Is War Coming to South America?
While the world focuses on the wars in Ukraine and Israel, Venezuela is threatening to annex a large portion of resource-rich Guyana
Failed socialist policies in the Bolivarian Republic of Venezuela destroyed South America’s most prosperous country and created economic hardship for most of the country. Hyperinflation decimated the purchasing power of ordinary citizens and led to extreme shortages of many household items, ranging from toilet paper to simple food items. A humanitarian crisis of epic proportions ensued. President Nicolás Maduro nevertheless stuck with socialism and has aligned ever more closely with China, Russia, and Iran.
At one point, the country began distributing baby rabbits in poor settlements with the hopes the rapidly reproducing animals would provide much needed protein to a hungry population. In describing the policy, The Economist noted “it makes more sense than some of Mr. Maduro’s other ideas” but went on to describe how Venezuelans were treating them like pets rather than food. The policy, like many others pursued by the government, failed to help citizens.
The situation got worse in 2017 when US president Donald Trump imposed sanctions on the Venezuelan petroleum industry that impacted a major source of Maduro’s funding. In fact, many in the world simply stopped thinking about Venezuela as a potential risk to global affairs and believed it was going to fail into the dustbin of history.
The election of President Joe Biden, however, gave the Maduro regime a unique lifeline, one that Bloomberg TV highlighted in a special report on the country called “Inside Venezuela,” to normalize relations with the United States in return for promising to hold democratic elections. During the fall of 2023, the Biden administration suspended certain sanctions on the Venezuelan oil and gold mining sectors, and simultaneously gave Americans the ability to transact in Venezuela equities and debt. The Maduro regime promised to hold an election in 2024.
A mere days after the agreement was struck, the Venezuelan opposition held a primary to select a candidate to run against President Maduro. Despite efforts by the government to undermine the process, a violation of the agreement made with the United States, more than 2.4 million votes were cast and there was a clear winner. María Corina Machado, a former lawmaker and mother of three who believes in free market principles, became the opposition nominee by securing more than 93% of the votes.
As momentum built towards a competitive election in 2024, the Maduro regime reopened a long-standing border dispute with its oil-rich neighbor Guayana. Venezuela claims that all land west of the Essequibo River belongs to them, a territory of more than 61,600 square miles that represents more than two-thirds of Guyana’s land, and is home to almost 40% of the population. And on December 3, 2023, Venezuelans were basically asked if the country should annex and claim sovereignty over the land.
There were widespread reports that voter turnout for the referendum was low, but that didn’t stop the government from claiming success. According to the Associated Press: “Long lines typical of electoral events did not form outside voting centers in Caracas.…The turnout and voter enthusiasm in the capital paled in comparison with the hours-long lines that formed outside voting centers during the presidential primary….State media attributed the lack of wait times Sunday to the fast speed at which people were casting their electronic ballots.” The government reported that more than 50% of Venezuelans voted in the referendum, with more than 95% of the ballots in favor of claiming sovereignty over the Essequibo territory.
While there are historical political reasons that Venezuela feels entitled to the territory in dispute (going back to the late 1800s), there may be economic considerations as well. Guyana is South America’s only English-speaking country and its almost 800,000 citizens are the beneficiaries of a major oil discovery. In 2015, a consortium led by ExxonMobil struck oil 100 miles off Guyana’s coast. Before production began in 2019, more than 40% of Guyana lived on less than $5.50 per day.
Once the oil started flowing, so too did money, transforming Guyana into the world’s fastest growing economy: “With $1.6 billion in oil revenue so far, the government has launched infrastructure projects including the construction of 12 hospitals, seven hotels, scores of schools, two main highways, its first deep-water port and a $1.9 billion gas-to-energy project that… will double Guyana’s energy output and slash high power bills by half.”
The oil field was a gigantic discovery, perhaps the largest ever in the Western Hemisphere. ExxonMobil now believes it may be its most productive region within its portfolio of global assets and analysts believe Guyana will become the fourth largest producer of offshore oil in the world. The Stabroek Block, about the size of Massachusetts, is reported to have more oil reserves than Kuwait or the United Arab Emirates. And the Essequibo territory includes the waters containing the oil field, meaning the owner of that land is, according to International law, the owner of the Stabroek Block.
The economic impact of securing the Essequibo territory is enormous. Some analysts, including Blackwater founder Erik Prince, suggest it could increase Venezuela’s GDP by 25%. There are likely also lots of other resources, ranging from gold to copper and bauxite, in the area.
So What?
Could the escalating tensions lead to war? Brazil, which borders both Venezuela and Guyana, has intensified its military operations on its northern border. Also noteworthy is the fact that the the leadership of the United States Army’s Security Force Assistance Brigade (SFAB) met with the the Guyana Defense Force (GDF) last week. Some analysts have suggested the situation resembles Saddam Hussein’s invasion of Kuwait that kicked off the Gulf War in the early 1990s. Others have suggested it is just like Argentinian claims of sovereignty over the Falkland Islands that led to war.
