A Primer on Venezuela’s Crisis

A Primer on Venezuela’s Crisis

Scott Hancox, Staff Member

Venezuela is currently suffering from a serious economic crisis and humanitarian emergency so dire that it is now being referred to as “the world’s worst economy.”[1] Despite this, there has been confusion regarding the underlying causes of the crisis, exacerbated by Venezuela’s borders which have long appeared opaque to Western sources. For example, U.S. Senator Rick Scott of Florida recently alleged that “Cuban thugs” are propping up Maduro’s regime.[2] Although Cuba did announce its unwavering support for the Venezuelan regime on Twitter,[3] there have long been economic issues in Venezuela that underlie the current crisis. In fact, the Venezuelan economy has shrunk by about half since current President Nicolás Maduro’s rise to power in 2013.[4]

This economic decline is particularly stark when viewed in comparison to Venezuela’s immense natural wealth. Venezuela is a resource-rich country, featuring the world’s largest proven oil reserves[5] and significant gold reserves. In order to stymie the crisis and remain financially solvent, the Venezuelan government is rapidly selling off these resources for liquid cash.[6] In fact, Venezuela sold over 40% of its gold reserves to other countries last year alone.[7]

The U.S. response to the crisis has been to apply economic sanctions aimed at Venezuela’s oil.[8] The international response has been similar, with countries freezing the Venezuelan regime’s assets and recognizing the regime as illegitimate.[9] Although the U.S. and other countries have been providing aid, there are rampant allegations that the Maduro regime is blocking this aid from getting to the starving, malnourished population of Venezuela.[10]

These international responses, and in particular the oil sanctions, have decreased Venezuelan exports and frozen their banks.[11] In the wake of these “paralyzed” finances, there will likely be “major collateral damage.”[12] Meanwhile, criticism of the Maduro regime has been mounting inside Venezuelan borders, evidenced by public rallies and, most virally, a drone attack on Maduro.[13] Lately, this criticism has morphed into political activism[14] in the form of Juan Guaido, who with the support of the Venezuelan National Assembly, has declared himself president.[15] Guaido is now making significant political moves to displace Maduro from his presidency.[16] While many in the international community hope that international economic retaliations will displace Maduro and others hope that Guaido himself will be able to displace Maduro, the starving Venezuelan people are surviving on hope alone.

[1] Living inside the world’s worst economy, Venezuela, Al Jazeera (Feb. 2, 2019), https://www.aljazeera.com/programmes/countingthecost/2019/02/living-world-worst-economy-venezuela-190202072150782.html.

[2] Grace Segers, Rick Scott says “Cuban thugs” are at heart of Venezuela crisis, CBS News (Feb. 9, 2019), https://www.cbsnews.com/news/rick-scott-says-cuban-thugs-are-at-the-heart-of-venezuela-crisis/

[3] Cancillería de Cuba (@CubaMINREX), Twitter (Jan. 23, 2019, 8:37 PM), https://twitter.com/CubaMINREX/status/1088294602434666497.

[4] Christoph Koettl & Barbara Marcolini, U.S. Sanctions Are Aimed At Venezuela’s Oil. Its Citizens May Suffer First, N.Y. Times (Feb. 8, 2019), https://www.nytimes.com/2019/02/08/world/americas/venezuela-sanctions-maduro.html.

[5] The World’s Largest Oil Reserves by Country, World Atlas (Jan. 8, 2019), https://www.worldatlas.com/articles/the-world-s-largest-oil-reserves-by-country.html.

[6] Cf. Corina Pons & Mayela Armas, Venezuela sold 73 tonnes of gold to Turkey, UAE last year: legislator, Reuters (Feb. 6, 2019), https://www.reuters.com/article/us-venezuela-politics-gold/venezuela-sold-73-tonnes-of-gold-to-turkey-uae-last-year-legislator-idUSKCN1PV1XE (Stating that Venezuela has been liquidating its gold assets via gold sales to foreign countries over the last year in a bid to stay solvent.).

[7] Patricia Laya & Alex Vasquez, Maduro Sold 40% of Venezuela’s Gold Last Year Amid Cash Crunch, Bloomberg (Feb. 6, 2019), https://www.bloomberg.com/news/articles/2019-02-06/maduro-sold-40-of-venezuela-s-gold-last-year-amid-cash-crunch.

[8] See Koettl & Marcolini, supra note 4.

[9] Cf. Callum Burroughs, The Bank of England has refused to give back $1.56 billion in Venezuelan gold after countries around the world say the regime is illegitimate, Bus. Insider (Feb. 6, 2019), https://www.businessinsider.com/venezuela-gold-reserves-frozen-by-bank-of-englandf-2019-2 (Indicating that the Bank of England has frozen $1.56 billion of Venezuelan gold reserves assets and formally recognized opposition leader Juan Guaido as the country’s leader.).

[10] Siobhán O’Grady, The U.S. says Maduro is blocking aid to starving people. The Venezuelan says his people aren’t beggars, Wash. Post (Feb. 8, 2019), https://www.washingtonpost.com/world/2019/02/08/us-says-maduro-is-blocking-aid-starving-people-venezuelan-says-his-people-arent-beggars/?noredirect=on&utm_term=.fe1ef3de3e7a.

[11] Anatoly Kurmanaev & Clifford Krauss, U.S. Sanctions Are Aimed At Venezuela’s Oil. Its Citizens May Suffer First, N.Y. Times (Feb. 8, 2019), https://www.nytimes.com/2019/02/08/world/americas/venezuela-sanctions-maduro.html.

[12] Id.

[13] See Koettl & Marcolini, supra note 4.

[14] Sam Kiley, The transformation of Juan Guaido, Venezuela’s self-declared president, CNN (Feb. 7, 2019), https://www.cnn.com/2019/02/07/americas/juan-guaido-profile-venezuela-kiley-intl/index.html.

[15] Shirley Tay, US-backed Venzuelan opposition leader Guaido will name a new Citgo board, Sen. Rubio tells the WSJ, CNBC (Feb. 6, 2019), https://www.cnbc.com/2019/02/07/venezuelan-opposition-juan-guaido-to-name-new-citgo-board-report.html.

[16] Cf. Id. (Noting Guaido’s planned naming of a new board for Citgo petroleum in order to weaken the traditional power sources of the Maduro regime.).