if these reports say the crackdown that you’re talking about, Francisco, continue, the U.S. has said—well, the Trump administration has said that it is keeping all options on the table. There was a famous glimpse this week at a—at a notepad that John Bolton was holding, talking about troops deploying to Colombia. I wanted to ask you both about the prospect of a U.S. military intervention, and sort of game that out a little bit about how wise or unwise that might be.

Shannon, could you address it first, and then Francisco?

O’NEIL: Sure. Right, we’ve seen—we’ve heard a lot of talk about the potential for military intervention over the last year or two, and then Bolton has this piece of paper that he was showing all the reporters that said: “5,000 troops in Colombia.” And, you know, military intervention is in many ways unrealistic, but precisely because of that. It’s not five thousand troops for an intervention in the country the size and of the state that Venezuela’s in, right? This is a country that is twice the size of Iraq in terms of its geography. It has more oil than Iraq. It has a similar population. So it’s a vast country. it’s not a country that—for instance, countries in Latin America that the United States has invaded in the past, placed like Grenada or Panama—this is a very different scale of country.

And it’s also a very different situation on the ground. When you looked at Panama, you looked at Grenada, these were places that had—they had their problems, but had career civil servants, it had bureaucracies, it had governments. And you were going in and replacing a leader. This is a country that is, in many ways, a failed state. It’s a country where the electricity doesn’t often work, the water doesn’t flow, the hospitals are, you know, without any sort of services, health care provision is shut down. The basic functioning even of the energy industry in many parts, the courts, the infrastructure is so decrepit that you’re starting from zero in many places. So any force that would go in there to try to remove this government, you would also be embarking on a very vast nation-state building exercise that would last potentially for years.

And then just picking up on what Francisco said, in a sense, you know, there are all of these violent groups. There’s the military. There’s the national guard. There’s the police. There’s colectivos. There’s these other groups that are there. And so also expect at a place—this is not a peaceful country by any means. And so U.S. troops or a multilateral force, if it wanted to go in, you would need to expect—whether it happens or not, you’d find out—but you would need to expect the kind of reception that would be hostility and fighting and the like. And I don’t see any appetite in the United States for what this would actually take. You need to think on the scale of an Iraq, or a Syria, or an Afghanistan, not a Grenada.

MCMAHON: Francisco, to that, and maybe talk a little bit about what a humanitarian intervention could look like as well?

TORO: I have no idea what that phrase means. I think it gets used propagandistically a lot. I think mostly it’s meant to denote kind of propaganda operations where you would have a ship coming to shore with, like, meals or something along the border, more for the cameras than something else.

I agree with most of—well, with all of what Shannon had to say. I think—but one thing that I think she’s leaving out is that there are these other countries that also have acute interests in Venezuela—Russia, China, Cuba, but also Brazil and Colombia on the other side. So there is this definite threat that if a military operation takes any amount of time in Venezuela, that other countries then start to move into—and you can imagine, easily, Brazil moving into the southeast, Colombia into the southwest. You can imagine Russia trying to defend its oil interests, because Russia has big oil investments in Venezuela. You can imagine China doing I don’t know what. And Cuba has already intelligence penetration into the Venezuelan armed forces.

So the bit that concerns me is that point. And what it looks like to me is not Iraq. It’s Syria. It’s a country that starts to fragment with different military strongmen in different parts of the country holding it, and extracting rents from the bits of the country that they control. So I think Venezuelans always fall into this trap of thinking that we’ve touched bottom, that we’ve hit rock bottom, that it can’t get any worse than this, it looks so bad. Three million people have left. And that reminds us of the possibility of a military component to this crisis making it all much, much, much, much worse. Already people don’t have enough to eat. You layer a war on top of that, and it’s not—it’s not a place anybody sane should be even considering of going to.

MCMAHON: OK. We’ve addressed the big questions, initially at least. I want to open up the call now to questions from those on the line.

Operator, can you please give instructions for asking a question? And I also want to remind everyone, this call is on the record.

OPERATOR: Thank you.

(Gives queuing instructions.)

We’ll take our first question from William Tovell with JPMorgan.

Q: Hi. Sorry for the background noise. I’m just curious what you think a next step might be from a sanctions perspective.

MCMAHON: Shannon, you want to kick off with that, please?

O’NEIL: Sure. Well, they’ve gone pretty far in terms of sanctions. So we saw the sanctions that came out earlier this week. It’s stopping some flows immediately. It will limit Citgo by August—or, I mean, by April, and then U.S. service providers or American companies that have been working there—think people like Halliburton and Schlumberger, and others will have to get out by July. So you—and given that the Venezuelan economy is so tightly linked to oil, there’s not a lot of other activities going on down there—this is a pretty economy-wide set of sanctions.

