Frustrated by Maduro: US policy still struggling to strangle Maduro regime, cut off finances

A year ago, Venezuela’s newly-recognized interim President, Juan Guaido, was riding a wave of optimism – almost euphoria - over his country’s prospects for the removal of power of the “imposter” regime of Nicolas Maduro and a swift return to democratic rule.

U.S. officials were trumpeting the regime’s imminent collapse, taunting Maduro with tweets about a “quiet retirement” to a far-off beach and threatening a wave of economic sanctions.

A few days earlier Guaido, had taken the world by surprise after being declared interim president by the National Assembly. That prompted world leaders, led by President Donald Trump, to reject Maduro’s attempt to remain in power through fraudulent elections and recognize Guaido as the country’s legitimate new leader.

In an interview with Univision News, Guaido predicted “the beginning of the end” for Maduro, promising to deliver much-needed humanitarian aid for Venezuelans suffering from the collapse of the country’s once oil-rich economy.

There was only one problem. Maduro said he wasn’t going anywhere, thumbing his nose at the 50 countries that had withdrawn their recognition of his government, and hailing his steadfast allies, including Russia, China, Cuba and Turkey, and their insatiable appetite for Venezuelan oil – and gold.

A year later Venezuelans are still waiting, and optimism has faded almost back to zero. The streets of Caracas that were once teeming with anti-Maduro protesters, have turned relatively quiet. Instead, a sense of futility and resignation has set in after 21 years of corrupt and often brutal and bloody socialist rule has lapsed into what many observers now consider open dictatorship.

So, what went wrong, observers ask? Quite a bit, as it turns out.

Frustration

While U.S. officials and foreign policy experts may disagree on many aspects of its Venezuela policy, there is a broad consensus that the Trump istration seriously underestimated the task at hand, specifically their ability to financially cripple the Maduro regime with economic sanctions and persuade his top military brass to abandon him. That is a source of enormous frustration officials it.

"Frustration of course, for the Venezuelan people, for the opposition, for Guaido, for President Trump,” Elliott Abrams, the U.S. Special Representative for Venezuela, told Univision in an exclusive interview last week.

Abrams recognized that the humanitarian crisis in Venezuela had worsened in the last year, and there was no sign of Maduro backing down as had been hoped.

Nonetheless, he identified several positive signs. “I believe that this regime is more isolated now, more than ever in Latin America, in Europe, and in the world,” he said. Meanwhile, “the opposition is still united," he added, saying that Guaido had managed to rally political forces against Maduro, despite efforts to undermine them through bribery and physical intimidation, including prison and torture.

Abrams says he likes to describe the situation to his boss, Secretary of State, Mike Pompeo, as a conundrum with an unpredictable yet inevitable outcome.

“In one sense we are losing every day, until the day when there is a change, and in this sense, the [Maduro] government has managed to stay in power, but I think its position is weaker every day,” he said.

Change of strategy

In recent weeks the Trump istration appears to have quietly shifted its policy away from a sole emphasis on threats and sanctions, to a more balanced approach of sanctions and a negotiated democratic solution, with an eye on elections later this year.

“I think the reality has set in. This was never going to be quick, nor easy,” said Jason Marczak, director of the Adrienne Arsht Latin America Center.

Gone is the talk by Trump and U.S. officials of possible military action, which most analysts have rejected as too costly in lives and resources.

“It’s a real pity the U.S. didn’t say similar things back in January last year, rather than demanding Maduro’s head on a platter on a short timeline,” said Phil Gunson, a Caracas-based analyst for the International Crisis Group which advocates for a peaceful, negotiated solution.

“ The U.S. has been rowing back from this maximalist position for some time. They have been looking for a different strategy. You can’t treat this like a medieval siege and starve them to death. You don’t have them surrounded,” he added, noting that Maduro still enjoys the of key allies and significant revenues.

Shadow economy

U.S. officials have long dismissed Maduro as a blundering crook, surrounded by a kleptocratic government of ne'er-do-wells. But that ignored the of Russia and China, as well as the devilish ingenuity that organized crime figures will often resort to when their backs are to the wall.

Increasing evidence now points to a sophisticated network of clandestine operations that have managed to help the government dodge international oil sanctions while exploiting the nation’s abundant resources, from smuggled drugs and gold. Experts have been warning for months that those illicit structures are more resilient than U.S. officials may have believed, and are what is keeping Maduro in power.

“This capacity of the Maduro regime to allow these activities to be developed by different groups that are satellites of the state, is a key factor to understand why their government has not collapsed,” according to Asdrúbal Oliveros, director of Ecoanalítica, an economic analysis company in Caracas. He calculates that the Maduro regime receives one third of its revenue from the black market economy of contraband drugs, oil and gold, as well as exchange rate schemes and overbilling on imports.

“The government has diversified its rent away from oil. The political outlook (for Maduro) feels more stable today,” said Risa Grais-Targow, Venezuela director for the Eurasia Group, an influential New York-based political risk consultancy.

“A lot of us Venezuela watchers, certainly my clients in the investment community, we long assumed that oil-related cash flows were the key to Maduro’s survival and that if those evaporated or were undermined in a material way, that he would be unable to retain power,” she told a recent of experts at the Wilson Center in Washington. “What we all underestimated was the degree to which he could diversify those sources of cash to maintain internal ,” she added.

