What a difference a year makes. Last fall, President Trump was ordering U.S. warships to block oil tankers leaving the coasts of Venezuela. Less than 12 months later, Mr. Trump has announced “the biggest oil deal in world history” with the country’s interim leader, Delcy Rodríguez. This is the same Ms. Rodríguez, of course, who was appointed Venezuela’s vice president by Nicolás Maduro, the former Venezuelan leader who was captured during a U.S. military operation in January and is now awaiting trial in a Brooklyn jail on charges of narco-terrorism.
The agreement might appear to be some rare good news for Venezuela. The country sits on some of the world’s largest proven oil reserves, yet produces only around 1 percent of the world’s oil supply. A partnership with Washington to mobilize funding could, in theory, jump-start growth and get the country’s battered economy, freshly bruised by a devastating earthquake, back on track. The arrangement, though, seems closer to an opaque privatization of the country’s oil wealth — one whose gains are unlikely to be distributed across Venezuela, and that could stunt the increasingly improbable emergence of a sovereign democracy.
There is still a lot we don’t know about the deal. Mr. Trump claims that it will come at no cost to American taxpayers and that it will serve to replenish the U.S. Strategic Petroleum Reserve, which is running at its lowest level since 1982. Ms. Rodríguez claims that the pact will attract $100 billion in capital investment and will allow Venezuela to raise production by 1.5 million barrels a day, more than doubling current levels. The U.S. government is partnering with a Venezuelan oil baron, Alejandro Betancourt López, who is best known for receiving billions of dollars in no-bid state contracts to build electrical plants, much of which he plowed into real estate abroad. This joint venture will receive 100-year concessions in fields that hold one-fifth of Venezuelan oil reserves.
The Trump administration has claimed that its blueprint for transforming Venezuela follows a three-stage plan: stabilization, economic recovery and transition toward democracy. If that is indeed still the goal, this deal is a clear step back.
History teaches us that when governments transfer resources to politically connected elites through murky privatization processes, democracy suffers. Take Russia: In the mid-1990s, Boris Yeltsin’s government transferred controlling stakes in state-owned oil companies at fire-sale prices through rigged auctions to some of its key political allies. The deal created immense fortunes but generated few tangible benefits for the Russian people, who within a few years were facing the collapse of their currency and banking system. Most damaging, it created a class of oligarchs with an interest in blocking the transition to a democracy that could challenge the provenance of their wealth. The concentration of economic power that resulted from that privatization played a key role in Russia’s ultimate reversion toward authoritarian rule, foreshadowing what could happen in Venezuela.
When governments use their authority to illegitimately or arbitrarily grant economic power, institutions that restrain that power are unlikely to emerge. That is why reforms to strengthen governance and the rule of law need to be in place before you privatize state assets. It is also why valuable public assets, like Venezuela’s oil, should be sold through open and transparent bidding. Venezuela already ranks last out of the 143 countries in the World Justice Project’s Rule of Law Index. It has no independent judiciary, no institutional tradition of accountability and no effective distinction between the state and the governing party. This is a country where no one should be surprised to see privatization fail.
Nor is this deal likely to make a dent in global oil prices, which the Trump administration has presented as one of the key goals of the plan. It will take years for Venezuelan oil production to increase in a significant way — and even if it does, it will not keep pace with the projected growth in world demand over the next 25 years. Any oil that ends up in the Strategic Petroleum Reserve will not be sold in global markets.
The deal clarifies Venezuela’s emerging status as a U.S. protectorate in all but name. In the months following the ouster of Mr. Maduro, Ms. Rodríguez’s government has carried out joint military operations with U.S. forces in Venezuelan territory; restored ties with Israel, a key U.S. ally; and formalized its decision to leave the International Criminal Court, which has become a target of Mr. Trump’s ire. While the Trump administration has stopped short of trying to administer the day-to-day affairs of the Venezuelan government, it has made clear that it expects its instructions to be followed. If any reminder was needed that the White House expects Ms. Rodríguez to toe the line, the presence of Pete Hegseth, the secretary of defense, in the oil deal negotiations most likely served as a not-so-subtle hint at the consequences of noncompliance.
This is not the first time that the United States has attempted to manage a country it has invaded. More than a century ago, citing Theodore Roosevelt’s interventionist interpretation of the Monroe Doctrine, Washington imposed similar protectorate regimes on Cuba, Haiti and the Dominican Republic.
These experiences did not end well. By stimulating the emergence of politicians more concerned with currying favor with Washington than with responding to the demands of their people, these regimes stifled the development of the institutions necessary for self-governance — and fueled long-lasting animosity toward the United States.
Over the past two decades, Venezuelans have lived through the destruction of what was once a prosperous economy and a vibrant democracy. The United States now has both the opportunity and the responsibility to help them rebuild their country. A hazy privatization process that reduces accountability, deepens inequalities and sidesteps institutional reform will not bring democratic change closer. It will push it further away.
Francisco Rodríguez is a senior research fellow at the Center for Economic and Policy Research and a professor of international and public affairs at the University of Denver’s Josef Korbel School of International Studies.
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