For The First Time Since 2014, Venezuela’s Economy Will Grow

Although the political, social, and economic crisis in Venezuela is as current as it was at least seven or eight years ago, it seems that this last item would begin to grow by 2022. Several international organizations have indicated that, although the rebound would not even reach 2% of its Gross Domestic Product (GDP), it is the first time since 2014 that growth could be reported in the economy of that country, so it would be fair to “celebrate” for it.

According to the Economic Commission for Latin America and the Caribbean (ECLAC), at the end of 2021, Venezuela would only have a 4% drop in its GDP, 26% less than what it had in 2020 when factors such as the oil blockade by the United States and the health crisis derived from the COVID-19 pandemic caused the Venezuelan economy to fall at least 30 percentage points.

However, the same organization assured that by 2022, the South American country would not close with red numbers, showing a rise of 1.0%, the best figure in recent years.

In his report “The Paradox of Recovery in Latin America and the Caribbean. Growth with persistent structural problems: inequality, poverty, little investment, and low productivity”, ECLAC explains in a general way that: “Growth in 2021 reflects the effect of a low comparison base due to the fall of 2020 and the positive effects of higher world growth that translates into higher external demand, particularly from the United States and China, and the increase in the prices of raw materials that, together with the opening of economies and the relaxation of physical distancing measures have led to a reactivation”.

Of course, this "increase in the prices of raw materials" had a positive influence on Venezuela, taking into account the importance of oil for that country, which, according to experts, has been one of the factors that have been taken into account for economic growth projections in 2022.

According to the Organization of Petroleum Exporting Countries (OPEC), of which Venezuela is a part, in 2019 this country had a proven crude oil reserve of at least 303,806 million barrels, which makes it the most oil-rich territory in the country. region.

Thus, according to numbers revealed by the same organization in its July bulletin, Merey, which is the name given to Venezuelan crude, has been on the rise in recent months. At the end of May, the barrel of oil in that country reached a peak of 49.13 dollars per barrel, a growth of 306% in relation to the same month of 2020 when this product cost no more than 16 dollars each.

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Theory or reality?

It should be remembered that since January 2019, during the government of former President Donald Trump, the United States imposed a series of blockades on PDVSA, the Venezuelan state oil company.

As explained by the former US Secretary of the Treasury, Steven Mnuchin, the sanctions were born after the need to create pressure on the Nicolás Maduro regime in Venezuela, and thus be able to force a peaceful transition of power in which the interim president Juan Guaidó could take the reins of that country.

Now, Maduro has a strong ally, which after the pandemic became even more powerful: China. According to Patricia Garip, senior contributing editor of Argus, an organization specialized in price evaluations and analysis of international energy markets, China is currently Venezuela's most important partner, being the country that imports the most its oil.

“We are talking about at least 400 thousand barrels per day (b / d) destined for the Chinese market […] Although there are other crudes of similar quality, such as Cold Lake from Canada or Basrah Heavy from Iraq, Venezuelan crude tends to be the most economical option, because the US sanctions force the state-owned PDVSA to sell its crude at significant discounts, ” Garip said in an internal interview with Argus.

However, it seems that this "idyll" with China could come to an end, as the expert explained in the same conversation. It should be remembered that on May 14 of this year, the Chinese Government announced new taxes on intermediate products related to oil, such as light cycle oil or diluted bitumen, the latter being the name under which China buys the Venezuelan Merey. The decree came into effect on June 12.

"The new tax on diluted bitumen of 1.20 yuan per liter (equivalent to 30 dollars per barrel) essentially eliminates the sales margins of Venezuelan barrels in the Chinese market," Garip added.

The outlook is clear: with the Merey tax, Venezuela would no longer see gains of $ 49.13 per barrel, as it was doing in May of this year, but this figure would decrease to only 19.13. In short, it would be almost equal to the prices of May 2020, having a monetary setback of almost a calendar year.

As expected, both Maduro and his allies in the Venezuelan government feel betrayed by China, although they know that they cannot afford to widen the gap with that country either.

Currently, there is also a debt of more than 10 billion dollars that Venezuela still owes to China, so if it cannot continue to send oil, the debt would grow and with it the interest, which would represent more problems for Maduro and his attempt to improve the Venezuelan economy by at least 1%.

At the moment, according to Patricia Garip's explanation, "the hope in Caracas is […] to persuade its ally in Beijing to relax the quotas of independent refiners to keep the canal open." Creating an economic conflict with the Asian giant would represent the beginning of the end of a relationship that is necessary for the Chavista regime to continue in power.