White House

Trump team waiting for Russia to save Venezuela from crushing debt

Russian President Vladimir Putin, right, shakes hands with Venezuela's President Nicolas Maduro during their meeting at the Kremlin in Moscow, Russia, Wednesday, Oct. 4, 2017.
Russian President Vladimir Putin, right, shakes hands with Venezuela's President Nicolas Maduro during their meeting at the Kremlin in Moscow, Russia, Wednesday, Oct. 4, 2017. AP

Trump administration insiders are seeing signs that Russia may be planning to rescue Venezuela by helping Caracas cover $3.5 billion in debt payments over the next two months.

Russia is already laying the groundwork, with Venezuelan President Nicolás Maduro traveling to Moscow this week to meet with Vladimir Putin, whose government is taking greater control of Venezuelan oil deliveries to bypass U.S. refineries.

Senior administration officials say the Kremlin is motivated to help Venezuela by its still-simmering anger about America’s response to Russian action in Ukraine. It also has a financial interest to gaining a foothold in the country with the world’s largest oil reserves. Plus, Moscow has a history of providing a boost to U.S. adversaries.

But an administration official questioned whether even the Russians would want to take on such a financial risk, snarking that Moscow’s finances are not so great either.

“Will they want to be throwing all sorts of money into a sinking ship,” a senior administration official told McClatchy. “Frankly if they do, I’m not sure from a geopolitical perspective that we wouldn’t be happy to sit back and watch. For the Russians, it’s going to be bad money for them. It’s going to be a sinking investment that is going to derail Russia even more.”

Oil-producing Venezuela is mired in an economic crisis caused by plunging oil prices and rampant mismanagement that has led to hyperinflation and widespread shortages of food and medicine. After the United States imposed sanctions meant to punish Maduro’s government for steamrolling democratic institutions, Caracas has been desperate to find new ways to get its most critical commodity to a new market.

Maduro traveled to Moscow this week to meet with Putin and attend the Russian Energy Week festival, which brings together regional industry leaders and heads of state.

On Wednesday, Maduro met with Putin and thanked him for his ongoing support during tough times. Speaking at the forum, Maduro said his country’s payments to Russia could be restructured, but that the socialist government would meet all its debt obligations.

“Thank you for your support, both political and diplomatic, in a rough patch we are going through,” Maduro told Putin at the start of talks at the Kremlin.

The Trump administration has promised to continue ratcheting up the pressure on Caracas until the Venezuelan government restores some democratic institutions. Aides have provided President Donald Trump with an “escalatory road map” that outlines a series of options that can be taken, including the so-called “nuclear option” – oil sanctions – that could deprive the oil-dependent government of desperately needed cash.

Speaking at the forum, Maduro said U.S. consumers have the most to lose if the United States takes such a “radical” and “impulsive” decision. He said he knew of U.S. companies that were pressuring the Trump administration not to make such a move. But he said Caracas will be ready if Washington does.

“Venezuela has a Plan A, Plan B, Plan C and our alternative plans,” Maduro said. “And fortunately, in this auditorium are some of the most important companies in the world who are interested in buying our oil... We have powerful associations.”

Maduro has been criticized for selling off the country’s most valuable assets, but cash from Russia has been crucial to helping the government remain in power and avoid a debt default.

Venezuela is struggling to meet its debt coming due in the next two months, estimated to be at least $3.5 billion owed to holders of government bonds and those issued by the state oil company known by its acronym PDVSA.

PDVSA owes roughly $2.9 billion to bond holders due in two payments by the end of November. The rest is owed to holders of Venezuelan government bonds.

Russia has helped Venezuela three times in the last 24 months to make billions in debt payments — in February 2016, October-November of 2016 and then again April-May of 2017, according to Russ Dallen, a managing partner at the investment bank Caracas Capital Markets, that tracks Venezuelan oil shipments and has advised U.S. officials on Venezuelan matters.

“Russia keeps saving Venezuela’s ‘culo,’” said Dallen, using the Spanish word for “ass.”

The Russian state oil firm Rosneft also holds a 49.9 percent stake in the Venezuelan-owned, U.S.-based refinery Citgo following a $1.5 billion loan from the Russian company.

Russian Finance Minister Anton Siluanov told reporters last month that Venezuela has asked for a restructuring of its existing debt to Moscow and that it was under consideration.

The United States imports about 700,000 barrels of Venezuelan crude oil per day, but that number has dropped in recent months. One reason for the disruption was the recent hurricanes, particularly Hurricane Harvey, delayed shipments of oil from Venezuela to refineries that had to shut down.

But another reason, according to Dallen and Trump administration insiders, is that Russia has been redirecting hundreds of thousands of barrels a day to India, where Russian-owned oil company Rosneft just purchased an oil refinery.

In August, Venezuela shipped an average of 172,000 barrels per day to the Essar Oil Vadinar refinery in India, which was nearly triple the amount delivered in July.

At that rate, Venezuela would be on track to pay Rosneft up to $250 million per month, allowing Venezuela to pay off another $5 billion in oil debt — and regain Russia’s confidence about continued assistance, Dallen said.

Benjamin Gedan, a former Venezuela director on the National Security Council, said the India refinery diminishes U.S. leverage by providing Venezuela another way to adjust to U.S. sanctions against Venezuela’s oil industry.

Even if Russia helps Venezuela make its upcoming payments, that does not mean Caracas will be in the clear. Venezuela owes another $3 billion in the spring and $3 billion more at the end of 2018, according to the Trump administration.

“Essentially, you take ownership of the situation if you come in and rescue them now,” the administration official said.