The 'Chavismo' Hasn't Left Venezuela Just Yet

Venezuela's newly elected president, Nicolas Maduro.
Venezuela's newly elected president, Nicolas Maduro.

Now that Nicolas Maduro—the late Hugo Chavez's choice for successor—has narrowly won the presidential election in Venezuela, oil and gas investors can expect a perpetuation of the status quo.

In Sunday's vote, Maduro won with a very narrow 50.7 percent and a vow to continue with Chavez's "revolution," which has seen the oil industry nationalized and the state-run PDVSA energy company funding social programs while voraciously courting China and Russia.

The narrow vote will not be without its challenges. Opposition rival candidate Henrique Capriles has refused to recognize the results and is demanding a recount, though the electoral commission is standing firm on Maduro's victory.

Regardless, foreign oil and gas companies can expect more of the same in Venezuela.

For Maduro's part, he inherits a nightmare situation that will see him stuck between using PDVSA to fund expensive social programs that cost it $44 billion last year alone, or cutting social spending or allowing a rise in the price of fuel that could spark regime-threatening unrest.

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If Maduro feels compelled to reduce fuel subsidies, it could lead to riots as cheap fuel—which cannot be sustained—is one of the most crucial social benefits for Venezuelans, who pay around 6 cents per gallon for gasoline.

Maduro has inherited a "sinking ship" and does not appear to have the political capital to make any short-term changes in Venezuela's energy policy, Sam Logan, CEO of risk analysis firm Southern Pulse, told

"The main energy issue for Venezuela is that oil production is struggling, down from a peak of about 3.2 million barrels per day in 1998 to less than 2.8 million bpd now," Logan said. "One would hope that fixing infrastructure, completing refinery repairs and construction, and investing in exploration and new technology would be priorities, but Maduro will not have funds to invest unless he makes controversial cuts to social programs." Logan does not believe that Maduro will attempt to cut fuel subsidies any time soon.

A top priority for Maduro will be boosting refining capacity, the risk analysis firm says. Toward this end, Maduro may be willing to negotiate if a partner steps forward to build a new refinery, which is a goal Chavez failed to realize.

"If PDVSA fails to increase production, PDVSA President Rafael Ramirez may be replaced this year," said Logan. "One way for Maduro to keep his presidency afloat is to bring new proven wells online in the Orinoco Belt; but that will require major investment. PDVSA may need more than a minority-partner-with-a-service-contract at those fields if they want to start pumping soon."

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In the meantime, China's foothold in Venezuela remains on solid ground. China already gets 600,000 bpd from Venezuela in return for $42 billion in loans. Maduro is not likely to rock this boat with Beijing. According to Southern Pulse, Maduro will likely seek new loans from China, but they will depend on the terms and stability in Venezuela.

If that doesn't work, Maduro will have to look elsewhere—first to Russia and then perhaps to U.S. Chevron or Spanish Repsol, the latter two having only limited operations in the country.

Overall, we should expect that Maduro will pursue all-out "Chavismo."

"As president, Maduro will govern as he thinks Chavez himself would have ruled. However, Maduro probably will not begin pandering to the most radical elements of his party, PSUV, because he has little to gain from that. Maduro is not blind to the myriad problems facing the next president such as blackouts, food shortages and rampant criminal violence," Logan said.

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While it's status quo for now for the oil and gas industry, it's clearly bad news for Maduro.

"Despite Chavez's immense popularity, his memory will fade. And with time citizens who loved Chavez will blame Maduro for their struggles," said Logan. "If Maduro survives that long, the next election in 2018 will involve a much deeper conversation about the direction of the country."

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