OPEC+: Good for China in the long term – a wake-up call to a Russophobic US in the short term
The recently emerged OPEC+ format which since 2016 has seen Russia and Saudi Arabia work together to stabilise the price of crude oil on international markets has now become an incentive for China to work even more closely with its Venezuelan partner on re-starting the South American nation’s besieged oil industry.
China and the US remain the world’s top energy consumers and therefore, the traditional rivals are largely on the same page regarding a desire for OPEC+ to keep oil affordable. However, a key difference is that while America’s major Arab partner Saudi Arabia is looking to pivot eastward in order to obtain the Russian and Chinese expertise necessary to diversify its petro-economy, the US now finds that rather than just talking to Saudi Arabia which has traditionally had a mutually parasitic relationship with Washington, the US must now talk to a rival superpower in the form of Russia in order to reach agreements on OPEC+ boosting production in order to create price relief for energy hungry America. Additionally, the new OPEC+ format is set to gradually challenge the primacy of the Petrodollar as Russia is already working with China to increase bilateral trade in national currencies. When extrapolated onto the OPEC+ format, Russia will eventually be in a position to guide its Saudi partner towards a position where it will be mutually advantageous for Riyadh, like Moscow to sell oil to China in the Chinese rather than American currency. This itself will challenge the overall primary of the Dollar and ready the latter half of the 21st century for an era where the Yuan becomes the world’s de-facto trading and reserve currency.
After years of enduring a combination of oil prices which until recently had been on a downward spiral, combined with ever more sanctions from Washington and further US efforts to sow discord in the country by pumping money into agitation groups posing as legitimate political opposition, Venezuela’s economy has slowed in a dramatic fashion. Now that oil prices are back up due both to the stabilisation efforts of OPEC+ and wild speculation surrounding the fact that Iran will likely be partly cut off from its customer bases when new US sanctions kick in beginning in November of this year, Venezuela can stand to economically benefit from these trends.
Unfortunately for Caracas, recent local turbulence has meant that the country’s own production facilities are working at levels far from maximum capacity.
China to the rescue in a win-win format
Against the backdrop of China seeking lower energy prices for its heavily industrialised economy and Venezuela seeking external investment to help modernise local oil extraction facilities, China has come up with a win-win formula that will see Beijing pump $250 million into Venezuela’s petro-economy while in return Venezuela will pump more barrels of oil than it is currently capable of doing and deliver them to Caracas’s all-weather Chinese partner.
According to Chinese energy expert Liu Qian,
“China’s direct investment of $250 million in Venezuelan national oil company [Petróleos de Venezuela, S.A.] will positively affect the stabilization of oil production in Venezuela and ensure delivery of crude oil to China”.
Alluding to the fact that this is likely just the first step of a long-term Chinese aim of re-starting Venezuela’s beleaguered oil industry, Liu further stated,
“China does not exclude the provision of loans or other types of assistance to stabilise and boost oil production [in Venezuela] within the framework of a ‘loan-for-oil’ model of energy cooperation”.
In this sense, China and Venezuela’s partnership can grow stronger than ever as market conditions dictate that both sides have a resource the other needs. Venezuela is presently hungry for Chinese investment capital and expertise on modernising existing facilities while China is looking for a geopolitically reliable partner to provide for its large energy needs.
Thus, at a time when Venezuela stood to be excluded from the benefits that it would have otherwise reaped at a time when the price of oil continues to climb, China has brought Venezuela’s petro-economy back to the forefront in a model that could sustain healthy relations between Beijing and Caracas for future years, all while subtly providing Venezuela with a geopolitical insurance policy in the form of a Chinese partner that the US does not want to directly antagonise.