With Venezuela simmering on the verge of chaos, authoritarian President Nicolas Maduro can still count on the support of Russian President Vladimir Putin as he faces off against the United States and much of the Western world.

While the US and a number of Western democracies have sided with opposition leader and self-declared Interim President of Venezuela Juan Guaido, Moscow is firmly standing by its old ally Maduro, for reasons both economic and geopolitical.

In the last two decades, Russia has been the main source of financial support for Venezuela’s crumbling economy. This means that should Maduro’s regime fall, Russia could risks billions of dollars’ worth of investment losses, in addition to one of its leading geopolitical footholds on the American continent.

‘US meddling’

As the political crisis in Venezuela escalated in January, Moscow was swift to confirm its support for Maduro’s regime, while defining Washington’s stance – its recognition of Juan Guaido as interim president – as the latest example of US meddling in the internal affairs of a sovereign nation.

“We regard Washington’s unceremonious actions as yet another demonstration of its total disregard for the norms and principles of international law,” an official statement of the Russian Foreign Ministry said.

Russia and China are Venezuela’s main creditors. In recent years, with the Venezuelan economy crippled by soaring hyperinflation, US sanctions and falling oil prices, Maduro’s regime has become increasingly dependent upon Moscow’s financial assistance.

According to Reuters’ estimates, Russia has offered at least $17 billion since 2006 in loans and credit lines. Venezuela has been paying some of this back by offering Russia access to its oil reserves, deemed to be the world’s largest, through national oil company PDVSA.

The oil economy

As of 2017, Russia controlled 13% of Venezuela’s crude exports, Reuters reported. According to some experts, Rosneft has been taking advantage of Venezuela’s difficulties to secure deals which will be profitable in the long term.

The Kremlin’s point man for Venezuela is Igor Sechin, CEO of Russian state-owned company Rosneft and a close Putin ally, who has made frequent visits to Caracas in recent years. Rosneft has provided $6 billion in loans to PDVSA, which is repaying them with oil. Rosneft has also gained a share of ownership in five of Venezuela’s petroleum projects, while playing a middleman role in global markets, selling Venezuelan oil on to customers worldwide.

However, Russia’s investments in Venezuela look far from lucrative.  In 2017 the two countries agreed to restructure Venezuela’s debt, amounting to over $3 billion, by shifting the repayment terms to 2027.

The beleaguered country’s economy is on the verge of collapse and the oil sector, which accounts for over 90% of national export revenues, has not been spared. Last year, oil production dropped by 37% compared with 2017. So, Maduro has been struggling to pay back the loans and last year, Sechin had to fly to Caracas to negotiate with the Venezuelan leader over delayed oil supplies.

Russia’s concern about a collapse in Venezuela’s economy is tangible. A delegation of high-ranking Russian officials flew to Caracas in October to advise the government on how to overcome the crisis. With the country in a state of turmoil, Russia’s Deputy Minister of Finance Sergei Storchak said he expects Venezuela to struggle to repay its debt, and the next $100 million tranche is due next month.

According to Mikhail Krutikhin, an analyst and partner at the independent RusEnergy consulting agency, Russia’s risky investment in the highly unstable Venezuelan economy can hardly be justified unless corruption is involved.

“Investing so much money in a country with a crumbling economy such as Venezuela doesn’t make sense, as it is highly unlikely that Venezuela will pay back the loans”, Krutikhin told Asia Times. The only possible reason explaining these decisions, Krutikhin said, was corruption schemes involving Russian and top Venezuelan officials – who may be siphoning off part of the money.

Corruption would also explain the reason why Russia is unconditionally supporting Maduro instead of establishing ties with Guaido’s opposition in order to safeguard its investments, Krutikhin said. “The same corruption schemes are unlikely to continue in case of a regime change,” he explained.

Recently, Guaido addressed both Russia and China, trying to convince them that a change in government would actually be in their economic interests. “What most suits Russia and China is a change of government,” he said. “Maduro does not protect Venezuela, he doesn’t protect anyone’s investments, and he is not a good deal for those countries.”

But Russia’s switch of sides is highly unlikely at this point, for economic interests are not the only factor involved.

Russian bridgehead

As Krutikhin pointed out, supporting Maduro is a matter of principle for Russia. Betraying Maduro at this point would make the Kremlin look weak in front of its domestic audience.

Also, Russia’s support for the Maduro regime is based on geopolitics. Together, with Ecuador, Bolivia and Cuba, Maduro’s regime is a key Russian ally on the American continent.

This alliance is essentially a Cold War legacy, dating back to when the Kremlin actively supported anti-US governments in Latin America, such as Fidel Castro’s Cuba and the Sandinista regime in Nicaragua.

Today, Putin’s Russia is defying the US-led world order by supporting leaders such as Syria’s Bashar Assad and Maduro’s Venezuela, even though, in the case of the latter, that comes with substantial economic costs.

In return, Venezuela has been taking Russia’s side in international disputes. One example came after the brief Russo-Georgian conflict in 2008. Venezuela was among the few states recognizing the Russia-backed breakaway republics of Abkhazia and South Ossetia.

On the strategic front, Russia has been granting Venezuela multi-billion dollar loans to buy Russian heavy weaponry, such as Sukhoi fighter jets, T-72 tanks and S-300 air defense systems.

In return, Maduro has been offering Russia a platform to showcase its military power right in the US backyard. In late 2018, Russian TU-160 strategic bombers – which are capable of carrying nuclear weapons – flew to Caracas for joint exercises. That provided proof of Russia’s global reach in a region a long way from its traditional area of influence.

According to Reuters, Russian military contractors arrived recently in Caracas to protect Maduro from a possible violent coup. The mercenaries reportedly belong to the secretive private military company “Wagner,” which has been defending Russian interests in both Syria and Eastern Ukraine. The Kremlin, however, denied these claims.

But despite these power projection ploys, Russia’s real capabilities to influence the outcome of the crisis seem limited. After a new US oil embargo against PDVSA was announced last week, Maduro’s regime was cut off from its main source of revenue. Analysts say that the fate of Venezuela now rests in the hands of the military – on whether, and how long, it will remain loyal to Maduro.

For Russia, a best-case scenario looks unlikely.

If Guaido’s revolution succeeds, Russia will lose a major ally in the region. If Maduro manages to hold on to power, the Kremlin will preserve its geopolitical foothold, but at a hefty economic price.

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