The U.S. removal of Venezuelan leader Nicolas Maduro on January 3 had no immediate implications for the sovereign credit ratings we cover (Morningstar DBRS does not rate Venezuela).
President Trump’s assertions that the U.S. will “run” Venezuela for some period of time appear to be based on an assumption that Venezuelan authorities will have little choice but to cooperate with the United States, given the blockade of oil exports and the threat of further military action.
Events on the ground are moving quickly and we have limited visibility regarding how the situation in Venezuela will evolve.
In this commentary, we offer three tentative observations on what the U.S. intervention could mean for Venezuela, its neighbours and the broader hemisphere.
In the near term, the outlook in Venezuela depends on how power rebalances among key domestic players as well as the scope of U.S. demands.
The Chavista regime under Maduro was a coalition of diverse factions that survived through a mix of political repression, corrupt patronage, and illicit activities. Even with Maduro’s exit, the armed groups and criminal networks that have helped govern the country remain intact.
Maduro’s Vice President, Delcy Rodríguez, was sworn in as President with backing, or at least tacit acceptance, from the military and the state’s security apparatus. Rodriguez faces a difficult balancing act of preserving domestic support while also responding to U.S. concerns. Consequently, it is premature to say that a stable equilibrium has emerged.
The Trump administration’s ultimate objectives in Venezuela remain unclear. In our view, the Chavista regime will be more willing to cooperate with the Trump administration if U.S. demands are narrowly focused.
However, if the goals of the White House are more transformative in nature, the Chavista regime may be incentivised to resist – or simply unable to deliver without losing the support of key institutions, including the military.
Looking out over the next few years, there is an even wider range of possible outcomes. In broad terms, we would simplify this into three:
First, some form of interim government could potentially consolidate power and provide a degree of political stability as key stakeholders lay the foundations for a democratic transition.
Second, existing governing structures could be preserved but with a more acquiescent figurehead that defers to the U.S. on key issues like immigration and oil.
A third possibility would be an intensifying power struggle within Venezuela that could lead to state collapse and widespread violence.
For Venezuela’s largest neighbours, Colombia (rated BB (high), ‘negative’) and Brazil (BB, ‘stable’), trade and investment flows with Venezuela are minimal and investment stocks are low. Both Colombia and Brazil are net oil exporters and, therefore, could be impacted through the terms of trade channel.
However, the U.S. military action in Venezuela will likely have little impact on global oil prices in the short term. Moreover, ramping up Venezuelan oil production is projected to take years.
Cuba, which relies heavily on Venezuelan oil, will face perhaps the greatest near-term challenges given U.S. insistence that Venezuelan oil exports go to U.S. refineries.
We expect this action to increase pressure on Cuban authorities, but it is too early to tell how the island’s government will respond. We do not expect a similar U.S. intervention in Cuba, but the U.S. action in Venezuela alone is expected to impose significant pressure on Cuba’s economy.
Over time, a scenario of severe political instability in Venezuela could have humanitarian and security implications for the region, especially Colombia. According to the UNHCR, close to 8 mln Venezuelans have fled their country since 2014, of which nearly 3 mln now reside in Colombia.
Spiralling violence could lead to another wave of migration out of Venezuela, thereby putting stress on Colombia’s resources and infrastructure. Criminal groups may also take advantage of weakened state control to expand drug trafficking and illegal mining operations, thereby worsening security concerns in the region.
The immediate reaction of Latin American governments has largely split along partisan lines, with left-leaning governments in Brazil, Colombia and Mexico condemning the use of unilateral U.S. military force in Venezuelan territory.
Right-leaning governments in Argentina and Ecuador have applauded the removal of Maduro. Still others (e.g., Peru) have issued more neutral statements critical of the Maduro regime, but also emphasising the need to respect principles of democratic self-rule for Venezuela.