You know, the issue here is with the orders from this last week, and as these go into effect over the next six months, those are pretty much the sanctions that you can put in place. There are a few others. You could put some secondary sanctions, financial sanctions on banks that work with intermediaries, and the like. There’s some of those things. But this really was the big bang from the treasury and from the U.S. government, these sanctions. These are effectively a blockade on the Venezuelan economy, given its dependence on oil. And the challenge for the Bush—or, I mean, sorry—for the Trump administration, and the riskiness is it will affect the economy. And as we’ve been talking about, it’s going to have a severe blow. But if it doesn’t work in dislodging this regime, then there’s not a lot left in the toolkit besides things like military intervention.

MCMAHON: Thanks for that question. Operator, do we have another question, please?

OPERATOR: Yes. We’ll take our next question from Hani Findakly with Syntomic (ph) Capital.

Q: Thank you very much. That was a very good, useful presentation. I have a two-part question. One is, in trying to see where Venezuela is going next, I think it might be useful to understand what happened in Venezuela over the last few years, and particularly the last three or four years where GDP has contracted by 30 percent or more. The second is, is it wise for the U.S. to immediately recognize the new government, given our history in Latin America in dislodging the existing regime? Or should we have been more circumspect in the way we’ve acted?

MCMAHON: Thanks. I think I’m going to split the two-parter into two of our experts. Maybe Francisco take the what happened question, and then Shannon follow up with the wisdom of the U.S. recognizing the newly declared government.

O’NEIL: Sure.

MCMAHON: Francisco, why don’t you kick off.

TORO: Sure. Well, when oil prices collapsed in 2014, most countries around the world adjusted—they had a fiscal adjustment, they had an exchange rate adjustment. It was painful, but because they allowed exchange rates to adjust, well, you import less and then you export a little bit more, and then you cut down your fiscal spending and then things—you know, we have a couple of bad years, and then you come back, and it’s balanced. What’s interesting, and the reason Venezuela collapsed, and no other oil economy collapsed, is they did none of the reforms. And they kept the official pegged to the U.S. dollar, at an absurdly overvalued rate, which destroyed any possibility of improving competitiveness.

And the reason they did that is the entire elite around Maduro, the kleptocratic elite around Maduro, was making huge fortunes out of currency arbitrage, out of arbitraging the black market exchange rate with the official exchange rate. And they, being the most powerful people in the country, were very well-positioned to block reforms—common sense reforms—that every other oil state used to adjust to lower oil revenues. So kleptocracy and economic collapse are really two sides of the same coin here.

MCMAHON: Great, thanks. Shannon, on the U.S. response?

O’NEIL: Sure. I mean, this was a very bold move, to recognize the government of someone who has no control over any territory, or bureaucracy, or aspects of government. And leaving aside for just one second just the history in Latin America of the United States government, I mean, this is outside of a precedent for the United States in most places around the world, or frankly for most countries around the world. You know, usually countries, whether they love or hate their counterparts in another country, whether they believe with them ideologically or not, or how they feel about the way they were elected or not, usually you recognize the de facto government because that is the person that you need to work with in multilateral forums, or even people at your embassy need to work with to make sure that they can travel to and from their house, and things like that.

So this was a very different breaking with precedent—decades if not more—of precedent for the United States and for other countries and the way they do things around the world. So given that, it is—it is a bold move that the United States did this. But one thing I would say that’s different than in the past, and particularly different than U.S. history in Latin America, or even just reflecting on Venezuela a difference than the U.S. position in 2002, when there was an attempted coup in Venezuela, is this time the United States is not alone. And in some ways, some of this recognition—it wasn’t—it was pushed by the United States, but it was pushed by other governments just as much if not more.

And so you have most other nations within the hemisphere, particularly the big economies—this group, they’re called the Lima Group. So this is a group that was, you know, led by Peru. Canada was also very involved. But Colombia, Brazil, Argentina, Chile, many other countries. They also have recognized Guaidó. So it’s not just the United States that is doing this. And you’ve even seen the European Union come along and say that unless Maduro will hold elections, and says he’ll hold them within this week, they too will not recognize Maduro as the legitimate president. So I think there is something here, as I look at the history of U.S. relations in Latin America, and the steps that we have or haven’t taken at various points, I think there is something here in the safety in numbers aspect, and the fact that it isn’t just the United States deciding, that this is really an international movement to turn away from the current de facto regime.

