It looks like today may have been Venezuela’s day of reckoning. Suddenly, the joint forces of diplomacy, finance, and, yes, even military might, aligned against the drug trafficking kleptocracy of the Maduro regime.

Here’s what happened just today:

1. That EU issued sanctions on Venezuela. That throws a real wrench in the works of next week’s renegotiations of $160 billion in sovereign and oil company (PDVSA debt). Venezuela’s VP, the sanctioned drug kingpin and Hezbollah bag man Tareck el Aissami, has beckoned international bond holders to Caracas for a face-to-face negotiation. That was a tough pill to swallow to begin with, as very few banks want to run afoul of the US Treasury Department. Now, with the EU sanctions, their operating space has shrunk considerably. Sure, there are a few, but the remaining options will be deeply unsavory and take more than one pound of … what flesh exactly?
2. ISDA was asked to rule whether PDVSA is in default. If they rule yes, that’s goodbye Citgo, oil tankers, refineries, foreign bank accounts. As I wrote in the Daily Beast, back in April, that opens up a whole new can of worm: Citgo is mortgaged to Rosneft, presenting a CFIUS imbroglio. The US will not let several refineries, nine pipelines and one-quarter of its gasoline distribution network on US soil fall into Russian hands. Soon Maduro will be left ONLY with drug money to fund his narcoregime, and that doesn’t bode well. Yes, the IMF will save Venezuela, but regime change is a pre-condition: the IMF has very clear conditions for its loans and has already stated it does not expect the Maduro regime to be willing to abide by them or be sufficiently motivated or competent to instantiate the requisite institutional changes.
3. Argentine president Mauricio Macri urged the US to stop buying Venezuela’s oil, telling the Financial Times that he is certain other Latin American leaders would back the decision, because: “Things have gotten worse and worse. Now, it’s really a painful situation. Poverty is going up every day, sanitary conditions are getting worse every day.”
4. The militaries of the US, Peru, Colombia and Brazil are doing joint exercises in the Brazilian jungle 600 km from the Venezuelan border in preparation of a humanitarian intervention, according to Venezuelan journalist Daniel Blanco. Blanco works between Caracas and Lima and is frequently embedded in Latin American military operations, so he has credibility on the issue.

Sure, Russia and China could continue wading in with more money, but they have lost some of their enthusiasm: China has already come calling to Venezuelan opposition leaders to play nice. They are starting to wonder whether perhaps they are more likely to get back the circa $60 billion they are owed if a more competent crew were put in place.

ISDA request on PDVSA debt

 

Here are a couple of interesting (and alarming) charts from our Predata signals, of interest to our financial services client:

Venezuela country volatility Predata signal

Security Society Volatility Venezuela Predata signal

Next events to watch:

1. Does ISDA say: “yes, it’s a default”?
2. How do those November 13th debt renegotiations go in Caracas?

Watch your Twitter feed and pass the popcorn.

For those of us who have long tracked Venezuela, we see the writing on the wall: the beginning of the end of the Maduro regime. It won’t be immediate; it will be messy and painful for 30 million Venezuelans, most of whom are desperate for regime change, but the tide will turn in 2018.

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