(Stop me if you’ve heard this one.) Venezuela is so broke…

HOW BROKE ARE THEY?

They’re so broke that they’re looking to sell their nationalized oil company to the private sector.

Okay, I won’t be giving up my day job for a career as a standup comic anytime soon, but this really isn’t a joking matter anyway. Back when Hugo Chavez and the Venezuelan Socialist Party took over that country, one of Chavez’s early moves was to finish locking down and nationalizing the nation’s oil industry. (Nationalization had originally begun under the presidency of Carlos Andrés Pérez back in the 70’s, but Chavez cemented state control of all assets.) It was a blow to their already crippled private sector, but it provided admirable income for the socialist regime for many years.

Now, as most of you are doubtless aware, the country has effectively been driven into bankruptcy by the corrupt administration of Nicolas Maduro. The only thing propping them up lately has been the Russian military and regular inputs of cash from China. Unfortunately for the Venezuelan people, that stream of revenue is probably coming to an end. The national oil company, Petroleos de Venezuela SA (PDVSA), is totally underwater. Maduro is obviously desperate because he’s been in talks with several international oil companies to discuss selling control of the operation. And one of the interested buyers is a Russian outfit, to the surprise of nobody. (Bloomberg)

Facing economic collapse and painful sanctions, the socialist government of Venezuelan President Nicolas Maduro has proposed giving majority shares and control of its oil industry to big international corporations, a move that would forsake decades of state monopoly. Maduro’s representatives have held talks with Russia’s Rosneft PJSC, Repsol SA of Spain and Italy’s Eni SpA. The idea is to allow them to take over government-controlled oil properties and restructure some debt of state oil company Petroleos de Venezuela SA in exchange for assets, according to people with knowledge of the matter. The proposal, which could offer a balm to the country’s disintegrating oil industry, is in early stages and faces major obstacles.

Venezuela still sits on one of the richest deposits of sweet crude oil in the world, but it’s not doing them much good currently. Maduro has robbed PDVSA blind and failed to fund the required maintenance and staffing to keep it functional. The company once produced more than 3.5 million barrels of oil per day. They currently struggle to produce even half a million and most of that has to go to pay the country’s mounting debts.

While the report indicates that Venezuela has been in talks with oil and gas companies from Spain and Italy as well, Russia is the most likely and obvious potential buyer. That’s because of a combination of factors. First of all, the Russians are already on the ground in the country and Maduro owes them a lot of money. But also, current sanctions forbid companies from most western nations, including the United States, from doing business with PDVSA or anyone else in Venezuela without a waiver. Russia can and probably would ignore those rules if it allowed them to seize control of Venezuela’s oil.

Further complicating matters is the issue of the Venezuelan constitution and laws requiring the oil assets to be the property of “the people.” Of course, Maduro has already rewritten the constitution to suit him and he controls the Supreme Court and his new legislative body so that probably won’t slow him down much.

Vladimir Putin might want to be a bit cautious here, however. There’s a significant risk in entering into any sort of business deal with a socialist nation like Venezuela. Maduro’s government is weak and impotent now, but if they somehow stabilize in the years to come, things could change. The socialists could, at some point, simply declare that the oil resources and assets are being taken back by the government without compensation. That’s what they did in the 70s and 90s, and there’s no reason to believe they wouldn’t do it again if they felt they could get away with it.