To support Guaido, the United States has initiated an array of sanctions to hamper Maduro’s oil sales by the state-controlled company PDVSA (Petróleos de Venezuela, S.A) and to steer money to accounts controlled by Guaido.
Meanwhile, Venezuela’s two biggest creditors, China and Russia, are backing Maduro and keeping an eye on what they’re owed. Cuba too has strengthened the regime by sending thousands of security forces in exchange for free oil.
Rampant inflation has made Venezuelan currency virtually worthless, and oil is its foremost means of repaying creditors. The problem is that its oil supply is only valuable when it can be extracted and processed—and the country’s crumbling infrastructure simply cannot produce enough oil to serve as collateral against the complete ledger of debts.
“The total debt is more than six times the annual exports. In fact, the ratio is getting significantly worse this year with the decline in exports. No one is expecting Venezuela to pay its debts and the situation is very bad compared to the number of barrels that actually generate cash flow,” Francisco J. Monaldi, the Latin American Energy Fellow at Rice University’s Baker Institute in Houston, Texas, tells me.
Monaldi notes that even economically-stricken South Sudan has a significantly better debt-to-exports ratio.
Whoever ends up in Venezuela’s presidency will face vast sums of debt that will be hard to repay even if oil production ramps up quickly. “The problem with accounting for the Venezuelan debt is that there are very different estimates. It is at least $130-$140 billion, but it could be up to $160 billion, depending on how you add up all the arbitrations, the decisions against Venezuela, the money that Venezuela owes to airlines and others,” says Monaldi.
“Mortgaged to the hilt”
Overall, Venezuela could owe China more than $55 billion and Russia at least $17 billion, estimates Moises Rendon, a former Venezuelan bank analyst who is now Associate Director of the Americas program at the Center for Strategic & International Studies in Washington, D.C.
And the Maduro regime has not figured out how to raise foreign exchange by pumping more oil for sale for dollars on the open market without triggering clamoring from its creditors, who are owed yet more oil.
“The Maduro government does not control Citgo anymore, so they are not going to pay,” predicts Monaldi, referring to US-forced takeover of the Citgo board by Guaido loyalists. “The Russians have a tougher hand. They have to convince a (U.S.) judge to let them auction the shares to get repaid.” Citgo in Houston declined to return e-mail or phone call requests for comment.
PDVSA itself has more than $40 billion in outstanding debt, much of which is now in arrears. It’s unlikely that a Maduro or Guaido government can or would pay back the PDVSA loans anytime soon to companies that support and supply oil drilling services, shipping and marketing.
“For the Chinese especially, if you ever want to be paid back the money Venezuela owes you, wouldn’t you better off dealing with a new government that is solvent than the Maduro government?” says Verrastro.
Joel Guedes, an energy consultant with IPD Latin America who worked for PDVSA for more than two decades, tells me a key question is: “Can a Guaidó-controlled government offer China and Russia a better repayment plan?
“The Chinese are reluctant to continue exposing themselves in terms of providing additional financial help because Venezuela and PDVSA already owe them a lot of money. The Russians are in the same situation,” says Guedes.
“The Russians and Chinese are basically keeping the Maduro regime alive. The opposition also understands they want to honor financial obligations with any creditor. Of course, creditors will need to be part of the solution, not part of the problem.”
If Maduro is replaced by a new government, the legitimacy of many of the financial agreements negotiated during the last 20 years by the Chavez and Maduro regimes may be challenged in international judicial proceedings, points out Rendon, because the debt deals were never approved by the Venezuelan National Assembly—considered by Guaido’s supporters to be the only legitimate governmental body—in the first place.