A Country with Oil … Not an Oil-Producing Country

The application of general sanctions, especially by the U.S. government against the revolutionary government of Nicolas Maduro, plus diplomatic isolation, delegitimization and rejection by what could be considered the modern international community, have not achieved the main objective for which they were imposed: to apply pressure for political changes in Venezuela by producing leadership change or a fundamental change in governing.

This result, however, is not a surprise, given the low efficacy of international isolation and sanctions as strategies in the political history of the world. This includes the emblematic cases of Cuba, Iran, Syria, North Korea and Zimbabwe, with histories of sanctions in place for decades — like their governments.

Instead, these sanctions, which were imposed with political objectives, have had an impact on the development of the country’s internal economy and its foreign exchange earnings profile. On the one hand, sanctions have limited the Venezuelan government’s operations, not only with the United States, but also with a large part of the world. These include countries and markets that have been (and are) related to the Hugo Chavez revolution, which have been forced to review commercial, public and private relations with the Venezuelan government — with the awareness of the risks and impacts that sanctions could have on companies and governments. In addition, there are serious difficulties for the revolutionary government in using its resources without going through the U.S. financial system, from which it is completely blocked.

But we could say that the most relevant economic impact of the sanctions — although we should not consider them to be deliberately sought side effects — has been the loss of government control over the economy and the private sector. The private sector is now relied on to guarantee production and supply, as well as diversification and increased foreign exchange income from non-traditional sources, in place of oil. This revenue comes from legal and illegal sources, mostly outside the sanctions or with the capacity to evade them. We refer to items such as remittances from Venezuelan emigrants, repatriation of private savings abroad to finance their life in the country, non-traditional exports (including rum, cocoa, crab and shrimp), smuggling and informal border activities, drug trafficking and drug money laundering, and, accounting for around a 35% share of non-traditional income, the exploitation, legal and illegal, of gold.

Although most people talk about remittances and repatriations as the central element financing the cash flow of foreign currency circulating in the country today, although growing, these are only a part of the story. It is estimated, for example, that gold transactions already worth several billion dollars are booming and have allowed the Venezuelan government to obtain cash currencies, give financial autonomy to some regional governments of the revolution and make it possible to maintain some commercial ventures with allied countries.

The evolution of non-oil revenues is growing, allowing for the financial support of some bubbles of internal activity — which demonstrates a certain level of recovery. This, added to the massive use of foreign exchange in commercial transactions, is giving oxygen to part of the population (and, indirectly, to the government in power). We could conclude that soon Venezuela will be a country with oil … but not an oil-producing country.