China increases its control of Venezuelan oil sector

Venezuelan President Nicolás Maduro took a quick trip to Beijing last week to meet with his counterpart President Xi Jinping as well as Chinese Prime Minister Li Keqiang. The Novam Portam team has spent enough time on the back patio of the Tamanaco Hotel to generally steer clear of business in Venezuela, but this news was a little too on our beat to ignore.

While the timing of the visit was a surprise, it was not unexpected. Maduro is playing the trip as a big win, our view is that China came out of the meetings with the upper hand. And we’re not talking about the one seasoning Maduro's steak at Salt Bae's restaurant.

To state the obvious: Venezuela —  and the Maduro government in particular — is out of options. Maduro went to China instead of Russia because China has money and Russia doesn’t. And China is moving while the US is distracted. As former Venezuelan diplomat Diego Arria said: "I think they have taken the temperature of the area, and what other countries might do. There's no doubt they're getting bolder.”

What exactly was agreed upon in Beijing is still remarkably unclear. Depending on who you asked, the two countries signed between 14 and 28 agreements, on everything from a strategic alliance on gold mining to establishing a China-Venezuela Business Committee to pushing the China-CELAC Forum. And the pitch wasn’t just for the Chinese government: “I invite Chinese investors who believe in our country Venezuela, to invest in our country,” said Maduro

The Chinese government presented the agreement through the prism of the Belt and Road Initiative (习近平同委内瑞拉总统会谈 两国签署共建“一带一路”合作文件 - 中国一带一路网), which Venezuela is now the eighth country in the Western Hemisphere to join this year.

Venezuela claims that they agreed to $5b in investment in the oil sector, which Venezuela can pay back in either cash or oil. But neither the Chinese government nor state media said anything about new funds for Venezuela.

However, both sides agree that their interests in Venezuela’s fabled and faltering oil sector will now be more intertwined. The two countries agreed to a “memorandum for cooperation in Ayacucho bloc 6,” without providing details. But the biggest deal was the purchase of a 9.9% stake of mixed enterprise Sinovensa by a Chinese company, adding to the already 40% owned by China National Petroleum Corporation (CNPC). A source at Venezuela state oil company PDVSA also said: "oil services and procurement at Sinovensa would be handled by Chinese companies,” giving China effective control over the firm.

No price tag was given for the stake, and observer think that with nowhere else to turn, Venezuela may have had to agree to whatever China said: “up against the ropes, Maduro surrenders to China and cedes it a big part of the oil business.” The photo up top also  sums up Maduro's bargaining position succinctly.

Our friend Boz at Hxagon expects effective China control of Venezuela’s oil sector for the foreseeable future:

"The conditions of the deals remains private, but they likely negotiated control of the production, management and export of oil from specific fields in Venezuela, a de-nationalization of the country's oil wealth into the hands of a foreign power. While the deal shows that Beijing believes Maduro will remain in power for some time to come, they are also hedging their bets by placing conditions in this deal that will make it extremely difficult for a future post-Maduro government to push them out."

As Latin America grapples with what to do about the failed state that is Venezuela, it needs to accept the fact that the Venezuela problem can’t be solved without working with China.

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