MCMAHON: I think it might have been in a follow-up Shannon that the interest was the surprise, I guess, of the Trump administration speaking in terms of supporting democracy and correctly the properly elected officials in Venezuela, and recognizing the National Assembly and Juan Guaidó, and so forth, took people by surprise, I think, because you’re not seeing that kind of outspoken support for that in other parts of the world, say, where there have been very sketchy elections. Is it a hemispheric issue, among others? And—or, have we seen this sort of—the concern about Venezuela from early on in this administration?

O’NEIL: I think there’s two surprising aspects here. One is that aspect that, you know, we’re supporting democracy—or the United States, the Trump administration, is supporting democracy vis-à-vis more authoritarian government, because that isn’t the case in many other parts of the world. I mean, the other thing that’s very different and somewhat surprising, for those who watch foreign policy, is that this effort in Venezuela has really been a multilateral effort. There’s been a lot of diplomatic shoe-work done to build a multilateral, a many-country coalition to come together to condemn the Maduro regime together. And that’s very different than, you know, Trump’s take on NATO or other things that, you know, our traditional multilateral efforts have not been at the forefront, let’s say, of his foreign policy so far. So this is a different—it’s very different here.

You know, I think there’s a couple reasons why this is true. One comes from U.S. domestic politics. And when I look at who is driving the Trump administration’s Latin America program, and Latin America policy, there’s a lot of influence from Republicans in Florida, and particular South Florida. And they’re—for those who follow domestic politics, for many years there’s a Cuban contingent, now there’s a Venezuelan contingent, there’s a lot of Latin Americans that live there. Many of the diaspora, the exiles. And there’s a very hard line vis-à-vis these authoritarian regimes—starting with Cuba, but that extends down to Venezuela. So I think that that is a driver. So the Marco Rubios and others have Trump’s ear, and his team’s ear, and have been pushing this for a long time.

But the other thing I would say is that Latin America, to its credit, compared to a generation or so ago, is that this is a democratic regime. And so while when you look at the Middle East it has a different complexion, Latin America is surrounded by democracies. So this behavior in Venezuela is not OK with all of the neighbors. So I think there is not just the south Florida elections and the need to sort of appeal to a harder line there that is driving the Trump administration, it’s the fact that he hears this when he goes and visits with the presidents of the various countries in Latin America who want a return to democracy there. This is what the region prides itself on, and struggles at times, but works to deepen. And so I think there’s those two sides to it, is that the other partners in this effort are as committed to change there as the United States is.

MCMAHON: Thanks. And just a reminder to those on the call, this is a Council on Foreign Relations on the record conference call. We’re talking with Shannon O’Neil and Francisco Toro about the evolving crisis in Venezuela. I want to go back to the operator and see if we have another question on the line, please.

OPERATOR: Thank you.

(Gives queuing instructions.)

We’ll take our next question from William Skidmore with BP.

Q: Yes. I was curious about the sanctions which I think, over time, one of you had commented that there will be alternatives to that. There’s, you know, third-party, non-U.S. intermediaries Venezuela could use. Not sure what the effect of swaps would be on the fuel exchanges. So there are alternatives for Venezuela over time. It will put some pressures on the regime, no doubt. But my question is, to what extent do these pressures, which will certainly trickle down to those with not much kind of do an about-face on their casting aspersions at Guaidó, especially since the government is keen to repress those elements which they—which they kind of indirectly control, based on the amount of goods and services that they can provide these people that have nothing.

MCMAHON: Shannon, do you want to kick off that, please?

O’NEIL: Sure. And then I’d be happy to turn it over to Francisco. You know, I mean, that is what you will hear on the state media in Venezuela. You will hear that this is all Guaidó’s fault, that the U.S. imperialists are working with the opposition and they’re trying to bring us down, and the reason that you don’t have eggs in your refrigerator is because of their political—or their economic pressures, and now their sanctions. You know, that is one source of information. I think other people are quite realistic about what has happened about the mismanagement, about the corruption of the regime, about the police that are firing on them. (Laughs.) I don’t think Venezuelans are—you know, they know where the reality is.

One thing, though, as we see sanctions tighten—and, as you say, there will be some alternatives, but it’ll be more expensive for Venezuela to send their oil to Indian refineries, as compared to Louisiana refineries. (Laughs.) And so there will be costs there. And some of it will be—will be much harder to do. As there’s less money, I do think you’ll see more deprivation, even given the low base we’re at, more among the population. And I think you’ll see more people leave Venezuela. So you’re going to see more refugees pouring into countries throughout the hemisphere and elsewhere around the world.

