Venezuela embraces the Chinese and pan-European currency as sanctions make the greenback untenable
This week Venezuela officially announced what was already a de-facto reality due to years of increasingly hostile sanctions from the US Treasury Department. Caracas will no longer sell its oil or conduct other forms of bilateral trade in the US currency but instead will accept Chinese Renminbi and the Euro in such futures contracts and transactions. While the move has clear ideological overtones that fit in with the Bolivarian Socialism that underscores Venezuela’s political system, the move is moreover a pragmatic one as the US has done all it can to cut Venezuela off from Dollar based financial institutions. Because of this Venezuela had to find new currency options and few make more realistic sense than the Renminbi and Euro.
This announcement comes shortly after the official unveiling of the much anticipated El Petro, a cryptocurrency issued by Venezuela’s government whose value is derived from the country’s vast oil reserves. Unsurprisingly, Americans are officially prohibited from purchasing and trading in El Petro by their own government, but this hasn’t stopped global interest in the cryptocurrency especially in Saudi Arabia and Russia.
As a long time partner of Venezuela, China stands to develop further win-win relations with Venezuela under such conditions. As China remains an energy hungry superpower, Beijing will be all too happy to purchase oil from Caracas in its national currency while many other net energy importers facing sanctions threats from the US will also prefer either the Chinese or pan-European currency to the greenback.
China strengthening positive relations with Venezuela
Against this background, China has recently affirmed its commitment to a long term win-win partnership with Venezuela. During a recent meeting between Chinese President Xi Jinping and his Venezuelan counterpart Nicolas Maduro, Xi invited Maduro to participate more actively in the Belt and Road initiative while intensifying already highly positive relations.
China in the recent past has further pledged to help Venezuela modernise its petro-infrastructure in exchange for discounted oil in a deal that would be mutually beneficial to both sides. While the United States barely made it to the list of the top 15 oil suppliers to China in 2017, Venezuela is in the top ten and if the country was able to more efficiently extract its own vast reserves, this number could potentially grow even higher.
While American oil only represented 2% of total oil imports to China, this 2% still accounted for $3.2 billion in trade per-annum. Furthermore, while this may be modest compared to Russia and Saudi Arabia’s oil exports to China, the rate at which US oil shipments were expanding to China stood at a whopping 1,994% since 2016. Thus, the recent total stoppage of American oil shipments to China represents not only a short term loss of cash for the US but represents a reversal of the incredibly positive kinetic economic trends in the Sino-American petro trade.
Because of this, even if the cessation of Sino-American oil trading is a temporary measure by Beijing designed to attain the maximum leverage in a short-term trade negotiations with Washington, the Trump administration’s self-evident unwillingness to negotiate in good faith with China means that this “temporary” cessation could extend further into the future than many have thus far anticipated.
Consequently, China’s other petro-partners will need to fill both the present and future gap left in China’s oil imports by the jettisoning of US oil. When looking at China’s existing top ten oil producing partners, apart from neighbouring Russia, it is fair to say that Beijing’s most fraternal geopolitical relations are with Venezuela. This is the case due to the fact that at a time when China seeks to expand the mostly Afro-Eurasian Belt and Road initiative into Latin America while also seeking as many new petro-partners as possible, it makes perfect sense that a socialist and thus naturally sympathetic Latin American state like Venezuela would be an ideal place to further consecrate deeper and wider partnerships throughout multiple Latin American states.
America’s challenge to Venezuela and the South American nation’s partners
While no US administration has ever looked favourably on the Bolivarian Revolution of Maduro’s dynamic predecessor Hugo Chavez, the Trump administration has taken a far stronger line against Caracas in terms of both sanctions and open threats of war than that of either George W. Bush or Barack Obama.
In this sense, at a time when it is to the win-win benefit of both Beijing and Caracas to expand relations at a time when oil is becoming a more precious commodity and China has at least for the time being cut off its most rapidly growing supplier, such trends necessarily increase the (highly unethical) incentive for the US to bring forward some sort of violent regime change in Venezuela.
While it remains to be seen how integrated the South American nation will become in terms of its participation in the Belt and Road initiative, the fact that both countries signed an MOU regarding Caracas’s participation in the global initiative will be viewed in Washington as a clear challenge to the US policy of economically isolating Venezuela. Beyond this, with Donald Trump adamant about his ability to secure a long term peace deal with DPRK leader Kim Jong-un and with the US war on Iran likely to remain a proxy war fought in Iraq, Afghanistan and to a lesser extent in Syria, Venezuela remains the leading global candidate for a US led regime change operation.
This is the case for a number of reasons. While US regime change wars in the Middle East have captured headlines throughout the world since the beginning of the 21st century, throughout the 20th century, Latin America was the place where both direct and hybrid US led regime change conflicts were the most numerous and most frequent. Under the Trump administration, Washington’s mentality towards Latin America has openly returned to one of an overt projection of power. This contrasts sharply with the so-called Pink Tide era of the 1990s and early 2000s when leftist governments throughout Latin America rose to democratic power while the US was too busy waging wars elsewhere to adopt its traditional interventionist position that defined the previous 100 years of Washington’s relations with its Spanish and Portuguese speaking neighbours.
The Trump administration’s political meddling in Nicaragua which forced Ronald Reagan’s old rival Daniel Ortega to effectively back down in the face of US pressure is a further example of the re-assertive position that the Trump White House is taking in Latin America. This combined with frequent outbursts by Trump and his more hawkish colleagues against both Venezuela and Cuba along with the still technically unsolved assassination attempt on Venezuelan President Nicolas Maduro in August of this year makes it clear that when it comes to Caracas, the US senses weakness and has indicated that it may pounce militarily after further waves of sanctions.