Another possible reason that the Maduro regime held the referendum that it is a unifying topic among voting Venezuelans. There are very few issues on which the current leadership and opposition agree, but the Essequibo issue is definitely one of them. According to the BBC, "Analysts anticipate massive support for the Venezuelan government's proposals, which will mobilize its electorate in a country where the Essequibo demand unites Chavistas and opponents like no other issue" (emphasis added). Interestingly, opposition leader Marina Corina Machado actually tried to prevent the referendum from going forward — likely to disrupt the popular support it would generate for Maduro.
Might the whole endeavor be an attempt by the Maduro regime to reclaim popular opinion as it heads into a contested election that the world is closely watching? Could the referendum be a strategy to generate nationalism to support his re-election? The possibility reminded me of the 1997 movie “Wag the Dog” starring Dustin Hoffman and Robert DeNiro, in which a flailing president creates a fictional war to help unify the electorate.
But in this case, Maduro might start an actual war, one that would help grow his economy while simultaneously generating nationalism and support for his election.
The downside of a military action might be the US response. What, if anything, would the US reaction be to such an invasion? There is, after all, a presidential election underway in the United States. With the Ukraine and Israel wars raging, the American population may not have the appetite to support another conflict. Ever since the disastrous withdrawal from Afghanistan, America’s enemies have seen the United States as weak and have sought to take advantage of the situation. Borders are not being respected and dictators the world over are testing American leadership. Will Maduro be the next to see how the United States will respond? Or should the United States, as the American Enterprise Institute’s Michael Rubin suggests, preemptively send American troops to Guyana to deter any potential conflict?
We must also consider Venezuela’s relationships with Russia, China, and Iran. Let’s not forget that Russian nuclear bombers have been seen in Venezuela, Russia has likely supplied missiles to Caracas, and Venezuela pledged support to Russia after Putin invaded Ukraine. In addition, Maduro is apparently in the midst of planning another visit to Moscow.
Venezuela also has strong ties with the Islamic Republic of Iran: The Wall Street Journal noted that Iranian elite forces (and Iranian arms) have been in Venezuela supporting Maduro. Iran may also be outsourcing kamikaze drone production to Caracas. And when Iranian President Ebrahim Raisi visited Venezuela in June of this year, he used the trip to highlight “the relationship between Iran and Venezuela is not a normal relationship, but is a strategic relationship between two countries that have common interests, common visions, and common enemies.” Maduro replied by confirming his commitment to advance the “construction of a new world.”
And of course, we cannot forget Beijing, which has been strengthening its relationship with Caracas for years. The Chinese have armed the Venezuela Navy with anti-ship missiles and have helped the Maduro regime sell oil to evade US sanctions. Xi met with Maduro in September of this year, the output of which was the elevation of the Beijing-Caracas relationship to an “all-weather strategic partnership.”
The Center for Strategic and International Studies recently noted how this growing friendship between Beijing and Caracas might in fact be related to the US China war:
While it’s impossible to know what Venezuela might do in the days, weeks, or months ahead, one thing is crystal clear: Venezuela is a proxy for the China-Russia-Iran axis that is eager to keep America divided, distracted, over-extended and over-entangled. It might even be in Chinese interests to keep the threat of a potential war in South America on the front burner so America has to keep an eye on (or even deploy resources to) the region. After all, wouldn’t a thinly-spread US military be less capable of deterring or engaging Chinese aggression in the Indo-Pacific?
I’ve long felt that it’s important to adopt a wide-angle perspective on looking at geopolitical developments because seemingly irrelevant dots can connect to generate important insights. So while a small country like Guyana may not seem that relevant to global affairs, developments there may be shed light on greater tensions between the West and the rest.
About Vikram Mansharamani
Dr. Mansharamani is a global generalist who tries to look beyond the short term view that tends to dominate today’s agenda. He spends his time speaking with leaders in business, government, academia, and journalism…and prides himself on voraciously consuming a wide variety of books, magazines, articles, TV shows, and podcasts. LinkedIn twice listed him as their #1 Top Voice for Global Economics and Worth profiled him on their list of the 100 Most Powerful People in Global Finance. He has taught at Yale and Harvard and has a PhD and two masters degrees from MIT. He is also the author of THINK FOR YOURSELF: Restoring Common Sense in an Age of Experts and Artificial Intelligence as well as BOOMBUSTOLOGY: Spotting Financial Bubbles Before They Burst. Follow him on Twitter or LinkedIn.
Can’t trust a Socialist mentality internationally and even in our own government. It’s all about greed and control.