On January 5, the newly-elected members of the Venezuelan national assembly began their terms, following the elections a month ago, on December 6, which saw the Venezuelan opposition Democratic Unity Roundtable (MUD in Spanish) party win a two-thirds ‘supermajority’ of 112 seats in the 167-member unicameral assembly. It was inevitable: just over 1,000 days after the death of Venezuela’s ex-President Hugo Chávez, his model of firebrand socialism, ‘Chavismo,’ has begun to run its course. President Nicolás Maduro acknowledged his party’s defeat shortly after the National Electoral Council announced the opposition’s victory. Maduro aptly articulated the result for his party, the United Socialist Party of Venezuela, as a “slap in the face, to wake up and prepare for the future.”
It would be shortsighted to interpret the elections solely as a defeat of Chavismo. The elections represented much more. They revealed once again, following Argentina’s presidential elections on November 22, how performance — not ideology – now determines the way Latin Americans vote. More than anything else, Venezuelans voted against the disastrous state of the economy, with triple-digit inflation and depleting foreign reserves, and rising levels of violence.
With this triumphant electoral victory, what should the world and India expect from the new Venezuelan government? Not much. In fact, the political deadlock and economic crisis may worsen in 2016. Tensions are rising both within the Maduro government and the MUD opposition coalition, and also between the ruling party and the MUD. It will be difficult for both sides to work together and fix the country’s myriad problems, such as the shortage of essential goods like milk, rice and toilet paper – which has been a problem since 2008 due primarily to the strict price, currency and import controls imposed by the government.
The political overturn in Venezuela has significance for India, which imports 11.4% (21.59 million tonnes) of its crude oil from the South American nation, its third largest supplier after Saudi Arabia and Iraq.
Venezuela became an important source of oil for India over the past decade, when India increased its global share to become the world’s third-largest oil importer, after the U.S. and China. Diversifying its import sources became important in the wake of the Arab uprisings, because West Asia is India’s primary source of oil. When U.S. production of domestic shale oil increased, it cut its oil imports from Venezuela by 49%, providing an opportunity for India to step in. These market-driven factors are the primary reason for India’s increasing oil imports from Venezuela. They are unlikely to change in the long or medium-term, regardless of any change in government or policies in Venezuela. Venezuela is still a significant global oil player, with the world’s largest proven reserves of oil – 299 billion barrels. Oil accounted for 95% of the country’s exports in 2014.
Recently, India-Venezuela relations have moved a notch beyond quotidian oil transactions. Companies like state-owned ONGC Videsh, Indian Oil Corporation and Oil India have invested in Venezuela’s Carabobo and San Cristobal oil fields, where oil is already being produced and exported to India and other markets. Reliance Industries has also signed a 15-year contract with PDVSA, Venezuelan’s State Oil Company, to import 400,000 barrels of oil per day.
Indian pharmaceutical companies are also present in Venezuela. They have leveraged the shortage of basic medicines in that country, which the Venezuelan Pharmaceutical Federation estimated to be as much as 70%. The implementation of much-needed economic reforms, particularly the devaluation of the local currency (the Bolivar), will impact Indian companies that do business with Venezuela, like Dr. Reddy’s, Glenmark and Claris Injectables. These companies export so much to Venezuela, that its politics have an impact on their share price. Already, the shares of Glenmark pharma and Dr. Reddy’s fell by roughly 5% and 2% shortly after Venezuela’s elections, due to expectations of a currency devaluation. Indian pharma, which exported more than $140 million to Venezuela in 2014-15, has been unable to repatriate funds from their Venezuelan subsidiaries for about two years now.
There is little the Indian government can do to resolve this issue, and the issue is likely to persist until the economy further stabilises and currency controls are lifted. Unlike China, which loans billions to Venezuela and arranges currency swap deals to safeguard bilateral transactions, India’s relationship with Venezuela is cordial but lacks the vigour to arrive at similar deals. Even if such reforms are passed by Caracas, they are unlikely to affect India or the India-Venezuela bilateral much, since our engagement is limited mostly to oil. India is a major buyer; Venezuela is a major seller. For now, that supersedes everything else.
Hari Seshasayee, formerly with Gateway House, focuses on Latin America and has a Masters in Latin American Studies from Stanford University, U.S. He works with the Confederation of Indian Industry (CII); this article contains his own views and does not represent the views of the CII.
This article originally appeared at Gateway House.