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Russia and China Practice Loans for Oil to Bolster Chavez

Taking a risk, Russia and China are loaning Venezuela billions in hope that Hugo Chavez can hold out.
By Amiel Ungar
First Publish: 10/18/2011, 6:20 AM

Russia and China learned the hard way in Libya and Iraq that oil deals signed with a despotic regime can backfire if that regime was ousted. Now they appear to be taking the same gamble in Venezuela.

Last week Russian Deputy Prime Minister Igor Sechin visited Caracas to sign a loan agreement to finance arms purchases from Russia including Sukhoi fighter jets, combat helicopters, and small arms. This comes on top of a previous $2.2 billion loan for Russian tanks and anti-aircraft missiles.

In addition to securing a backlog of orders for Russian military industries in the very competitive arms market, the loans have paved the way for preferential treatment for the Russians in oil investments in Venezuela and the Russian energy giant's Gazprom, Rosneft, TNK-BP, Surgutneftegaz and LUKoil have formed a consortium to invest 12 billion dollars in Venezuelan oil (maybe given the American oil experience in the Middle East one should call them the 4 sisters).

Venezuela would like the Russians to invest in infrastructure projects as despite her oil riches the country is plagued by constant electricity shortages and blackouts. Russia has invested in a power plant.

According to an article by Natalia Karnova in Novosti, Russian experts are divided over the wisdom of dealing with Hugo Chavez. Optimists believe that any deal signed with the Venezuelan state would be honored by a successor regime. Other experts claim that an overthrow of the Chavez regime would result in the cancellation of the Chavez era nationalizations and the return of the former Western property owners coupled with retribution against the Russian companies who cooperated with Chavez.

 There is also an interest among some Russian policymakers of using the Venezuelan relationship to twist the American tail. In this sense the relationship with the anti-American Chavez parallels Russian relations with countries that in the Bush era were labeled part of the axis of evil. By supporting these countries, Russia can exact a price from the United States in case Washington wants to exert multilateral pressure. The problem with this policy is that it can cause a backlash and Republican presidential aspirant Mitt Romney is already calling for an end to the "reset" policy with Russia.

China has lent the Chavez regime $32 billion in recent years to be repaid in oil shipments. A $4 billion loan was announced in July. As opposed to the Russian loan for weapons purchases the Chinese loan is earmarked for "social projects". As elections are slated for next year, these social projects may be a euphemism for pre-election handouts to boost the popularity of the Chavez regime particularly amongst the lower classes that constitute the backbone of support for the regime.