It seems old news to say the world has turned upside down: The flagship American financial services industry is in shambles, the free-market-prone Bush administration had to beg Congress to pass one of the largest government interventions in history and before we know it, someone like Gov. Sarah Palin may literally be a heartbeat away from becoming Commander in Chief of the worlds only military superpower. And now, amidst the havoc, an unlikely alliance between Russia and Venezuela has developed in the interconnected realms of energy and defense.
There is no need to look at a map to realize how far away Russia and Venezuela are from one another. Yet in these globalized times, they are bound together by their opposition to and fear of the United States. That may be the reason why there were so many photographers and journalists at Russian President Dimitry Mendevevs recent meeting with Venezuelan President Hugo Chavez in Moscow, which was the second such negotiation in the last two months. After the meeting -- and in a world of frozen credit lines --it was announced that Russia would lend Venezuela over a billion dollars to fund purchases of Russian weaponry in the next few years, which complements the joint naval and air exercises agreed upon this summer. Moreover, the two countries signed deals that allow Kremlin-controlled energy behemoths Gazprom and Rosneft to invest in Venezuela, less than two years after Chavez nationalized all assets from European and American companies in the country.
The deal makes strategic sense for both countries, yet one of the members of this unlikely alliance is utterly unlikely to honor its terms.
Since Mendevev and his calculating predecessor-turned-Prime Minister Vladimir Putin intervened in Georgia in August, relations between Moscow andthe United States andEuropean Union have been frosty. Though many hawks argue the Western powers were not forceful enough, Russia has paid for its bellicosity with capital flight. According to Finance Minister Alexei Kudrin, the country has lost between $10 and $15 billion of foreign direct investment and its stock market is down close to 50 percent this year. Despite the global financial crisis affecting all markets, a considerable part of such downturns for energy-rich Russia can be attributed to investors fear of the Kremlins aggressive foreign policy and consequent isolation.
Enter Hugo Chavez, the boastful believer in 21st-century socialism who is eager for Russian economic and military support, just as he has been in the past with Iran and Cuba. Yet in the last year, the Venezuelan president has seen his political star begin to fade: After losing a crucial referendum that would have allowed him to remain in power indefinitely last December, Chavez has attempted to distract Venezuelans attention from the dire economic situation at home with a lot of show abroad.
He has helped leftist governments throughout Latin America, mobilized his army against U.S. ally Colombia over a petty issue and cursed at the American ambassador before expelling him from the country as retaliation for alleged U.S. intentions to bring down Evo Moraless leftist government in Bolivia. Most recently, he has been all over Russian weapons and energy deals: So cheerful was he about the first joint military exercises treaty that he announced on his weekly TV show that he would fly one of the Russian jets himself.
From an economic perspective, however, Russian problems seem miniscule compared to those faced by its newfound Latin American ally. In an electoral year, Chavez is eager to regain popular support, but the oil-producing country has contracted its growth forecasts due to lack of investment. As inflation reaches over 30 percent per year, the government has increased public setor salaries, a populist move that will only worsen inflationary pressures. Despite the sky-high oil prices, Venezuela is not able to grow its production because the government has used all the money for clientelist programs, rather than securing future investment. Unsurprisingly, less than two years after Chavezs oil nationalizations, no sound international investor is eager to pour money into Venezuela. And in an election year, this may mean the beginning of the end for 21st-century socialism.
Hence, it is highly unlikely that Venezuela will ever be able to afford the loans and war material it receives from Russia; for even in the medium term, the junior member of this alliance is financially unsound and increasingly politically powerless. Despite the threatening sound of this partnership for U.S. interests, it is clear that these unlikely allies came together out of fear: Whereas the Kremlin fears diplomatic isolation, Chavez fears his end may be fast approaching. What we should all fear is what a populist like Chavez will do with Russian weaponry at a time when he is desperate to remain in control.