China’s challenge
Beyond the US having a longtime domineering neo-imperial position in Latin America, China is geopolitically more remote from Latin America than from any other part of the world. While the last decade has seen unprecedented levels of Sino-Latin American connectivity, the US retains much of its hegemonic power over Latin America in spite of some major Chinese inroads in recent years.
This means that Venezuela is even more vulnerable to regime change than Myanmar. Even though the US is using sanctions to inflict economic damage on Naypyidaw in an attempt to foment a rift between China and its partners in the wider Ummah (global community of Muslims), direct US military intervention in Myanmar remains a remote possibility due to the manifold nature of the country’s decades long civil conflicts. By contrast, in Venezuela, the US continues to fund a well organised, highly vocal and generally united pro-Washington “opposition” that could theoretically be easily installed in power after a regime change intervention against the country’s legitimate government.
Because of this, China’s major test in resisting a US led regime change in a partner nation will not be in Myanmar but in Venezuela. Furthermore, compared to Russia’s geographic distance vis-a-vis Syria, China would have a much bigger challenge should it attempt to do for the Venezuela government what Russia has done for Syria in the face of a US led attempted regime change. Although China, like Russia is not likely to ever directly confront the US military in any state, should the US attempt to foment regime change in Venezuela by proxy, China would be faced with a major question of whether to send arms, cash and/or military advisers to the country in order to defend not only a partner nation but a country whose oil is important to the Chinese market.
Circumstance has therefore placed China in a deeply precarious position vis-a-vis the United States in Venezuela because at this stage, just as it is with the trade war, every Chinese or US action will be met with an equal and opposite reaction by the other superpower. Therefore, the more China and Venezuela discuss the South American nation’s participation in the Belt and Road initiative, the more the US will begin fuelling money and offering strategic advice to the Venezuelan “opposition”, all the while piling on more sanctions. Likewise, if China were to send military advisers to safeguard Venezuela’s oil at the request of President Maduro, this legal option could be meet with an increased US naval presence in the waters surrounding Venezuela in addition to ever more ultimatums regarding regime change in Caracas.
Realistically, the key for China is to help Caracas to better manage its economy and in so doing reduce the chances of the US backed “opposition” of being able to foment chaos among a despondent population unhappy with the current state of economic affairs in the country, but one that nevertheless remain largely unattractive to pro-Washington neo-liberal factions.
Beyond this, China is in a situation where it is damned if it does and damned if it doesn’t in respect of using traditional ‘hard power’ methods to secure Venezuela’s safety. If China helps Venezuela “too much”, the US would use this as an excuse to put even more tariffs and possibly sanctions on Beijing, something which China is prepared for in the long term but certainly neither needs nor wants at any point and especially not in the short term. By contrast, if China effectively stands down in the face a a full-scale US hybrid war on Venezuela, China’s partners in other parts of the globe will begin to question the efficacy of Chinese investment if it is not safeguarded against mutual enemies by the strength of the People’s Liberation Army. Of course this narrative would be proffered by those feigning ignorance regarding the fact that while China could theoretically easily safeguard the assets of a partner nation in Asia or Africa, such things are logistically far more difficult in the Americas.
In this sense, the ease with which the United States could hypothetically arrange for a regime change in Venezuela is the geopolitical version of an open taunt directed towards China. It’s as if the US is telling a country that has not been at war with any foreign nation since the month long Sino-Vietnam War of 1979 that “we’re the heavy weight champions of regime change and there’s nothing you can do about it”.
Furthermore, any regime change war against Venezuela at a time when mega-sanctions are set to be enacted against Iran by the US beginning in November of this year, would be certain to increase the price of oil even more as political turbulence in Caracas might totally halt the nation’s production capabilities.
While in the short term taking Venezuela out of ‘international circulation’ due to a regime change provocation could well be in the US interest, any new regime in Caracas would likely want to sell its oil to any willing customer, including China. This is true even if the US were to install a far-right Pinochet like regime in Caracas as the dynamics of the bygone Cold War era have vastly changed and today, all nations seek to do as much commerce with the Chinese superpower as possible (including the US business community which is broadly opposed to the trade war). Thus, one could witness the irony of a pro-American Venezuelan regime in which US companies help to extract more Venezuelan oil than is currently being pumped, much of which could then be sold to China.
Be that as it may, China clearly does not want to lose a close Latin American partner to a US puppet regime. Furthermore, although Latin America is the most remote global region when it comes to possible Chinese military intervention, if Venezuela were to fall under the weight of US military pressure, it would still project negative optics towards China’s other Belt and Road partners. Such optics would suggest (rightly or hyperbolically) that while the US is willing to use its military to prove that ‘might makes right’, China is not willing to use its to do what Russia did for its Syrian partner.
China will likely continue to tread carefully in respect of military aid to Caracas as Beijing seeks to minimise its foreign military commitments at all costs. That being said, China may have to gradually offer its partners further military assurances in the future as the US becomes increasingly insatiable when it comes to provoking regime change through heterodox means. China prefers the road to peace through prosperity, but so long as the US regime change juggernaut sets up road blocks along Belt and Road, China may need to inevitably face the reality that in future years, Beijing may have to do for its partners what Russia ended up doing for Syria.
Venezuela is therefore a test case to see just what the US will dare to do to a key Chinese partner in Latin America while it will equally represent a test to see what China believes is the prudent course of action when helping a close socialist petro-partner stave off a would-be US act of aggression.
