Nextbigfuture wrote several articles in early 2018, where we looked at the rapid economic and social collapse in Venezuela and believed it would lead to a military coup. Nextbigfuture predicted the coup would happen by the end of 2018. There are now about 26 days for that to happen. Clearly, this is highly unlikely.
Venezuela’s Economy Has Continued to Implode
Venezuela’s economic situation and social situation have continued to get worse and worse by the day. There has been talk about getting rid of Maduro and his regime.
Venezuela relies 90-95% on oil exports for outside cash. Oil is over half of the economy. Oil Production has dropped from 1.5 million barrels per day early in 2018 to the 1.0 to 1.2 million barrel per day range. Nextbigfuture did expect in March for Venezuela’s oil production to drop even faster than it was to that point. Nextbigfuture thought it would fall to the 1.0 million barrel per day or less by September. Venezuela is still dropping at a fast pace. It is tough to get accurate and honest numbers on anything. Inflation is at hyperinflation 1 million percent range. Again it is tough to get honest or accurate numbers and what is correct is changing day to day and is different across the country.
It is horribly bad and continues to get worse.
Talk From High-Level US Officials and With Regional Leaders on Coup or Regime Change
The has placed sanctions on Venezuela. The U.S. has imposed sanctions on Venezuela’s first lady, Cilia Flores, hitting Nicolás Maduro’s “inner circle.”
In September, President Donald Trump appeared to encourage a military coup in Venezuela, saying the “horrible” socialist government represented a threat to its own citizens. This was reported by the Miami Herald.
Speaking in New York ahead of a bilateral meeting with Colombian President Iván Duque, Trump questioned the bravery of Venezuela’s military but suggested they could easily overthrow President Nicolás Maduro amid an economic and humanitarian crisis.
“It’s a regime that frankly could be toppled very quickly by the military if the military decides to do that,” Trump said.
VP Mike Pence has been talking and trying to persuade global changes that would weaken the Maduro regime. Pence has tried to get China to shift its support. Pence has tried to get South and Central American countries to act in support of regime change.
Beijing has extended a lifeline to the corrupt & incompetent Maduro regime in Venezuela, pledging $5 billion in questionable loans to be repaid with oil. China is also that country’s single largest creditor, saddling the Venezuelan people with more than $50 billion in debt. pic.twitter.com/ucnb4PKTpP
— Vice President Mike Pence (@VP) October 4, 2018
An Ex-Mexican Foreign Minister talked about whether it was time for a Coup in Venezuela in the NY Times in September.
In September, Luis Almagro, the secretary general of the Organization of American States made a warning to Maduro at a rally on the border between Colombia and Venezuela. Luis said no option was off the table in Venezuela, and a “military intervention” to “overthrow” its government, could not be discarded.
In September it was revealed that senior-level officers from the Venezuelan army had approached the Trump Administration a few months before. They announced they were plotting a coup against President Nicolás Maduro, and requested telecommunications support for that purpose. The American officials declined, and the Venezuelans were on their own. There was a failed attempt or fake failed attempt with a drone. This was used as an excuse to purge, arrest and probably torture a large number of army officers accused of involvement in the plot.
Millions of refugees fleeing Venezuela put a strain on neighboring countries. The neighboring countries now have skin in the game.
Risk of Coup has Increased With the GDP Contraction and Falling Oil Production
The factor of GDP contraction in coup risk uses a square root multiplied by -1. So -9% GDP growth is a -3. A -16% GDP growth is -4.
NY Times have published different opeds about what is preventing a successful coup, the risks of a failed coup and the need for change.
There are thousands of Cubans inside Venezuela in key military, intelligence and important roles. They monitor military, national security and intelligence on behalf of Maduro’s administration. Venezuela provides subsidized oil supplies to Cuba. Cuba and Venezuela’s regime have each other backs.
Venezuela uses oil for the friendship of Russia and China. China and Russia are supporting a morally bad situation, but this is global politics. Only idealistic fools sell out their national self-interest on behalf of moral principle.
It is up to other nations with different national interests to change the self-interest calculations for other countries to help them “do the right thing”.
High-ranking officials in the military explicitly side with the regime. Many have been placed in those positions via purges of the ranks after the faked drone attack incident or after the ineffective helicopter incident.
There is not unity with Maduro at the soldier level or lower officers. Plus if the self-interest calculation could be changed then military officers could flip to a different winning side.
Critical military positions are held by people put in place and are being paid more by Maduro in power and money.
How Weak Can Venezuela Get? How Bad Can Things Get Before Forces For Change Get Motivated to Effectively Act?
It got bad enough for the people of Venezuela long ago. The need for elections to be rigged and stolen was when there was a majority of people in Venezuela who wanted change.
The need for purges and outside Cuban assistance to maintain military and security apparatus control is when there would have been internal military and other opposition. The opposition was ineffective or outplayed.
Outside countries are getting quite motivated to want Maduro out. It is question of the benefits of acting versus the costs needed to ensure a successful move.
The US has the military power to do it and succeed in the change. The issue is managing what comes after and not having failed state problems like in Iraq or Afghanistan. It is getting into you broke it so you own the problem now. Even though it is already broken.
