There is no question that Maduro is doing all he can to fight to hang on to power. No one knows when (or some still say if) there will be regime change, but we believe the end is closer than most expect because Maduro has dwindling financial assets and cash flow to fund his fight. We outlined this dwindling financial position in our Feb 6, 2019 blog “Part 1 – Maduro Looks To Have Pulled And Whiffed On His 3 Big Levers To Stay In Power” [LINK]. Today’s blog is a followup. There will be an oil supply interruption in any regime change. No one knows how long that will last, but today’s blog outlines why we see that interruption period being minimized given the domestic conditions and the US led international financial support to give Guaido a chance to implement his restoration plan. Most importantly, Guaido recognizes that PDVSA has to be the engine to fund his restoration of Venezuela. Ultimately, the length of oil supply interruption will depend on Guaido’s ability to attract big international oil capital and we believe Guaido has a game changer to do so. The key reason for today’s blog was an overlooked Feb 4 Bloomberg story that noted this game changer – Guaido says PDVSA doesn’t have to be >50% in any joint venture. By removing the >50% rule, Guaido is eliminating one of the two key reasons why big international oil companies avoid some countries – they don’t want the NOC to be operating and have control by having more than 50%. The other big holdup is always government take and we have to expect that Guaido will be having a reasonable government take in light of his need to get oil production growth to provide cash flow. Guaido may not be able to stop an oil supply interruption, but he and Trump are doing all they can to minimize the length of an interruption.
Its been a bad week for Maduro in his bid to stay in power. And we believe the end of his regime is going to happen very quickly, likely within weeks and it could even be within days. We won’t be surprised if we woke up any day now to read he has left the country. We thought it was inevitable for Maduro to leave as we saw his financial assets/reserve crumble. That was the thesis in or Jan 13, 2019 Energy Tidbits memo “Are Dwindling Gold Reserves The Timing Catalyst For Venezuela Regime Change?” [LINK]. We looked at Maduro having 4 (3 big ones and 1 smaller levers) he had to pull on to give him a chance to stay in power, to give him money so he can keep the army onside and have them believe he can survive. The 3 big levers were offshore gold/cash reserves, PDVSA/CITGO cash flow, and Russia. The 4th and smallest was China. These are the major levers that Maduro has tried to call on to give him cash to keep the country afloat and the army behind him. Its all about keeping the army supporting him because once they leave, it is over. He has pulled on his 3 big levers to get cash to fund his fight to stay in power and he has whiffed thereon, and he may be down to his 4th (and smallest lever) and we believe that one will also strike out if it hasn’t done so already. He has effectively struck out and the only question will he walk back to the his or the opposition’s dugout. Part 2 of this blog series will highlight how we see Venezuela under Guaido, in particular the impact on oil markets, which seem to be different than other views.