Venezuelan Politics May Blow Cold on Russian Contracts


A possible change of power in Venezuela in the wake of Venezuelan leader Hugo Chavez’s death may jeopardize Russia’s multi-billion-dollar arms and energy contracts with Caracas, Russian analysts told RIA Novosti.

Chavez, 58, died in Venezuela on Tuesday night. The announcement of Chavez’s death came from Vice President Nicolas Maduro just hours after an emergency government meeting following reports that the health of Venezuela’s charismatic socialist leader was failing.

Chavez, who had ruled the country for 14 years and had undergone four operations for cancer and four courses of chemotherapy in Cuba and Venezuela within a year, gave direct personal support to Russia’s deals prior to his illness.

Russia has intensified cooperation with Venezuela since Chavez came to power in 1999, signing multi-billion-dollar contracts with the Latin American country in the arms, oil and gas spheres.

The military-technology contracts, often short on publicly available details, have been piling up in recent years. Between 2005 and 2007, Caracas signed $4 billion worth of deals with Russia to buy Sukhoi fighter jets, combat helicopters and small arms. Chavez’s government also secured a $2.2-billion loan in 2010 to purchase Russian T-72 tanks and S-300 air defense systems.

Energy deals have also enhanced bilateral ties. Major joint ventures involve development of the Junin 6 and Junin 3 oilfields on the Orinoco River. Junin 6 is being developed by Russia’s National Oil Consortium, which includes GazpromNeft, Lukoil, Rosneft, Surgutneftegaz and TNK-BP, together with Venezuela’s state oil and gas company, PDVSA. Junin 3 is being developed by Lukoil.

But Russian investment in Venezuela is quite risky as political risks run high there, said Alexander Pasechnik, analytical department head at the National Energy Security Fund.

“All these contracts were related directly to Chavez. Despite the news of his grave illness which appeared and started to be discussed actively about a year ago, Russia continued to build up its presence in the country, instead of reversing its [Venezuela] projects and admitting in general that the strategy was wrong,” he said.

These contracts, especially in the energy sphere, look quite strange considering the major opportunities offered by greenfield projects in Russia to develop the huge resources of the Russian continental shelf, he said.

“The Russian government periodically says that state companies make insufficient investment in shelf projects. I also mean the untapped potential of East Siberian provinces. So, if there had not been such a huge resources base in Russia, it would have been reasonable to go to Venezuela and gain a foothold on its market.

But considering these factors, the “Venezuela focus is hardly a priority.”

Despite this, a range of Russian companies has entered the Venezuelan market, paying as much as $1 billion bonus just to work there. The National Oil Consortium, which previously comprised Russian state and private oil companies, is now disintegrating as private firms seem to have realized their risks in Venezuela and are now considering selling their stakes to Russian state-owned oil giant Rosneft, the main operator of the Junin-6 oil project.

Surgutneftegaz sold its stake in the National Oil Consortium to Rosneft in January 2013. TNK-BP was also reported to be quitting the project, Prime news reported.

“Therefore, Rosneft’s risks in Venezuela will rise proportionate to the size of stakes it is purchasing from private companies,” he said.

The country’s new leadership or Chavez’s successor is unlikely to make a hasty U-turn in the wake of his death, at least in the medium-term, he said.

While Chavez was able to keep Venezuela’s volatile social tensions under control, there are no guarantees that his successor will cope with this task, especially considering that there are powerful opposition forces with influence in the country’s oil provinces like the Orinoco Basin, he said.

“So, there is a potential threat of a social explosion, up to the emergence of a revolutionary situation and if it comes to a revolution, oil production and strategic projects will all be forgotten,” Pasechnik said.

Vladimir Sudarev, deputy director of the Latin America Institute of the Russian Academy of Sciences, agreed Chavez’s departure from the political scene would undoubtedly affect Russian interests.

“This is because it was Chavez who opened a gate for Russia into Latin America with large arms contracts, admitting LUkoil, Gazprom, Russian Railways and other companies from Russia to Venezuela by signing a host of contracts with Russian firms.”

In his view, two scenarios are possible, both centered on the question of when elections, if any, will be held in Venezuela.

“If the elections are held in a month, on March 31, for example, as reported by the local media, we can say without doubt that the Chavez team led by Vice-President Nicolas Maduro will win a victory. This is because the opposition continues to be in disarray, despite its seemingly good result at the presidential elections last October.”

If this scenario comes to materialize, “there are no grounds to fear the cancellation of contracts and the exit of our companies from the country.”

In the second scenario, elections may be held in six months, the opposition is able to field a single candidate, consolidate its ranks and win the election.

“I believe this will cause a serious rethink in Venezuela’s foreign policy… But even in this case, there will be no talks about severing the existing contracts because these contracts were signed not personally by Chavez but with the Venezuelan government.”

“The opposition will surely consider its reputation” in dealing with contracts signed by the previous regime. But in this situation, the climate for Russian companies working in Venezuela will surely not improve,” he said.



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