Other nations in the region have the military and resources to act and succeed in the initial change. Again it is the issue of making the what comes after work. There is also more risk of not having quite enough or being willing to commit enough to make the change successful.
What Could Change the Calculations Enough for Coup or Regime Change Success?
If Venezuela oil industry collapses more so that oil production and oil exports drops to say 200,000 to 500,000 barrels per day or less then Maduro would probably not have the oil to buy Cuban, Chinese or Russian friendship. It is not clear what the level of oil production has to get to reach critical levels. It gets cheaper to payoff groups inside and nations outside the country flip or lose interest.
Lower oil prices also make it less expensive for a country that is not using oil to pay for a change. $50 per barrel oil at 200,000 barrels per day is $10 million per day ($3.65 billion in revenue) to defend against people changing sides. At 1 million barrels per day, they have $50 million per day ($18.3 billion in revenue). They have to pay the costs to operate the oil extraction and distribution and get some food and other costs.
The speed of the drop is also important. Supporters will be less certain that they are on the right side. Supporters would not want to be on the wrong side when the music stops. They could think yes I am still getting my money and other benefits but Maduro has to payoff say 1 million people, Cuba and China in some form. I do not want to be among the last going for the exit.
It then becomes Cuba, China and Russia just supporting Maduro to cause problems for the USA. Instead of just causing problems for the USA and getting oil. Russia may also be supporting Maduro to get competing oil off the World market to make more room for Russian oil. Russia may not need a payoff so much as less oil in general and problems for the USA.
If it just becomes China and Russia acting against the USA to spite the USA, then it moves into a negotiable position. Trump could more easily change the calculations for China. Buy them off with some other offer. China currently thinks they can put some money into Venezuela to keep oil production at 1 million barrels per day or more. If actions from within or outside Venezuela or the implosion just continue and causes the production to drop enough, then Venezuela could lose friends outside and people could flip inside.
The less oil there is and if exports to Cuba drop then it becomes cheaper for someone else to pay for support to flip. Less expensive change means it is less costly to pay for key support to change sides.
Oil is the key to who stays a friend or not.
Going deeper is that key oil fields, ports and key oil facilities would also be important. Other infrastructure like electricity mostly no longer works anyway.
I thought before a critical level would be one million barrels per day. I now think it has to be less than that. I do not think it is a specific level but as it gets to 500,000 barrels per day or 200,000 barrels per day and it is dropping like a rock then there will be some crisis of confidence in Maduro.
This dynamic is what is different versus Cuba and North Korea. Cuba and North Korea do not have their main financial strength clearly and publicly cratering.
The Venezuelan people and lower level military will be ready to support new management. They will not be that picky who that new management is initially. They will be ready to string up Maduro and the holdouts who do not flip early enough.
Nextbigfuture still thinks the coup is likely and should be inevitable at some point. If the oil production keeps dropping then it should be a question of when and not if. If oil production completely stops for three years and Maduro and his people are still in charge, then I will believe they have found a way to hang on to power without oil. They will have transitioned into a Cuba or North Korea that has no oil and crappy dictatorship. I still think they are crappy oil supported dictatorship.
A successful military coup just has to switch to opening to the US and other South American countries. Then the aid will come in. Halliburton and other oilfield companies get contracts and they fix the oil production. By opening up to the US and US companies, the US will guarantee civic and business stability. A US-backed stability means Venezuela is back to 3.5 million barrels per day of oil production by 2030. Food and medical aid comes in the same day or in the same week that the request is made.
The new military leader has to say the magic words in private – yes we will be an American puppet or in game of thrones terms – I will bend the knee to Trump. Arguing against the magic words hypothesis is that Trump met with some potential Venezuelan coup leaders already and did not support them. We do not why and how that played out. One would think the coup leaders were prepared to do whatever was being asked of them. Yet there was still no support. The coup leaders were clearly proved to be too weak. So is there also some critical power balance ratio that is needed before the US provides support. Does a Venezuelan coup need other South American support or do they have to fit some other kinds of profiles? I think there is some groups that can get support but this would require the kind of intelligence that is not publicly available.
If the US support is provided, then those coup leaders with support should be able to then easily win and get the economy fixed over ten years or so. The US could try to arrange for certain terms or contracts to head China’s way if they get on the right side of this.
David Papadopoulos is a managing editor at Bloomberg who lived and worked as a reporter in Venezuela and his wife of many years is Venezuelan. He left Venezuela many years ago. The rest of his wife’s family left after her father was kidnapped by Columbians and freed after a few weeks. David’s view is that it would not be surprising if Maduro was gone in 20 days and would not be surprising if Maduro was still there and in charge in 20 years. He describes how Chavez led a failed coup and then the regime at that time made the mistake of allowing him to speak on national TV as part of the surrender agreement. Chavez had much more charisma and made a huge impression. Years later he won an election in a landslide. Chavez went about nationalizing business and the rest of the changes that happened which ended up where Venezuela is now. So someone with close ties says the leadership situation is too uncertain. The easier prediction is that the economy of Venezuela stays terrible with Maduro and the people continue to suffer.