Crystallex International

Good friends

It makes sense for the Kremlin to send Igor Sechin to the funeral of Hugo Chávez, the president of Venezuela, who died on Tuesday after a two year battle with cancer.

Rosneft’s boss (pictured left with Chávez in 2011) has played a key role in forging close ties with Venezuela that have landed Russia with lucrative oil and arms deals. But after bidding farewell to the Bolivarian strongman, Sechin will have the much trickier job of ensuring the relationship does not unravel.

Sechin heads a Russian delegation that includes minister of industry and trade Dmitry Manturov, and Sergei Chemezov the president of Rosteknologiya, the state industrial conglomerate, that will attend Chavez’s funeral in Caracas on Friday.

Sechin, was the Russian official “most actively involved in bilateral cooperation with Venezuela,” said Dmitry Peskov, spokesman for Putin. “We hope that the Venezuelan leadership will preserve the constructive agenda of our relations,” he told reporters on Wednesday.

Rosneft has not revealed Sechin’s Caracas agenda although it is thought the Rosneft chief executive will have meetings with Nicolas Maduro, Venezuela’s vice president and Chávez’s anointed successor.

According to Venezuelan law , an election must be held within 30 days of the president’s death. Sechin will be cheering for Maduro as the guarantor of Russia’s Venezuelan interests.

Historic ties between Russia and Venezuela were placed on a new footing after the ebullient Chávez visited Moscow in 2001 and struck up a rapport with Putin even joking publicly about the new Russian president’s passion for judo. Both men professed to support democracy, but not the kind of democracy followed in the west. They issued a
joint declaration calling for a multi-polar world and signed a defence
cooperation pact.

In the early years the relationship was to a large extent about “political posturing, ” says Alex Nice, senior analyst at GPW, the London-based political and business risk consultancy. Putin and Chávez found common ground “calling for a world where the US no longer called all the shots. ”

Escalating tensions between Venezuela and the US played into the Kremlin’s hands and paved the way for Russian companies to pick up huge arms and oil contracts. Sechin, a fluent Spanish speaker, has thrived in the role as Venezuelan deal-fixer and was even pictured on a recent trip to Caracas sporting a Chávez T-shirt.

After Washington imposed a weapons embargo on Venezuela in 2006, Chavez stepped up orders for Russian arms. Moscow obliged extending soft loans to Venezuela to facilitate weapons deals.

In all Russia has supplied about $5bn worth of armaments to Venezuela and has orders for about the same amount again, says Viktor Semenov, Latin America expert at the Russian Academy of Science. In addition the Russian defense ministry has a contract to service military equipment for other Latin American clients at a base in Venezuela.

Venezuela is facing is difficult economic times that could put the Russian defence deals at risk. “Russia will continue to supply as many arms as Venezuela can afford,”says Semenov.

Both Russia and Venezuela became infected by resource nationalism after world oil prices soared after 2000. While Putin, backed by his close ally Sechin, bolstered Rosneft’s reserves at the expense of privately-held oil companies, Chávez took matters further, trashing oil contracts held by Exxon and Conoco after the US oil majors refused
to renegotiate terms.

Again Russia benefited from Chávez’s misdemeanors by scooping up oil deals. In the largest of these a Russian consortium headed by Rosneft will develop fields previously operated by US majors in Venezuela’s Orinoco belt. Visiting Venezuela last year , Sechin said the group working in a partnership with Petroleos de Venezuela, would invest $38bn in the area.

The deal may yet prove untenable. Chávez used Petroleos de Venezuela as a piggy bank to support his 21st century socialist experiment, starving the state oil company of funds. The result , says Vladimir Milov, director of the Moscow-based Institute for Energy Policy, is
that Venezuela’s oil production has fallen to 2.4m barrels a day, about 25 per cent less than when Chávez came to power fourteen years ago. “It is clear that something will have to change,” he told the Russian newspaper Izvestiya on Thursday.

Milov believes that if Chávez’s political opponents win the election they will invite US companies back to Venezuela to help restore oil production. Even if Nicolas Maduro hangs on to power there is no guarantee that Venezuela will continue on the course set by Chávez in the oil sector.

Most analysts agree that China, which has lent Venezuela about $46bn in recent years, will be Russia’s main competitor in the Latin American country following Chávez’s demise.

Chinese oil companies have more experience drilling offshore than Russian companies and could get ahead of Rosneft in the race for Venezuelan upstream deals, says Milov.

China is investing in telecoms, space, construction and agriculture in the country, says Semenov. “Russia only has arms and oil.”