The latest U.S. effort to assert control over Venezuela and its vast oil reserves is part of a broader effort to secure access to natural resources and reduce its vulnerability to its geopolitical rivals — but both the short-term implications and the long-term viability of the strategy remain highly uncertain, according to National Bank Financial Inc. (NBF).
In a new report, economists at NBF say that the economic and political fallout from the U.S. action to arrest Venezuela’s president and intensify economic pressure on the country remains far from clear.
While the latest action in Venezuela follows other efforts to “limit the influence of geopolitical rivals such as China and Russia in the Americas,” the report said that it’s not clear whether U.S. actions will encourage countries in the region to align more closely with the U.S., or if this will push them further away.
“On the one hand, recent elections in Chile, Bolivia and Argentina brought into power right-leaning governments aligned with Washington. On the other hand, most nations in the region now trade more with China than with the United States,” it noted.
And while there’s no consensus on whether the latest U.S. actions will embolden China and Russia in the region, or rein them in, the report said, “We do not believe that the events in Venezuela have changed Russia’s or China’s calculations regarding their longer-term regional goals.”
It’s also not clear how the latest actions will impact Iran, which has recently been targeted by the U.S. too — whether it may become more conciliatory to the U.S., or step up its nuclear program and seek to tighten control in the face of U.S. aggression in Venezuela, the report noted.
As for the economic implications, although Venezuelan oil production has dropped sharply in recent years, greater U.S. influence over its reserves won’t enable much higher production in the short term, NBF said.
“Increasing output significantly could take years due to the deterioration of oilfields and ageing infrastructure,” it said. “Western oil companies would require security guarantees, stability and clear regulations before investing significantly.”
In the near term, the Canadian energy sector faces a risk that the U.S. could switch from using Alberta’s heavy crude to Venezuelan oil.
“This underlines the importance of Canadian producers securing pipeline access to international markets,” the report said. “… If China imports less oil from Venezuela, Canada should seize the opportunity to strengthen long-term supply ties by increasing shipments through the Trans Mountain pipeline,” it added. “This pipeline could be expanded relatively quickly to a capacity of around 900,000 barrels per day, surpassing China’s historical imports from Venezuela.”
Ultimately, the recent U.S. action is “best understood as forming part of a broader, long-term U.S. strategy to reassert influence by bringing mining and processing capacity back to the Americas…” NBF said — noting that along with its vast oil reserves, Venezuela also has huge natural gas deposits, and significant untapped mineral reserves.
“However, achieving this long-term objective while stabilizing Venezuela, maintaining regional goodwill, countering geopolitical rivals and managing domestic pressures in the run-up to the U.S. midterm elections will be a formidable challenge,” it said.
“If Trump’s involvement in Venezuela results in chaos or substantial U.S. troop deployments, his supporters, who are skeptical about foreign interventions, could respond negatively,” it said. “Historically, the party in power struggles in midterm elections, and disillusionment among Trump’s supporters would make retaining control of Congress even more difficult.”