So I don’t—I don’t see this as an easy blame on Guaidó. I think Venezuelans are pretty clear about where the challenges come from. But if this regime stays in place, if we don’t see a change in the coming weeks or months, then what I do think we’ll see if a further exodus of people

MCMAHON: Francisco Toro, do you have an opinion?

TORO: Yeah. I mean, so let’s talk about PDVSA having alternatives. This, I think is really relative for a couple of reasons. If you go on—go to Twitter and follow Anatoly Kurmanaev, he’s sort of a legendary Wall Street Journal reporter who spent about five years in Venezuela. Amazing reporter. But he’s Russian, and now he’s back to Russia. And he was writing yesterday that Lukoil has decided not to continue supplying diluent to PDVSA because for complicated sanctions reasons Lukoil feels exposed to American sanctions if it continues to do business with PDVSA. Now, this could be Lukoil being very, very conservative. But Anatoly had heard that it was not just Lukoil; more Russian companies were also looking at this new sanctions regime and being conservative and trying to figure out how to play.

It depends on how the State Department, the Treasury Department decide to implement sanctions. If they decide to be very aggressive about going after companies, even non-American—companies that are not Americans, that are skirting the sanctions regime, PDVSA can be left in a really difficult position. There’s no reason why the U.S. can’t put pressure on India and India refiners not to follow suit. So this is—this will depend on exactly how aggressive people like Elliott Abrams want to be in actually implementing the sanctions regime.

But the other side of this has to do with the collapse in managerial and technical capacity inside PDVSA itself because PDVSA has been absolutely wrecked by a year of collapsing real wages. Most of the engineers have left, they’re waiting tables in Colombia, they’re working call centers in Panama.

I heard a story from a good source, who runs an oil services company in Caracas, who’s doing business in Puerto La Cruz with PDVSA, had to work for about a month to try to get a meeting with PDVSA engineers in Puerto La Cruz to deal with technical issues they had out there. They got their team out to Puerto La Cruz, went to PDVSA headquarters after this long leadup to this meeting, and when they go there, there was nobody there, there were no PDVSA engineers there. And he tells me, well, I asked around, the only person there was a guard, like a security guard, and I asked him, where is everybody? And he tells me, look, a shipment of shampoo just came into the pharmacy down the road and nobody in this town has seen shampoo in, like, six months, everybody from this office is standing in line at the pharmacy for shampoo. That’s why they’re not at your meeting.

So those are the people who would have to figure out how to do these complicated swaps and transshipment methods. They don’t have shampoo, they’ve left. I don’t think PDVSA has the technical capacity to do the very simple things and certainly not the technical capacity to pursue any complicated sanctions-busting or sanctions-skirting strategy at this point.

MCMAHON: Very interesting. Thanks for that question.

Operator, do we have another question in the queue, please?

OPERATOR: We’ll take our next question from Yenin Aroo (ph) with Xinhua News Agency.

Q: Hi. Can you hear me?

MCMAHON: Yes, I can. Please go ahead.

Q: Yeah. So thanks for your briefing. So my question is, what’s the risks facing domestic production of Venezuela’s oil industry? Thanks.

MCMAHON: So maybe following a little bit on what you were just saying, Francisco. Maybe you can pick this up, the risks facing domestic production of oil in Venezuela. Maybe walk a little bit through what the state of that industry is.

TORO: Right. As I was saying the Venezuelan oil industry is in very bad shape at the moment. Production has been falling very fast and, more or less, out of control. President Maduro’s reaction to this was to appoint a national guard general about a year ago to run PDVSA, a person with no technical capacity or no expertise in the oil industry, who has tried to use military repression tactics to keep his workers on their wells and it hasn’t worked. Labor attrition has now gotten to a point where workers, they don’t—they don’t even pick up their severance pay or their last paycheck, they just one day stop turning up to work because they need to eat and so what they do is they go to Colombia and they try to get a job there.

A waiter at a restaurant in Bogota is earning twenty to thirty times as much as qualified technical personnel on a Venezuelan oil platform right now, so it’s impossible to retain qualified staff. So what you’re left is with PDVSA, the main oil company, now has a lot of obreros, a lot of sort of workers, but they don’t have people who have the capacity to deal on the marketing side, on the production side, on the refining side. The refineries have really stopped refining mostly.

So another interesting and important part of the sanctions was that the U.S. is no longer going to be exporting, A, gasoline, refined products to Venezuela. So then how long do PDVSA stocks hold out?

PDVSA is not a company that can handle small challenges or easy problems. And this is not an easy problem, this is a very big, very tough to go at challenge that the Iranians, for instance, who have a decade of working on these kinds of problems, struggle with and they have the best people in Iran working overtime on skirting sanctions.

