The Return of Great Power Rivalry: the US, Russia, China, Iran … and Venezuela?

27 May 2020 Lindsay Hughes, Senior Research Analyst, Indo-Pacific Research Programme

Background

Saudi Arabia has long been acknowledged as having copious proven oil reserves. Not as well-known is the fact that Venezuela, with over 300 billion barrels of proven reserves, has the world’s largest proven deposits. Its Orinoco tar sands are, moreover, less viscous than, for instance, Canada’s, thereby enabling more conventional and less expensive extraction.

That latent wealth has been off-set by corruption, first in the Hugo Chávez Administration and then in his successor, Nicolás Maduro’s. Those two leaders, following their version of Simon Bolivar’s Socialism, commandeered private organisations, sacked professional managers and workers and drastically curbed spending on the maintenance of factories, all while appropriating state funds for their personal gain. Hardly surprisingly, Venezuela, once the richest country in South America, saw its GDP fall by 65 per cent and its inflation soar in February this year to 2910 per cent. The country now faces a famine, a situation that has been exacerbated by the Covid-19 pandemic.

 

Comment

Mr Maduro has grown desperate in his efforts to demonstrate that he still leads his country, especially as the US does not recognise his regime. One of those efforts is to enable a run-down oil refinery on Venezuela’s north-west coast to maximise its output. Requiring oil in the interim, and skilled engineers and other experts for the mid- to longer term, he turned to Tehran for assistance. Tehran gladly offered to help him out – provided that they would be paid in gold since the Venezuelan Bolivar is practically worthless. It was in the last week of April, therefore, that six aircraft from the Iranian airline, Mahan Air, that is managed by the Islamic Revolutionary Guards Corps, itself a designated terrorist organisation, transported around nine tonnes of gold, worth an estimated US$500 million ($766 million) from Simon Bolivar Airport in Caracas to Tehran.

Having received that windfall, Tehran now needs to deliver the oil and expertise that Mr Maduro has purchased. It has loaded the oil onto its tankers and those tankers have set sail for Venezuela. The problem that they face is that the US, which has sanctioned Venezuela, has suggested that it might take action against the tankers. Washington clearly does not want to see two of its foes, including one in its own hemisphere, colluding to bypass its sanctions and authority. The situation for Iran, however, is a very fortuitous one: not only has it received a sizeable amount of gold, it now has the opportunity to challenge the US’s hegemony within its immediate zone of influence.

If the US chooses to act against the tankers – prevent them from approaching Venezuela or, worse, seize them – it is almost certain that its own naval assets in the Middle East would be at risk of retaliation by Iran. That situation would have the potential to draw the US further into the politics of the Middle East just when it seeks to reduce its presence in the region. As Iranian President, Hassan Rouhani stated in no uncertain terms:

If Americans create problems for our oil tankers in the Caribbean waters or anywhere in the world, we will reciprocally create problems for them. We always consider it our legitimate right to defend our territorial integrity and national interests and hope Americans do not make a mistake.

Any action against the tankers would, moreover, have little or no effect on Mr Maduro’s hold on power. Venezuela’s Defence Minister, Vladimir Padrino López, said the navy would escort the tankers when they entered into Venezuela’s exclusive economic zone ‘to welcome them and to say to the people of Iran, thank you, thank you, for your solidarity.’ Confronting the tankers outside of that zone could have legal ramifications and would give Tehran a propaganda victory. In the event, the first of the five tankers arrived in Venezuela on 24 May.

Any action by the US against the Iranian tankers would have had a temporary effect, at any rate. Had the US acted against its tankers, Tehran could potentially have requested either China or Russia or both to lease their tankers to it to transport further oil shipments to Venezuela. Both China and Russia currently face US sanctions over their assistance to Mr Maduro. Russia has offered Venezuela military systems, personnel and other aid. China has given billions of dollars in loans to Venezuela and further military equipment. It would be tempting for those two countries to lend Iran their tankers to transport its oil to Venezuela. The likelihood of Xi Jinping doing so is, however, remote. With his country’s economy going backwards, he has every reason to fear further retaliation by President Trump and, even more, a domestic backlash because of the failing economy. President Putin is another matter altogether. He does not fear further US sanctions and knows that Washington would be very reluctant to hinder Russian-flagged vessels at sea.

What is certain is that Iran now sees an opportunity to challenge the US close to home. The situation also demonstrates that great power rivalry has returned in no small way and now occupies centre stage once again.

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

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