This is what we learned from Venezuela
By Bénédicte Bull* (Confidential)
HAVANA TIMES — The sanctions the EU and the United States imposed on Russia last week are believed to be the toughest in history. But we have similar experiences with very broad sanctions, albeit against countries of less importance for the world economy.
Since 2017, Venezuela has been under severe sanctions from the United States and the European Union. The hope was that economic pressure on the authoritarian regime of Nicolas Maduro would force democratic elections and governance changes. This does not happen.
Sanctions against Venezuela began with an arms embargo imposed by the United States in 2006. The reason was that Venezuela did not contribute enough to the fight against terrorism. This led Venezuela to turn to Russia, which quickly became Venezuela’s most important arms supplier. Following a rapid erosion of democracy and human rights in 2014, the United States introduced sanctions against individuals close to the government. Then the country was declared a threat to American security.
When Maduro ignored the democratically elected National Assembly in 2017, the United States banned all financial dealings with the Venezuelan state. The EU also imposed new sanctions.
Following a presidential election marred by cheating, the United States in 2019 introduced a ban on trading with all state agencies, including Venezuela’s state-owned oil company, PDVSA. While England confiscated gold reserves in British banks.
Oil revenues accounted for about 97% of Venezuela’s income, and the sanctions contributed to the already ongoing decline in oil production and the sharp fall in gross national product.
Skyrocketing inflation turned into hyperinflation (more than 1,000% per year). This had consequences, but not those that the opposition, the United States and Europe, had hoped for. Here are six lessons.
1. Sanctions often hit the wrong target
In Venezuela we saw, as we do now in Russia, that banks and private companies refused to have anything to do with Venezuelan companies, even if there were no real violations of penalties. Such “over-compliance” is a reaction to the fear of both being sanctioned and having a negative reputation.
The sanctions therefore also affected key opposition supporters in the business community, who were cut off from overseas markets and funding. This has created new divisions within an already divided opposition.
2. Sanctioned countries find new friends and new paths
The next thing that happened was that Venezuela found new trading partners and new ways to give and receive payments, as they were excluded from regular payment systems.
Shortly after the introduction of financial sanctions in 2017, Venezuela launched its own cryptocurrency – Petro – developed in collaboration with Russian experts.
The Russian oil company Rosneft was already established in Venezuela. Their presence grew after Rosneft boss Igor Setchin was placed on the US sanctions list following the annexation of Crimea in 2014.
Rosneft helped the Venezuelan oil company circumvent sanctions and get oil shipped and sold.
Ties have also been strengthened with sanctioned Iran, Syria and Turkey, helped by oil sales and agricultural imports.
When China stepped in as a creditor, Russia lent Venezuela about $17 billion in total. In other words, the sanctioned countries will come together.
The United States has increased the use of sanctions as a tool by 50% under Donald Trump. The rise continued under Joe Biden, even before the recent sanctions against Russia.
The more countries sanctioned, the larger the group of countries that can come together to find common solutions that compete with a dollar-based global economy controlled by the United States.
3. Sanctions serve as a scapegoat
In Venezuela, what the opposition and supporters in the United States and Europe had hoped for has not happened: that strangling the regime for money would lead the regime’s supporters to defeat, and that Maduro would be forced to leave.
Instead, Maduro tried – with some success – to convince people that the economic problems were caused by the sanctions. Sanctions have become a scapegoat and have overshadowed years of corruption and financial mismanagement.
4. Sanctions can strengthen authoritarian leaders
As the economic crisis turned into a humanitarian crisis, the sanctions became so unpopular that even a very unpopular president like Maduro managed to mobilize around nationalist resentment and loyalty to the homeland.
At the same time, the regime became more authoritarian and based on the support of a small group of military and elites.
5. Sanctions reinforce the informal and criminal economy
Following the previous crisis and the sanctions, more and more Venezuelans were forced to turn to the informal economy, some also to the criminal. International organized crime has also grown, in part due to its links with the government and Russia.
6. Sanctions make it harder to relinquish power
All of this has contributed to Maduro having less and less incentive to relinquish power. He is accused in the United States of drug trafficking and has an ongoing case against him at the International Criminal Court in The Hague. In other words, he doesn’t have a bright future as a former president.
The United States also lacked a clear strategy for sanctions relief and what would be needed to achieve it. For Maduro supporters, there was little reason to believe it would pay off to switch sides.
The ban on buying oil from Russia added a new twist to the story, as last week US officials visited Venezuela to discuss a possible easing of oil sanctions in order to ensure a slightly larger supply in the event of a Russian shutdown.
At the same time, a slight increase in oil revenues, the liberalization of the use of the dollar, trade liberalization and privatization have given Venezuela a small economic boost. With an oil price in the sky, Maduro has stronger trading cards than in a long time.
There are many differences between sanctions that attempt to stop a brutal war of invasion and sanctions that seek regime change. And Russia is not Venezuela.
But Venezuela’s experience urges caution with measures that strengthen national cohesion, criminal networks and alternative alliances, and weaken the forces on which we want to build a relationship with Russia.
Neither a sense of justice nor a desire for revenge are good compasses when it comes to sanctions policy.
*Article originally published in Latin America21.
Read more reports on Havana Times.