President Luiz Inácio Lula da Silva’s (PT) support for Venezuela threatens Brazil’s trade relations with other countries, especially with the United States and members of the European Union (EU). These have applied sanctions against the regime of dictator Nicolás Maduro, who claims to have won the presidential elections held last Sunday (28).
This Thursday (1st), the United States government recognized the victory of the opposition candidate, Edmundo González. A note signed by the American Secretary of State, Antony Blinken, emphasized that the result endorsed by the National Electoral Council (CNE), controlled by Chavismo, giving the victory to Maduro “does not represent the will of the Venezuelan people.”
Lula has adopted an ambiguous stance regarding the results of the elections in Venezuela: while he says he still does not recognize the election, stating that he is waiting for the release of the vote broken down by ballot box, he avoids criticizing the abuses committed by the Venezuelan government before, during and after the election.
The Brazilian president even stated that there was “nothing abnormal” with Maduro’s victory in the elections, which drew criticism from the opposition.
“President Lula’s international friendships with dictators are worrying. He welcomed dictator Maduro with a red carpet,” says jurist Ives Gandra da Silva Martins, professor emeritus at Universidade Presbiteriana Mackenzie.
Lula’s decision could be seen as an affront to human rights and democracy
The CEO of the asset management company Multiplike, Volnei Eyng, believes that Lula’s support for the Venezuelan dictator could be seen by the United States and European countries as an affront to issues related to human rights and democracy, which could generate commercial and political tensions.
Exports to both regions, which account for a quarter of Brazilian sales, grew in the first half of the year compared to the same period in 2023, according to data from the Secretariat of Foreign Trade (Secex). For the largest global economy, the increase was 12%, reaching US$ 19.2 billion. For the EU, the increase was smaller, 2.1%, reaching US$ 23.3 billion. Imports, however, fell.
Eyng believes that Brazil’s relations with Latin American countries that oppose Maduro could also be affected. On Monday, the dictator announced that he would expel diplomatic personnel from Argentina, Chile, Costa Rica, Peru, Panama, the Dominican Republic and Uruguay.
“Support for authoritarian regimes can harm Brazil’s international image, affecting investors and trading partners who value democratic governance and human rights. Maintaining a diplomatic balance that focuses on both economic and humanitarian interests will be crucial for Brazil to maximize its trade benefits and maintain good international relations,” Eyng said.
Oil industry could be impacted by Maduro’s departure
One of the Brazilian companies that could be most affected by the turmoil is Petrobras. The company could face challenges operating in a volatile environment and subject to international sanctions, analysts say. In addition, the Venezuelan crisis could impact oil prices, Ariosi points out.
A report by Genial Investimentos released to clients last week, before the elections, highlighted that a possible departure of Chavismo from power would have strong repercussions on the oil industry. “The country’s economic recovery will necessarily be supported by the oil industry, given its vast reserves and the possible recovery of production lost over the last decade,” said Vitor Sousa, an analyst at the brokerage firm.
Venezuela’s production in 2005 was 3.3 million barrels per day. In 2020, it fell to 600,000. According to the Organization of the Petroleum Exporting Countries (OPEC), the country produced 874,000 barrels per day in March, despite having the largest reserves in the world. Venezuela’s reserves are approximately 300 billion barrels, according to estimates by the British oil company BP.
Brazil, with proven reserves of 15.9 billion barrels, produces just over 3.4 million barrels of oil per day, according to the most recent data from the National Petroleum Agency (ANP) in June.
Another impact of a political change in Venezuela for Brazil would be less pressure on inflation from oil prices. The brokerage firm points out that Venezuela would have the power to at least alleviate the supply problem faced by the planet, given the underinvestment made by the exploration and production industry in recent years, and regain its position as a production center.
Venezuela has lost relevance as a trading partner of Brazil
Venezuela is a minor partner in Brazilian trade relations. The trade flow (the sum of exports and imports) was US$ 752.5 million in the first half of the year, according to the Secretariat of Foreign Trade (Secex). The numbers remained stable compared to the same period in 2023.
Between January and June, Venezuela was only the 46th largest destination for sales of Brazilian products abroad, behind countries such as Bangladesh, Oman and Algeria. The main items sold there are food preparations, soybean oil and cane sugar.
As a supplier of items to Brazil, the position is worse: 61st, behind Uzbekistan, Ghana and Puerto Rico. The main products purchased are urea, aluminum in raw form and methanol.
Business between the two countries was once more significant. Data from Secex shows that the peak of trade relations between the two countries occurred in 2013, when dictator Hugo Chávez died and Maduro came to power. That year, trade flow reached US$6 billion.
Venezuela was then the seventh largest destination for Brazilian exports. The most sold products were beef, live cattle and aircraft. Conversely, in 2013, it was the 35th largest Brazilian supplier. The most purchased items were light petroleum oils, petroleum coke and crude petroleum oils.
Trade flows between the two countries have been affected by the sharp deterioration in Venezuelan economic conditions. According to data from the International Monetary Fund (IMF), since 2013, the country’s GDP has plummeted by 70.5%, with seven consecutive years (2014 to 2020) of decline in economic activity.
Hyperinflation under Maduro has increased poverty in Venezuela
Another problem was hyperinflation, which reduced Venezuelans’ purchasing power and increased poverty. For five consecutive years, from 2017 to 2021, the consumer price index increased by more than 500% per year. The peak occurred in 2018, when it reached 130,000%. For this year, IMF projections indicate an average increase of 160% in consumer prices.
A survey on the living conditions of Venezuelans, released in March by the Andrés Bello Catholic University (UCAB), shows that seven out of ten households in the country presented some type of vulnerability. The most common are in services provided to the population, such as health, education and social protection.
The National Survey on Living Conditions (Encovi, in its Spanish acronym) shows that the poverty level stopped decreasing last year. Between 2014 and 2019, hyperinflation and shortages had profound impacts on society. The peak was recorded in 2020, with 92.9% of households in this situation.
A fragile economic liberalization took place between 2021 and 2022, timidly improving the numbers. According to Ucab, last year, 82.8% of households were in poverty. The protests against Maduro’s regime are led by the poorest, who for a long time were a stronghold of Chavismo and the dictator.
“Since 2013, Maduro has led the country through a severe economic crisis resulting from a combination of falling oil prices, corruption, mismanagement and international sanctions. The crisis has resulted in massive inflation and food shortages, with the majority of the population facing the choice of living in poverty or leaving the country,” wrote Rebeca Hanson, assistant professor of Latin American studies, sociology and criminology at the University of Florida (USA), and Verónica Zubilaga, associate professor of sociology at Simon Bolivar University (Venezuela) on the website “The Conversation”.
Swiss Capital Investment’s chief strategist, Graziela Ariosi, points out that Venezuela’s economic mistakes serve as important lessons for Brazil, highlighting the need for prudent economic policies, economic diversification and a stable business environment.
“The situation in Venezuela also highlights the importance of careful and strategic diplomatic positions to avoid negative impacts on trade and economic relations,” emphasizes Ariosi.
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