So my sense is that oil production will necessarily collapse also because there’s no diluent coming in. Remember that most of the Venezuelan production in the southeast, the Faja del Orinoco, their Orinoco Oil Belt, is extra heavy crude. It’s so thick it doesn’t flow through pipes, you need to mix it with diluent, which you need to import. The best diluent they found to do that with is U.S. light crude and U.S. light crude is no longer able to be imported.

Last year, they had tried to import some diluent from Algeria to see if they could make that work, but the technical characteristics of the oil wasn’t quite right, they couldn’t make it work. They don’t have a lot of good options for replacing U.S. diluent, so oil production will certainly drop very fast and even faster than it has already been dropping. But, you know, it would be foolhardy for me at this point to try to put numbers to that, but it’s clear to me that options will take time and there’s no cash line, there’s no expertise and personnel in place to find those options.

MCMAHON: Great, thank you.

Operator, can we have another question please?

OPERATOR: We’ll take our next question from Joe Oliver with Oliver Global.

Q: Hi there. Thank you for the very informative call.

One of my clients is Wikipedia and they’ve suffered a couple of intermittent, partial blackouts and censorship over the past couple of weeks for the first time in Venezuela. Interesting that it has been intermittent and partial, it’s sort of come and gone. I don’t know if that is in relationship to the electricity coming and going or staffs, you know, perhaps in one government agency or another, you know, and how they might work with the internet service providers.

But I guess my larger question is on the sort of prospects for, you know, the free and open press in a country, I guess, and region, as some folks have noted, that has a—has a tradition of a free press. I’m just wondering comments from the panel on that.

MCMAHON: I’ll give you both a crack at it.

Francisco, maybe you could take a shot first.

TORO: Yeah. I mean, it’s—the freedom of speech situation has been deteriorating for a long time in Venezuela. But for a long time, the government tried to keep it somewhat ambiguous. So you would have telecoms regulators, they would come and they would say, well, this isn’t really appropriate for children, and then maybe you’d get a fine. And you would see which way the wind was blowing and you’d start to self-censor. So a lot of—traditionally with Chavismo what Chavez and Maduro had tried to do was to encourage self-censorship to get certain voices off the air.

What we’re seeing now is a little bit analogous to what’s happened with repression going from this arms-length stuff with the colectivos to a much more direct, in-your-face police, death squad-based repression. What we’re seeing now is straight up censorship. César Miguel Rondón, who has the most sort of widely trusted morning news radio program in Venezuela—it’s been running for about thirty years, it’s a Venezuelan institution—had managed to keep going even through now, was taken off the air. He was very straightforward. He said this is not self-censorship; I’m being censored. The word “Guaidó” is not allowed to be spoken on the air in Venezuela right now on radio or television. News about repression, about violence, or about protests are banned from the airwaves. And it’s—it is now explicit. If your TV or radio station publishes this, you will be taken down.

And the state ISP, CANTV, has clearly been going not just after Wikipedia, but after Twitter, after Instagram. When there was a small uprising in Cotiza, north of Caracas, on January 21, that went out on Instagram. It was a very 2019 kind of moment when you have a military rebellion that starts on Instagram. Instagram was taken down within minutes of that and then Twitter.

So the regime—all of this speaks to Maduro’s sense of threat now, his sense of this is for real, that this is for keeps, that it’s by no means a forgone conclusion that he can keep power and that he can no longer afford to try to keep the revolution’s good name or to try to be subtle about things. He just needs to use raw power and raw power is what—is what he’s using.

I’ve heard even Venezuelans in the last few days say, well, it’s almost a relief that all the simulation is over and now they’re just letting it all rip and really showing what this regime has been all about for so many years. Now it’s out in the open.

MCMAHON: Shannon, anything to add on media prospects?

O’NEIL: You know, I would just add that often with repressive regimes the local media suffers the most and sometimes the only voices are the international media and reporters. But what we’ve seen in Venezuela is international reporters as well having very similar censorship. So you’ve had visas that are denied for New York Times reporters, for CNN reporters, people literally kicked out of the country. I know a couple of reporters who were taken in by the SEBIN, by the—by the intelligence services and threatened for overnight and threatened and then kicked out of the country. So this is something that’s becoming increasingly, as Francisco was saying, deepening, and then becoming much more of a blanket, you know, ability where you can’t say anything. Even shades of gray are no longer allowed.

MCMAHON: Thank you.

Operator, do we have another call in the queue, please?

OPERATOR: Yes. We’ll take our next question from Arvina Rajan with PGIM. Please go ahead.

Q: Thank you. Thanks for a very informative call.

