Venezuela and Russia Agree to Increase in Commercial Exchange

| Dec. 9, 2011 |

Published by Minyanville

As parliamentary elections in Russia spark mass protests and accusations of fraud, Venezuelans may be slightly anxious in their leader’s praise for the “great victory” of Russian Prime Minister Vladimir Putin’s party this week, as they look forward to their own vote in October.


The two countries have seen warming relations in recent months, with a $4 billion loan offered by Russia in October—in order to purchase Russian weapons.


This week, Venezuelan Vice President Elías Jaua met Putin in Moscow and agreed to an increase in commercial exchange between the two countries, that—despite rising tenfold since last year—has not yet reached its potential, according to Putin.


Russia’s state oil giant Rosneft signed a memorandum of understanding with Venezuelan counterpart Petróleos de Venezuela (PDVSA) to develop Venezuela’s Orinoco Belt in a $2.6 billion deal. Rosneft will hold a 40% stake in the joint venture with the remainder held by PDVSA.


The so-called Carabobo 2 project has reserves of around 40 billion barrels and the potential to produce more than 400,000 barrels per day. Rosneft will also lend $1.5 billion to PDVSA—capped at $300m per year.


Russian construction firms are to build 30,000 homes in the country while car giant Lada is looking to open up factories in Venezuela. Venezuela will offer flowers, coffee, cacao and bananas to Russia in this boost in bilateral relations.


However, it’s the political undertones of these deals that are most interesting. “We are simply doing the task of defending the fatherland from the threat of empire and its allies,” Chávez said as he visited Moscow last year.


Putin’s Deputy Prime Minister Igor Sechin—the “scariest person on earth,” according to the Russian press—is known to be incredibly anti-American and many believe that Moscow and Caracas are keen to counterbalance US influence in the region, a major mission of Chávez demonstrated by last week’s Community of Latin American and Caribbean States (CELAC) summit.


Since 2005, Venezuela has spent at least $5 billion on Russian Sukhoi fighter jets, Mi-17 combat helicopters and Kalashnikov assault rifles. The recent $4 billion loan came after the same figure was lent by Russia to Venezuela last year, on top of $1 billion in 2008.


The relationship, says Karen Hooper of Stratfor, is simply to remind Washington of Moscow’s influence. “Russia doesn’t have to do very much to keep that relationship going… I don’t think Russia expects to get paid back on these loans. And Venezuela doesn’t expect to have weapons delivered immediately anyway.”


One concern for Venezuelans is that the weapons are headed for the state-sponsored Bolivarian militias which are growing up in a number of slums across Caracas. With elections due in October next year, there are fears that a Chávez loss would bring those people to the streets.


One presidential candidate faced gunfire on the campaign trail recently, as she opened up a softball game in a slum considered a Chávez-stronghold. Maria Corina Machado, the only female candidate for primaries to be held in February, has been called “the little bourgeois girl” by Chávez, had images of herself with George W. Bush plastered across the media and even had a phone call with her mother played on state television.


The 43-year-old is by no means a frontrunner for the presidency and indeed the primaries, however, she is confident and follows in Chávez’s charisma. “We have learned an important lesson during these 13 years: with populism, militarism and communism, you get more poverty, violence and exclusion,” she told Reuters this week.


Frontrunner for the primaries is Henrique Capriles Radonski, a 39-year-old state governor who is expected to put up the best fight against Chávez in his 13 years in power.


In Brief

Venezuela’s 12-month inflation figure is now at 27.6%, as the Consumer Price Index rose 2.2% in November, compared to the previous month.


Brazilian aircraft manufacturer Embraer (ERJ) is to supply 20 aircraft for Venezuelan state carrier Conviasa, in order to increase flights to the Caribbean islands. Brazil’s BNDES development bank is helping finance the deal.