China’s desperation to secure the resources it needs to fuel its growth has driven it to increase its influence in Latin America
- Colombia, Ecuador, and Venezuela are all being targeted by China due to their oil and coal wealth, and the economic reward for these countries would be huge
- The success of China in this region would be a geopolitical nightmare for the U.S., and one which Washington will need to act quickly to counter
Nearly three decades ago the Soviet Union imploded and ceased to exist, leaving the U.S. as the last standing superpower and victor of the Cold War. That, according to many scholars, heralded a new era in international relations, where liberal capitalist democracy and multilateralism under the leadership of the U.S. was the order of the day. Since then, communist China has emerged as not only a major economic power but a threat to U.S. global leadership and the liberal democratic capital free market system. Fierce competition between the world’s two largest economic powers is intensifying as the Communist Party of China uses its economic might to challenge U.S. hegemony and significantly bolster China’s geopolitical influence. Beijing, to sustain its growth, is determined to secure the natural resources, including crude oil, that its economy requires. For this reason, China has emerged as the world’s top buyer of crude oil. During August 2021, China bought 10.49 million barrels of crude oil per day, an increase of 8% over July but still 6% less than the 11.18 million barrels per day imported for the same month in 2020. Growing fears within Beijing over securing access to the raw materials which are crucial to China’s economic miracle have seen state-controlled enterprises expand their operations into many resource-rich developing regions. The need to secure access to various commodities, notably coal and crude oil, is being amplified by Beijing’s trade conflict with Australia and the restrictions it is placing on Australian imports. One region which is garnering considerable attention from Beijing is Latin America.
Fiscally weak governments, resource-rich terrain, and a deep economic malaise exacerbated by the COVID-19 pandemic have created the ideal opportunity for Beijing to build greater regional influence. Former President Trump’s decision to ignore Latin America coupled with Washington’s crumbling regional hegemony is amplifying China’s ability to expand its regional footprint and influence. This comes with the added benefit of being able to directly challenge Washington in a region where it has traditionally enjoyed supremacy. State-controlled Chinese energy companies and miners are boosting their regional presence investing heavily in a wide range of operations, notably in Colombia, Ecuador, and Venezuela.
This is causing geopolitical tensions in Latin America to ratchet up as many regional governments seek to cash in on the tremendous economic bounty offered by China while maintaining a viable relationship with Washington. Latin America’s third-largest oil producer Colombia is caught in a deep bind. Bogota, which was described by Joe Biden during last year’s election campaign as a keystone of U.S. policy in Latin America, is seeking a closer relationship with China. The Andean country’s dependence on commodity exports, with crude oil and coal being Colombia’s two most valuable legitimate exports, makes China a crucial market. This is because China is the world’s largest consumer of coal and importer of petroleum. The government of President Ivan Duque is desperate to reactivate the economy after it was severely impacted by the pandemic with gross domestic product declining by nearly 7% during 2020. Duque’s administration is facing a massive budgetary black hole with a 2021 budget deficit expected to be around 9% of GDP, sparking considerable desperation to fill the fiscal hole.
Colombia Warms Up To China
For those reasons, despite Colombia being Washington’s key Latin American ally, President Duque has actively sought closer ties with Beijing. This is because Colombia has pinned a key part of its post-pandemic economic recovery on mining greater quantities of thermal coal, with Bogota pinning its hopes on China receiving additional production despite falling coal consumption globally. In 2019 Duque visited China and then in June 2021 Colombia’s ambassador to China announced the country seeks to join Beijing’s ambitious Belt and Road Initiative. Data from DANE (Spanish), Colombia’s national statistics agency, shows China is responsible for 11% of the Andean country’s exports and 23% of its imports by value, making it Colombia’s second most important trading partner.
Beijing’s growing influence in Latin America does not end with attempts to disrupt the long-standing alliance between Washington and Bogota, the authoritarian state is actively extending its influence in neighboring Ecuador and Venezuela. In late 2020 Beijing inked an oil-backed $1.4 billion loan with Ecuador’s national government in Quito which essentially restructured around 200 million barrels of oil owed under existing arrangements. Chinese state-controlled oil producers hold a prominent position in Ecuador’s onshore upstream petroleum industry holding interests in more than 11 blocks in the Andean country’s Amazonian oilfields. As a result, China is a major player in Ecuador’s oil industry with the latest deal strengthening that position. China receives around 13% of the Andean country’s exports, primarily crude oil, making China Ecuador’s most important trading partner after the U.S. These developments give Beijing considerable leverage within the South American country’s national government, particularly with crude oil being Ecuador’s largest export and responsible for and over 6% of GDP.
U.S. Sanctions Push Venezuela Closer To Russia, China and Iran
OPEC member Venezuela, where despite possessing the world’s largest oil reserves of 304 billion barrels nearly 95% of the population lives in poverty, is also attracting considerable attention from Beijing. Strict U.S. sanctions, which prevent Caracas from accessing international energy and capital markets, have contributed to an accelerating decline of the petrostate’s once-mighty oil industry. OPEC data shows that for August 2021 Venezuela pumped on average a mere 523,000 barrels of crude oil per day, roughly a fifth of the more than three million barrels pumped per day during 1998 before Hugo Chavez became president in early 1999.
The implosion of Venezuela’s economic backbone, its oil industry, which has sparked the worst modern economic collapse outside of war forced Maduro to turn to Russia, China, Cuba, and Iran for assistance. This created an opportunity for those countries, who are ideologically opposed to the U.S. to strengthen their presence in Latin America, thereby challenging Washington’s regional hegemony. Russia, China, and Iran have established a significant presence in Venezuela’s one-time mammoth oil industry securing control of various assets, including oilfields, thereby bolstering their geopolitical power and leverage over oil prices. This includes a voraciously energy-hungry China having made what is estimated to be over $50 billion in oil-backed loan deals to the regime of former President Hugo Chavez. By mid-2019, Moscow and Beijing were dialing down their direct dealings with Caracas and PDVSA because of tough additional sanctions imposed by former President Trump. During 2020 Beijing granted a grace period for the $3 billion of oil payments due 2020 because of the sharp impact of the pandemic and oil price collapse preventing Caracas from meeting its obligations.
While Washington remains resolute in its application of sanctions, Beijing, sensing the opportunity created by a crumbling Venezuelan state and Maduro’s growing desperation, is boosting investment in Venezuela. By September 2021 state-controlled China National Petroleum Corporation known as CNPC was sending engineers to an oil blending plant it operates with Venezuelan national oil company PDVSA. CNPC also requested that PDVSA boost production at five joint ventures it has with Venezuela’s national oil company in the Orinoco Belt. Caracas is steadfast in its view that, with China’s assistance, it can substantially lift its crude oil output and be pumping 1.5 million barrels per day by the end of 2021, although OPEC data shows this is highly unlikely.
Can The U.S. Retain Its Influence In Latin America?
If Washington does not act decisively soon, China will establish a stronger presence in Latin America undermining traditional U.S. hegemony while giving Beijing greater geopolitical influence and access to the region’s vast natural resources. It will be difficult for governments in Latin America, with many significantly impacted by the pandemic, to resist Beijing’s overtures because of the considerable financial and economic rewards that exist to expand trade with China. If Beijing can substantially grow its influence in Latin American it would be a disaster for Washington which finds itself locked in an ever-expanding global tussle with China for world political and economic leadership. Latin America is fast shaping up as a crucial battleground in the clash between the U.S. and China, which has the potential to morph into another Cold War where an autocratic system is challenging the utility of modern free-market democracies.