Caracas Chronicles

In 2005, Hugo Chávez created Petrocaribe: an agreement with almost twenty countries in the Caribbean and Central America that allowed them to purchase Venezuelan oil at quite preferential prices. Through this scheme, the  Venezuelan government sold oil to its allies at terms so generous that could almost be considered a gift. While U.S. sanctions delivered its coup de grace in 2019, the scheme had been dwindling for years as global oil prices dropped, along with Venezuelan output – spiraling the country into a massive crisis. And yet, almost twenty years on, the ghost of PetroCaribe is returning ahead of the 2024 presidential elections: living on as the best source of both support from Caribbean leaders against U.S sanctions, and as a source of cash for a Venezuelan regime facing both the near certainty return of sanctions on its oil industry and the need for public spending in an electoral year.

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Petrocaribe was a massive scheme but it was also relatively simple. The Venezuelan government would allocate a monthly amount of oil for PetroCaribe members to export from Venezuela at a heavily discounted price. The recipients could then choose to sell the oil or use it to meet their domestic energy needs. Three months later –it later changed to one or two years– the beneficiary would have to make a cash payment for a variable percentage depending on oil prices. The remainder would be due 25 years later at a 1% interest rate. It also contemplated a Trade Compensation Mechanism which allowed recipients to pay back part of their debt with other products, like rice and beans, at very heavy mark-ups.

The most generous terms of the agreement were contingent on oil prices staying above 40 U.S. per barrel. In fact, in 2015 as oil prices registered a steep decline, many member states found it cheaper to purchase oil from international markets than through PetroCaribe. 

PetroCaribe played a fundamental role in the Chávez government’s foreign policy. It deepend and maintained a fairly old policy, established during the first government of Rafael Caldera, in which Venezuela sought influence over the Caribbean as a sort of middle power. But with PetroCaribe, this policy was ideologically instrumentalized to gain these countries support in organizations like the OAS and the United Nations whenever the Bolivarian revolution was put on trial.

But economically, this was a pretty sweet deal for PetroCaribe members and no one else. Countries like Haiti, Nicaragua and El Salvador gained access to billions of dollars in financing at conditions that they would have never dreamt of through the traditional avenues. In 2014, financing from this scheme accounted for 2% of the importing countries’ GDP. In fact, PetroCaribe was so massive that it turned Venezuela into Belize’s principal bilateral creditor. Meanwhile, by 2012, the PetroCaribe debt was already equal to 50% of the share of oil in Venezuela’s GDP.

And, as is the case with everything the Venezuelan government does, PetroCaribe was extremely opaque and lent itself to some massive corruption scandals. PetroCaribe-related corruption allegations almost toppled the Haitian government back in 2019 and mismanagement accusations have abounded in presidential campaigns across the region. 

Venezuela’s decades-long crisis has turned our former “partners” into a sort of “borrowing-sharks”. Sensing blood in the water, beneficiaries have taken advantage of our country’s cash flow issues to negotiate debt repayments at small fractions of the sticker price. In 2015 the Dominican Republic paid off its almost 4 billion dollar debt at a 50% discount.

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The preferential terms offered by Venezuela made its recipients extremely reliant on oil for their energy needs. Furthermore, those that fiercely supported Maduro have benefited again from debt forgiveness and other gifts from Caracas. In April 2022, for example, Venezuela forgave Saint Vincent and the Grenadines’ $70 million debt. And yet, the island’s GDP per capita was four times higher than Venezuela’s. This trade-off of inconsequential geopolitical support for free money is the stuff of dreams for any head of state. 

Evidently PetroCaribe helped the Chavista governments buy the long-term support of its beneficiaries. Countries like Antigua and Barbuda, St Lucia, St Vincent and the Grenadines, and Trinidad and Tobago have consistently voted to condemn the dismantling of democratic institutions in Guatemala and Nicaragua, but adamantly refused to do so when it came to Venezuela.

Last year, as Maduro launched his war games in the proximity of the Esequibo, it was “Comrade” Ralph Gonsalves from Saint Vincent and the Grenadines who, along with Brazil’s Lula da Silva stepped up to calm the waters. Gonsalves is so close to Maduro that he chose to seek medical treatment in Caracas back in 2022. Even today, Venezuela remains a significant player in Caribbean geopolitics.

Julio Borges and other high level opposition figures have adamantly opposed any sort of PetroCaribe debt forgiveness. Perhaps Juan Guaidó’s interim government could have benefited from taking a page out of the Chavista playbook and offer a full debt wipe out in exchange for political support from Maduros’ PetroCaribe allies. Doing so would have presented them with an interesting dilemma over whether to support the democratic forces in Venezuela, costing Venezuela a debt that Maduro has now partly forgiven anyway.

While these conditions made no sense for Venezuela financially, they proved to be an invaluable political aid when Venezuela most needed it. In 2022 and 2023 CARICOM members agreed to call on the lifting of US sanctions on the Venezuelan oil industry to allow for the resumption of the program. Leftist forums in the world ‘s ritziest cities still cite it as an example of the generosity and solidarity of the Chavista movement. 

And yet, the almost certain reimposition of sanctions of Venezuela next month have dashed any hope for a triumphant return. However, the grim prospect for Caracas’s regime presents a ray of sunshine for Venezuela’s debtors. An urgent need to build up cash reserves has brought PetroCaribe back to the spotlight. Last week Venezuela announced Hati made a one-time 500 million dollar payment to cancel its almost 2 billion dollar debt. We can certainly expect more similar announcements from Caracas in the coming days.

Ironically PetroCaribe’s biggest negative impact has actually been to its “beneficiaries”. The projects PetroCaribe was supposed to finance would have made a real difference in people’s lives; new airports, energy plants, water treatment stations, social housing, etc… However, it ended up being a massive publicly financed corruption scheme, with very little to show for it. To make matters worse, the ready availability of cheap oil hindered most of these countries’ energy transitions, which ironically is something PetroCaribe could have financed. 

Twenty years on, the specter of PetroCaribe still haunts Latin America and the Caribbean while some Caribbean leaders insist on the vital need for its return. While holding on to this hope seems futile, even the remote possibility of its return would provide a much needed lifeline. Dead or not, PetroCaribe remains one of the most important elements of the regime’s geopolitical toolbox.