The 'Gold Plan'

Experts point to 'el Plan Oro’ (the Gold Plan) announced by Maduro in November 2018, to exploit the so-called ‘Mining Arc' of the Orinico basin, a zone rich in minerals in the south of the country, which he said would bring in an estimated $5 billion annually by 2025. Maduro claims that Venezuela has the world’s second-largest gold deposits with potentially 1,500 tons, worth more than $72 billion at today’s prices.

Starting last year, U.S. officials began targeting Venezuela’s oil sector in the belief that would throttle Maduro’s ability to buy loyalty at home and abroad. Sanctions have been effective in reducing the country’s oil exports, and Venezuela's international financial reserves fell this month to $6.6 billion, a 45-year low.

"Fortunately, or unfortunately, there are many options left (for new sanctions),” Abrams told Univision. “In the case of gold, we are talking about where gold goes, what country, where they sell gold, always looking for companies, individuals, routes … They are options for sanctions in the future,” he added.

Abrams said the State Department has sent messages to some governments, with evidence of the sale of gold here, asking for investigations to be opened.

But some experts say sanctions may not be a useful tool against this kind of illicit activity. “Sanctions only work on legal finances, but that’s not how Maduro gets his finances,” said Marzcak. “Maduro survives on his reliance on illicit forces,” he added.

“What they don’t need is the modern mining techniques or the foreign investors, they just need to violently control all the mines,” said Bram Ebus, a Dutch consultant with the International Crisis Group who has studied the mining arc and warns that the mines are under the control of Colombian guerrillas, such as the ELN and FARC dissidents, corrupted unions and Venezuelan armed forces.

Oil sanctions

Gold revenue is still vastly inferior to what Venezuela earns from oil – about $13 billion dollars a year. But most of that is mortgaged to pay off multi-billion loans from Russia and China. However, despite the sanctions, Maduro has successfully paid down a $6.5 billion dollar debt with Russia which means it could free up future oil revenue in 2020. However, it still has a $20 billion dollars debt with China which is shrouded in official secrecy.

It remains to be seen what Russia will do after its debt is paid off. “They are not going to be pulling the plug,” said Frank Mora, director of the Latin America and Caribbean Center at Florida International University (FIU). “This is more than just a question of extracting resources. It’s part of a geopolitical game. Russia sees this as a way to poke the U.S. in the eye. For Putin, this is a PR (public relations) win back home,” he added.

“Rosneft is basically running Venezuela’s oil imports,” dijo Russ Dallen, director gerente de Caracas Capital, un banco de inversión con sede en Venezuela que monitorea estrechamente la industria petrolera.

“Every morning I look at where the ships are. Rosneft is chartering 80 per cent of them,” he said. To avoid sanctions, the ships turn off their transponders after rounding the southern tip of Africa. “We have to use satellites to keeping tracking them,” he added. Sometimes the ships head for a Rosneft refinery in India, other times they end up in China, Malaysia or Singapore.

Venezuela oil production has plummeted in recent years, though Dallen and others attribute that in large part to corruption and incompetence after Maduro placed the industry under the control of his generals.

Gold flights

Dallen, who has met with U.S. officials, now also attempts to track the gold shipments. “We’ve been tracking planes going to Turkey several times a month. We assume it’s gold,” he said. “We can see the dots, but we don’t know. We have gotten flights plans but we rarely get access to a manifest,” he added.

By checking official government financial statistics Dallen said it appears that $1.8 billion dollars in gold went to Dubai, while $900 million dollars’ worth stayed in Turkey. Italy and Uganda also received some. Dallen suspects some gold is being transshipped elsewhere, perhaps to Russia and Iran. Flights are also going to Curacao, a Dutch colony just off the coast of Venezuela. Once it enters Curacao it’s basically inside the European Union, he moaned. Gold is also showing un in Colombia and Brazil he added.

“We can for $2.8 billion (in gold) in 2018,” said Dallen.

As a result, Dallen has also come to the same conclusion as many observers. “Sanctions alone cannot do this. The best thing to do is try and negotiate them out of power,” he said.

But no-one seems to have the answer to how that can be achieved.

A negotiated solution?

Guaido snuck out of Venezuela last week and is now embarked on a tour of Europe seeking stronger diplomatic as well as trying to close some of the holes in the embargo.

Meanwhile, Guaido’s advisors are also looking for ways to reinvigorate the opposition back home.

“There need to be internal pressures as well,” said Miguel Pizarro, a National Assembly deputy who handles humanitarian issues at the United Nations for Guaido. While sanctions were an important tool, they need to go hand in hand with efforts to mobilize opposition to Maduro in Venezuela, he told another forum on Venezuela at the Atlantic Council earlier this month.

“It has to be a combination of the two. We really need to connect politics with social discontent,” he said.

That’s not easy at all. Pizzaro found out the hard way last July when he became the latest opposition politician to be forced into exile after he was accused of treason for alleged links to a failed military rebellion.

“We have to keep people on the streets. It’s up to us to lead by example, through our own sacrifices,” he said.