While the Trump administration has appeared to threaten more aggressive action against drug cartels in Colombia and Mexico, we do not expect any unilateral military actions against strong traditional allies with democratic governments, as such actions would have a very high cost t
President Trump’s assertions that the U.S. will “run” Venezuela for some period of time appear to be based on an assumption that Venezuelan authorities will have little choice but to cooperate with the United States, given the blockade of oil exports and the threat of further military action.
Events on the ground are moving quickly and we have limited visibility regarding how the situation in Venezuela will evolve.
In this commentary, we offer three tentative observations on what the U.S. intervention could mean for Venezuela, its neighbours and the broader hemisphere.
In the near term, the outlook in Venezuela depends on how power rebalances among key domestic players as well as the scope of U.S. demands.
The Chavista regime under Maduro was a coalition of diverse factions that survived through a mix of political repression, corrupt patronage, and illicit activities. Even with Maduro’s exit, the armed groups and criminal networks that have helped govern the country remain intact.
Maduro’s Vice President, Delcy Rodríguez, was sworn in as President with backing, or at least tacit acceptance, from the military and the state’s security apparatus. Rodriguez faces a difficult balancing act of preserving domestic support while also responding to U.S. concerns. Consequently, it is premature to say that a stable equilibrium has emerged.
The Trump administration’s ultimate objectives in Venezuela remain unclear. In our view, the Chavista regime will be more willing to cooperate with the Trump administration if U.S. demands are narrowly focused.
However, if the goals of the White House are more transformative in nature, the Chavista regime may be incentivised to resist – or simply unable to deliver without losing the support of key institutions, including the military.
Looking out over the next few years, there is an even wider range of possible outcomes. In broad terms, we would simplify this into three:
First, some form of interim government could potentially consolidate power and provide a degree of political stability as key stakeholders lay the foundations for a democratic transition.
Second, existing governing structures could be preserved but with a more acquiescent figurehead that defers to the U.S. on key issues like immigration and oil.
A third possibility would be an intensifying power struggle within Venezuela that could lead to state collapse and widespread violence.
For Venezuela’s largest neighbours, Colombia (rated BB (high), ‘negative’) and Brazil (BB, ‘stable’), trade and investment flows with Venezuela are minimal and investment stocks are low. Both Colombia and Brazil are net oil exporters and, therefore, could be impacted through the terms of trade channel.
However, the U.S. military action in Venezuela will likely have little impact on global oil prices in the short term. Moreover, ramping up Venezuelan oil production is projected to take years.
Cuba, which relies heavily on Venezuelan oil, will face perhaps the greatest near-term challenges given U.S. insistence that Venezuelan oil exports go to U.S. refineries.
We expect this action to increase pressure on Cuban authorities, but it is too early to tell how the island’s government will respond. We do not expect a similar U.S. intervention in Cuba, but the U.S. action in Venezuela alone is expected to impose significant pressure on Cuba’s economy.
Over time, a scenario of severe political instability in Venezuela could have humanitarian and security implications for the region, especially Colombia. According to the UNHCR, close to 8 mln Venezuelans have fled their country since 2014, of which nearly 3 mln now reside in Colombia.
Spiralling violence could lead to another wave of migration out of Venezuela, thereby putting stress on Colombia’s resources and infrastructure. Criminal groups may also take advantage of weakened state control to expand drug trafficking and illegal mining operations, thereby worsening security concerns in the region.
The immediate reaction of Latin American governments has largely split along partisan lines, with left-leaning governments in Brazil, Colombia and Mexico condemning the use of unilateral U.S. military force in Venezuelan territory.
Right-leaning governments in Argentina and Ecuador have applauded the removal of Maduro. Still others (e.g., Peru) have issued more neutral statements critical of the Maduro regime, but also emphasising the need to respect principles of democratic self-rule for Venezuela.
While the Trump administration has appeared to threaten more aggressive action against drug cartels in Colombia and Mexico, we do not expect any unilateral military actions against strong traditional allies with democratic governments, as such actions would have a very high cost t