Russia continues playing role in shaping the future of Venezuela

Russia continues playing role in shaping the future of Venezuela
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While Venezuela has looked increasingly shaky due to the coronavirus and a shortage of gasoline, Vladimir Putin is emerging once again as a critical lifeline for the embattled regime. As the United States pushes for political change in Venezuela, the Russian state oil company Rosneft has assisted Nicolas Maduro to circumvent American sanctions by exporting as much as 70 percent of its oil with its subsidiaries when few companies dared to touch it. When Rosneft finally announced its departure from Venezuela a few weeks ago, American officials were certainly quick to claim a win for the sanctions campaign. But their victory dance was premature.

Putin is often at his best when he projects a strong Russia and the Kremlin formula of foreign adventures to distract from its domestic failures is well known. Intervening to save the crumbling dictatorship in Venezuela may create a kind of a diversion to boost morale as Russia loses its battle with the coronavirus. A foiled raid intended to capture Maduro and his cronies with a small mercenary force has handed Putin another reason to double down on Maduro. Indeed, Russian troops in Venezuela have already been operating drones to protect against another maritime incursion.

While sanctions decoupled Rosneft from Venezuela, the departure of the oil company does not signal Russian abandonment of Maduro. It is only a desire to avoid further sanctions at a time of economic downturn when oil markets have bottomed out. Instead, the divestment of Rosneft was to sell off its Venezuelan assets to none other than the Russian government. The result of this financial chicanery is that Putin still controls Rosneft, but the oil company has maneuvered outside of the reach of sanctions. American officials have fallen for the trap, promising to lift sanctions on subsidiaries involved once they will wind down their Venezuelan operations.

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A deeper look reveals Putin has interests with the strategic opportunities offered by Venezuela. The workings of the relationship could not be worse at present. With the most oversupplied oil market in a century, Venezuelan oil occasionally costs more to produce than it would fetch on the market. But Putin values the rivalry with the United States above all else.

Moving the Venezuelan assets of Rosneft to Zarubezhneft, which is the new Russian entity, allows Rosneft to avoid further American sanctions that are part of the broader list of sanctions imposed by other countries on Moscow. Indeed, the risk of additional sanctions on Rosneft went up considerably as frustration among American officials increased. These sanctions would devastate the bottom line of the oil company.

Instead, the Kremlin scheme fortifies the Russian foothold in the West and resurrects what amounts to another iteration of Rosneft in Venezuela. The success of the new Russian entity will be unknown until oil prices recover. But to ensure the best chance at a smooth resumption of operations once market conditions permit, a number of Rosneft workers with experience in Venezuela have already been seconded over to Zarubezhneft.

The chief executive officer for this company is revealing. Nikolai Rybchuk will not strike anyone as a promising manager, certainly not of a $4 billion company. He has zero oil industry experience, his speech is halting, and occasional grammatical errors indicate a not very well educated Russian. Something else, apparently, qualifies him for the corporate job.

Old videos reveal Rybchuk to be an ardent Soviet patriot, a former officer in Angola who fondly remembers his days there working alongside Cuban troops and intelligence. Today with Cubans entrenched in key Venezuelan institutions, it is possible that several familiar faces could be among those emissaries sent by Havana to greet him in Caracas. Importantly, Rybchuk is a comrade in arms of another Angola veteran, Rosneft chief executive officer Igor Sechin, who has found with Rybchuk his loyal lieutenant and business leader. Rosneft control of Zarubezhneft is assured.

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Despite the game of corporate musical chairs in Moscow, Russia is no less committed to the brutal regime of Maduro now than it was several months ago. Indeed, the Russian ambassador to Venezuela was certainly quick to reassure Maduro that Rosneft exiting the country does not in fact signal a weakening in Russian commitment to ensuring his survival.

The United States must not delude itself on this issue. The best targeted sanctions are unlikely to convince Russia to abandon the role in shaping the future of Venezuela. Indeed, Putin has shown a clear commitment to this beleaguered oil industry. This may be the best way for the regime to survive. His remarkable indifference to the major damage on the Russian economy costs his country dearly, but it is a cost Putin will bear to avoid abandoning allies in trouble, even the most problematic one.

Leon Aron is a resident and director of Russian studies with the American Enterprise Institute in Washington. Ryan Berg is a research fellow in Latin American economics at the American Enterprise Institute in Washington.