My question is, what are your scenarios for transition away from the current situation? And how might these transitions proceed depending upon the scenario?

MCMAHON: Oh, I think you probably both have ideas on this. I’ll start with Shannon with this time and go to Francisco.

O’NEIL: Well, you know, one scenario is that things stay as they are, right? It’s bumpier and uglier, but it—but it stays and we see Maduro stay in place.

Another scenario is that, while Maduro leaves, the regime stays in place, so someone else comes into the position, it’s no longer him, but we don’t see a change in the structures. You know, I think there’s—that’s one scenario.

Another scenario is we do see a transition, right? We do see somehow we get some sort of negotiation. There’s some sort of amnesty given to some or some turn and we get some sort of elections that come up. Now, those are going to be incredibly difficult to do. You look at the undermining of democracy and democratic institutions over the last several years make it that lots of the bureaucracies, even the voting rules, all of these things are, you know, uncertain to say the least and not up to date and skewed and the like. So it’s sort of hard to imagine, you have to rebuild this whole type of bureaucracy that can run a free and fair election that the international community and the Venezuelans themselves would recognize.

But I do think there is—there is a path there that might take a few months to pull together, and then you could see an opposition leader come in who would then have to deal with the economic mess, the social mess, the challenges that are there.

But then I want to throw out a sort of third case scenario, which is that this regime or Maduro disappears, but you can’t get or not get quickly to free and fair democratic elections, the return to that norm, and you get, you know, perhaps not quite the level, but you get to almost a civil war kind of case where you have lots of areas of anarchy, you don’t really have a government, but you do have some people with guns or some sort of subgroups that are dividing up the country or taking over certain parts of it. And you have a fragmentation of Venezuela and, you know, back to what Francisco was saying earlier about sort of there’s great powers that care a lot about Venezuela that have vested interests there. You know, you could imagine in this sort of situation of chaos with no clear leadership that there could be some carving out of particular areas or assets and the like that would make it difficult down the road for that democratic government that so many people are hoping for to return.

MCMAHON: Thanks, Shannon.

Francisco Toro, anything to add to Shannon’s scenarios? And also, maybe add something a little bit about Juan Guaidó, a little bit about who he is.

TORO: OK, I’ll try to brief. That final scenario about fragmentation that Shannon is discussing as possibility for the future I think is actually not a bad description of what’s happening now. In many ways, the people who actually run things on the ground in different areas in Venezuela are military commanders—there are various regional command structures of the military who have become kind of little kinglets in their own little fiefdoms; or pranes, like, prison gang leaders who run extortion rings and illegal mining in different places; or, in places where Russia has big oil investments, the Russians are sort of in charge of some areas of the country now, effectively. So I think that kind of fragmentation might deepen, could deepen and could become catastrophic. But that’s already on the—been happening.

The other—the scenario that Shannon didn’t mention and I think that people should be mindful of is that regimes, like this one, tend to be hard and brittle. They’re hard because they use all this fear and intimidation, but because they use fear and intimidation to keep people in line, it’s easy for them to end up in this unstable equilibrium where, for example, 90 percent of the members of the armed forces and the troops and the midranking officers oppose the regime, but none of them want to say it first because if you—if you get caught playing offside, you go to jail, you’re tortured, bad things happen to your family. So everybody’s thinking the same thing, but nobody is saying. And those regimes, when they crack, they don’t tend to show cracks before they collapse. You tend to experience kind of catastrophic regime failure in situations like that one.

So if you were to ask any analyst, you know, two weeks out before the Berlin Wall collapsed if the East German state was solid, you probably would have heard yes, it’s very solid, and not because it was a bad analyst, but because everybody in the East German security services was keeping their same doubts private, and then one day when you had a coordinating event with the collapse of the wall, everybody came forward at the same time and the regime was just done like a puff of smoke.

I think Venezuela has a lot of the characteristics of that kind of hard, but brittle regime. Just because the reason that the security forces continue to back Maduro is that they’re under such extreme counterintelligence surveillance. And when that fails, that may fail—that may fail catastrophically.

Finally, about Juan Guaidó and very briefly, you know, he’s a young guy. I think people fail to understand sometimes that he comes from the Voluntad Popular Party, the People’s Will Party, which is founded by Leopoldo Lopez, who is Venezuela’s best known and most charismatic leader. He’s been going back and forth between prison and house arrest since 2014. He’s currently under house arrest. It’s really Leopoldo who came up with the strategy that Guaidó has implemented. Guaidó was just a twenty-three-year-old kid protesting against the government when Leopoldo recruited him into Voluntad Popular, trained him, ended up putting him in congress. And so Guaidó really should be seen—I think puppet is an—is an extreme word, it’s not a very kind word, but, like, a stand-in for Leopoldo who can’t do it because he’s under house arrest.

