PetroCaribe, sanctions and collateral damage

As this is being written an uneasy calm prevails in Haiti following nearly two weeks of widespread demonstrations against the Government of President Jovenal Moïse. Protesters had been demanding his resignation, blocking roads, burning vehicles and attacking government buildings and businesses in many parts of the country including the capital Port-au-Prince.

More protests are planned in the coming days following what many Haitians see as the continuing failure to address their concerns about the disappearance of US$1.7bn in PetroCaribe funds between 2008 and 2016 intended for social programmes in Haiti. Among those implicated by a Senate report were former ministers, officials, and senior political figures.

Government’s response to Haitians concerns was slow. After days of silence and escalating violence, a combative President Moïse said that he heard the voice of the people. However, he provided little detail about how he intended to respond while indicating that he would see out his full term in office.

The tension only eased as drinking water and food became scarce. Then, the Prime Minister, Jean-Henry Céant, announced a series of measures. Government, he said, will reduce its expenses by 30%, ‘encourage’ the Presidency and Parliament do the same, and abolish ‘all unnecessary privileges’ of senior state officials. He also promised to give the judiciary additional resources to complete PetroCaribe related prosecutions, have all autonomous state enterprises audited to identify diverted funds, abolish national monopolies affecting food prices, and try to improve the minimum wage and reduce cronyism.

How much of this happens, whether Haiti’s impoverished citizens can be appeased, or if those alleged to have benefited from PetroCaribe funds will ever be sanctioned, remains to be seen.

What is happening in Haiti illustrates just one aspect of the collateral damage arising out of Venezuela’s geo-politically led largesse. More importantly it points to economic consequences, albeit much less severe, that will likely emerge in the coming months as Caribbean nations come to unravel the complex economic and political web that PetroCaribe and US sanctions have created.

This will not be easy.

Caribbean governments and companies are already having to find and finance alternative sources of hydrocarbons on commercial terms, while addressing the now legally complicated issue of their indebtedness to PdVsa, if they have not already done so or been granted debt forgiveness by Caracas.

As a matter of urgency others are having to unwind complex commercial arrangements as is the case with Petroleos de Venezuela’s (PdVsa) 49% stake in Jamaica’s Petrojam refinery. Elsewhere, some OECS nations such as St Vincent’s Government may have to recognise that budgeted social development programmes may become undeliverable as PetroCaribe linked developmental benefits come to an end.

In addition, other longer-term uncertainties are also likely to arise. For example, if the Maduro government does not survive, the Trinidad government may well find that planned cross-border investments and the energy sharing arrangements that it is continuing to discuss with the Maduro administration become uncertain.

All of which is happening as US sanctions on Venezuela are about to bite.

In an apparent recognition of the difficulty that some Caribbean states will face, the US Administration has said that it is working to try to ameliorate their effect.

Speaking at a 13 February hearing before the Foreign Relations Committee of the US House of Representatives, Sandra Oudkirk, Deputy Assistant Secretary for Energy Diplomacy at the Bureau of Energy Resources, said that Washington was looking at what needs to be done to ensure that the focus of sanctions remains on PdVsa and not on small Caribbean markets.

In reply to a well-considered question about the impact of US sanctions on neighbouring states from the Democratic Congresswoman, Abigail Spanberger,  Ms Oudkirk noted: “We are looking on a country by country, jurisdiction by jurisdiction, basis at the involvement of PdVsa in these various small countries and islands and figuring out what it is that needs to be done during that 60-day period to ensure that the focus on sanctions impact is on PdVsa not on these small markets”.

No other details were provided, but her remarks referenced mitigating the consequences of the 60-day period up to 29 March allowed for winding down operations, contracts, or other agreements involving the region, PdVsa and US institutions, its companies and citizens. Although it is not clear which countries Ms Oudkirk was referring to, it is likely to be those that have bilaterally indicated support for US policies.

The outcome of the humanitarian, economic and political confrontation taking place between the Maduro Government and the President of the Venezuelan Congress Juan Guaidó and his US led international backers, has yet to play out.

President Maduro could well survive if, as is so far the case, he secures the continuing support of the country’s military and para military groups, if nations like Russia and its Kremlin-linked energy companies take a geopolitical gamble on playing a more profound hemispheric role, and US political rhetoric that hints at military action gives oxygen to those who support President Maduro.

What is becoming apparent is that coming close behind Venezuela’s humanitarian disaster and US sanctions will be a number of politically complex economic challenges touching nations as different as Cuba and Belize.

Apart from observing the obvious, that this argues for the more rapid diversification into renewables and for Guyana to consider having a regional energy role after 2020 as it becomes both a major oil and gas producer, its points to the need for a more neutral, better balanced, less politically aligned future approach to Caribbean development.

It suggests too that the US and other nations backing change in Venezuela recognise that a new pan-Caribbean mechanism is needed that incentivises external investment and private sector led growth and supports in the short term, programmes that improve education and health care as the building blocks of future prosperity.

 

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