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A Potential Opening for U.S.-Venezuelan Relations

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Summary

A recent meeting between the chief diplomats of the United States and Venezuela could signify a gradual end to their countries' estrangement. Venezuelan Foreign Minister Elias Jaua and U.S. Secretary of State John Kerry met on the sidelines of the Organization of American States summit in Guatemala on June 5 — the first time senior officials from the countries have met since 2009. Relations between Venezuela and the United States cooled dramatically in 2002, when Washington publicly supported a coup attempt against former Venezuelan President Hugo Chavez. Caracas continued to antagonize Washington in part because hostile rhetoric proved useful in propagating the nationalist ideology espoused by Chavez.

But Chavez's death in March changed Venezuela fundamentally, and newly elected President Nicolas Maduro is struggling to live up to his predecessor's legacy. For now, economic interests will drive Washington and Caracas to at least talk about resuming diplomatic relations, although several issues will prevent them from reconciling entirely.

Analysis

The most pressing issue is the fact that the United States has not recognized Maduro's victory in the April 14 presidential election. The United States supported an audit of the results, which were hotly contested by the opposition, and Washington is unlikely to announce any decision on recognizing Maduro until it is complete. (As of June 3, it was roughly 95 percent complete.)

Still, the meeting with Jaua shows that despite its misgivings about the election, the United States is open to a relationship with the Maduro government. Moreover, after the meeting Kerry announced that the two countries would reopen ministry-level dialogue, explicitly opening the possibility of reinstating ambassadors.

Antagonism and Detente

Relations have been tense for the past decade, but the hostilities were relatively one-sided. The United States does not really benefit from antagonizing Venezuela, though that has not always been the case. For its part, Caracas benefited from anti-U.S. posturing because it helped ingratiate Venezuela with countries such as Iran, China and Russia that also had volatile relations with Washington. Promoting itself as a major oil exporter that opposed the United States also helped Venezuela's image in the eyes of these countries.

But now, both countries would benefit from a detente. Despite its small size and weak military, Venezuela is a relatively powerful player in the Caribbean basin and a country of geopolitical interest to the United States. Improved relations with Venezuela would relieve some tensions between the United States and other countries in Latin America and the Caribbean.

Venezuela maintains a robust trade relationship with the United States, totaling $56.6 billion in 2012. The United States imports roughly 9 percent of its oil from Venezuela. For its part, Venezuela imports manufactured goods and refined petroleum products from the United States. So while cooperation has been limited and rhetoric vitriolic, the relationship is already mutually beneficial, and there would be significant costs associated with severing ties completely.

In Need of Capital

For Venezuela, there is a more pressing need at hand: Attracting international capital and direct investment in its petroleum sector. A series of nationalizations and years of draining funds from national oil company Petroleos de Venezuela have left the energy sector dilapidated and underfinanced. Oil production is down from its peak, and for technical reasons oil will probably become increasingly difficult and more expensive to extract, export and refine. Maintaining high levels of production is a national priority and a political necessity for Maduro's fledgling government.

In order to achieve production gains, however, Maduro will need capital and technology that Petroleos de Venezuela cannot afford. Venezuela has negotiated billions of dollars worth of loans from the Export-Import Bank of China, the China National Petroleum Corporation, Russian oil company Rosneft, energy services company Schlumberger and U.S. supermajor Chevron. But to turn the sector around will require long-term capital commitments from oil majors with the ability to lead their own exploration and production projects, independently or in collaboration with Petroleos de Venezuela.

After a decade of routinely using nationalization as an economic management tool, the Venezuelan government has scared potential investors. A better relationship with the United States is not the solution to Venezuela's public relations problem regarding foreign investment. Indeed, there are significant domestic political constraints on Maduro's ability to change the system built by Chavez. But it would be a step in that direction, and the meeting between Jaua and Kerry may be an indication of a more significant shift to come in Venezuela's economic policy.

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