So I think he’s internally risen to the occasion. He’s very bright, he’s very smart, he’s a very good orator, and he’s managed to put together this kind of unifying methods that has really electrified the opposition. And he certainly has a lot of fans right now in the country. But we should be clear that it’s really, you know, Guaidó implementing Leopoldo Lopez’s show. And that if this strategy has success and the regime crumbles in that kind of hard, but brittle East German model, that what we’re likely to see is then political prisoners be freed, exiles return from exile, and at that point it really—the presidency and the leadership of the transition is very likely to go to Leopoldo Lopez.

So he’s a brilliantly charismatic and very smart, but somewhat sectarian leader. So, you know, he has a lot of fans. And you can see with people like Guaidó, his capacity to attract talent, but he’s not a saint.

MCMAHON: Got it. Thank you.

Want to see if I can fit in a few more questions. So, Operator, another question in the queue, please.

OPERATOR: Thank you. Our next question will come from James Michael with Department of State. Please go ahead.

Q: Yeah. Hi, good afternoon. Thanks for this great conversation.

I was wondering what your thoughts are on the effects of the Venezuelan crisis, particularly if Maduro steps down, on the other ALBA countries, especially Bolivia and Nicaragua. Thank you.

MCMAHON: Shannon, can you field that one please?

O’NEIL: Sure. I didn’t quite understand the question. What will happen to Nicaragua and Bolivia and the other countries with the clamp-down in Venezuela? Was that the question?

MCMAHON: I think the impact of this crisis on them perhaps, yeah.

O’NEIL: Got it. OK. Sure. Well, there are some direct impacts because Venezuela and, for instance, Nicaragua have a joint energy venture and so that would be sanctioned along with PDVSA. So there’s certainly those direct impacts.

But, you know, I think the larger impacts for those countries, but also for some Caribbean countries, for Cuba perhaps, in here is that, you know, Venezuela for many years through a program called Petrocaribe has been sending tens of thousands, hundreds of thousands of barrels of oil to various countries either at cut rates or sometimes for free or, in the case of Cuba, in exchange, in exchange for doctors and nurses and surveillance people and the like.

Now, as Venezuela’s oil industry has entered into decline, a lot of those freebies or that cheap oil has been cut back significantly, but there’s some countries that still continue to benefit. And so with the sanctions being put on, I think the biggest hit these countries will take is it will be hard to receive some of that oil. It may be hard for Venezuela to get it out of its country, it will be hard for Venezuela to find someone to refine it—back to what Francisco was saying and others have been saying.

So I think the biggest hit would be different countries that have depended on a hundred thousand barrels from Venezuela or even fifty thousand barrels from Venezuela, that is—that’s definitely in jeopardy.

MCMAHON: And the ALBA countries in general feeling a bit weaker, I guess, at this point.

O’NEIL: Well, they’re not part of this other club, though some of them have crossed over. Right? So you see Bolivia holding a hard line, but Ecuador has turned away, as have, you know, the other Andean countries. So that ALBA core that you saw, you know, maybe ten-plus years ago, which had a few more members or more sympathizers, you’ve seen it really shrink down just to a very few.

MCMAHON: Interesting. Thanks. Thanks for that question.

Another question, please, Operator.

OPERATOR: Thank you. Our next question will come from Fernando Arias with Swedish National Public Radio. Please go ahead.

Q: Yeah, thank you for doing this.

Are there also economical reasons behind the U.S. position and pressure towards Venezuela? I mean, for example, does the Trump administration see business opportunities for U.S. companies in a Venezuela that is not led by Nicolás Maduro?

MCMAHON: Shannon, you want to take that one as well please?

O’NEIL: Well, you know, there has been a long history of U.S. companies operating in and working in Venezuela. And there are today U.S. companies that are there that will have to leave before July. So lots of service companies— Schlumberger and Halliburton and Weatherford International and others—have been there, have rigs there, have been working in the services industries. You’ve seen Chevron there, you’ve seen others there still in the energy field, but pulling back now and, obviously, with sanctions, having to, assuming they continue and the regime stays, will have to get out. You’ve seen other companies that used to be there for a long time and have slowly closed up shop or they’re assets have been expropriated by Chávez or then Maduro.

So, look, Venezuela is a big country of thirty-some-million people, depending on the number of refugees how you’d count that. It’s one that, you know, has the biggest oil reserves in the world, it has all sorts of things, and so it is a place where U.S. companies would want to do business. But it’s been an incredibly hard place for anybody in the private sector to do business increasingly over the last twenty years, whether you’re a U.S. company or European or Canadian. And you can ask all those companies that have international arbitration cases how difficult it is. And it’s one now with the sanctions where U.S. companies will not be able to act there.

Now, if you saw a change in regime, would companies want to go back and be part of that? I’m sure many of them would. Some might have been burned and might want to wait it out. So I think that will be an individual country—sorry, individual company decision about wanting to reengage with Venezuela.

But I do think, watching the Trump administration position, the voices that have been participating in this, whether it’s people like Senator Marco Rubio and the others, it’s a different reason why they’re—why they’re pushing this, and also the multilateral aspect here. It isn’t because Brazilian companies want to get into Venezuela that Bolsonaro has come out and recognized Guaidó, and the same thing with Duque in Colombia, and elsewhere. It’s really about the nature of this regime, the authoritarian, repressive, kleptocratic nature, and the cost for Venezuela, for its people, and whether those people are in Venezuela or whether they have left as refugees for other places.

MCMAHON: Thank you.

I’m going to see if we can squeeze in another question here. Operator, is there another question in the queue, please?

OPERATOR: Yes. We have another question and that is from Theodora Skeadas with Allen Hamilton. Please go ahead.

Q: Hi. My question was answered. It was about the repercussions on Venezuela’s neighbors. But I guess I can pivot to a separate question.

If you had to make a projection over the next, let’s say, month or so, or maybe even six months, how would you project Venezuela’s security situation to evolve? Thank you.

MCMAHON: The security situation—I’m sorry, what was the last part of that question?

Q: How would you project or sort of what are your expectations about its evolution?

MCMAHON: Its evolution, OK.

Francisco, why don’t you take this one? And this falls a little bit on what you were saying previously.

TORO: (Chuckles.) I don’t know what to say. I wake up early every morning, have coffee, start making calls to my reporters in the field, and I’m surprised by almost nothing they could tell me. It’s a critical inflection point, things could go any number of different directions.

If I had—if I was forced to bet, I would think that at some point, a big military garrison is going to step forward and say they don’t recognize Maduro and that’s going to end up forcing the general stance and we’ll see the regime collapse. I think that’s probably a plurality. If I had to give that odds of 35 percent of happening, I think that might be about right. And that leaves the other 65 percent a very wide range of things from Maduro simply riding things out to a kind of Syrian civil war.

MCMAHON: Thank you.

I’m going to try to squeeze in one last question then and then we’ll wrap this call. Operator, a final question, please.

OPERATOR: OK. Our final question will come from William Tovell with JPMorgan. Please go ahead.

Q: Again, sorry for the second question. But thanks, this has been great.

And maybe I missed this, but, you know, the fifty thousand troops on the border, was that, do you think, the U.S. talking to Colombia about our plans to give them protection in light of, like, you know, mass exodus out of Venezuela if things get worse and sort of, like, a border protection plan?

MCMAHON: I think it was five thousand, but let me give that—let me give that to Shannon.

Shannon, the Colombia troop plan, any ideas about what that might have been about?

O’NEIL: You know, if I had to guess—and I’m just guessing—I think it was just a propaganda effort. So Bolton flashed a piece of paper that said five thousand troops in Colombia, the Colombians then quickly had to get in and hold a press conference saying that they had no knowledge of this and that they didn’t believe in that and they were searching for diplomatic solutions out of—out of—out of the process here. So I think that was really just a way to twinge the Maduro regime, to keep the pressure on, to show that the White House has this very hard line, that all options are indeed open as some people find that, you know, are skeptical about that, about how realistic it is, or how wanted that will be. So I think it’s, in many ways, a nonevent.

But back to where to started when we were talking about military intervention. If you were going to do that, five thousand troops would do little, it would do nothing. If Colombia did accept U.S. people, as you sort of mention in your question, helping Colombia deal with the now over a million Venezuelans that have come into the country and the challenges of the people who are coming in over the border, the refugees that are there, the camps that are there, the need for infrastructure, there is a lot the U.S. government could do, whether it was Department of Defense or USAID or a whole host of other departments. And that is probably what Colombia needs.

But I think that piece of paper was more of a propaganda tool than a reality.

MCMAHON: And we will end on that note this CFR conference call on Venezuela. I want to thank our expert guides, Shannon O’Neil with CFR and Francisco Toro, editor and chief of Caracas Chronicles. We will have a transcript and audio going up later, a little bit later, on this call. I want to thank our people on the line as well for great questions.

And this concludes this call. All may disconnect. Thank you.

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