Oil-for-loan deals between Beijing and Caracas are preventing American sanctions from having their full effect on Venezuela’s economy, according to David Malpass, U.S. treasury under-secretary for international affairs.

“Most of the blame for Venezuela’s economic collapse and humanitarian disaster falls squarely on Venezuela’s rulers, but China has been by far Venezuela’s largest lender, supporting poor governance,” Malpass said at the Center for Strategic and International Studies, Bloomberg reported. “The result will raise the ultimate cost to the international community once Venezuela returns to democracy and economic reforms.”

Because China expects payment in barrels of oil, the dollar amount of the loans are difficult to ascertain. “This has the effect of masking the exact amount of payments that China made to Venezuelan officials and that Venezuelans are expected to make to China in the future,” Malpass added. “China offers the appearance to an attractive path to development, but in reality this often involves trading short-term gains for long-term dependency.”

China also has an open invitation to join the Community of Latin American and Caribbean States, which the Asian giant could exploit for its One Belt, One Road initiative aiming to bring large developing countries together, economically.

Despite assistance from Beijing, Venezuela is still suffering economically. The ongoing crisis in Venezuela has caused output to fall and reliable customers to find new supplies. Cuba recently signed a deal with Algeria to increase the amount of oil products it imports from the North African country because its main supplier, Venezuela, is struggling to stay afloat. The country sitting on the world’s largest oil reserves saw its crude oil production drop by 649,000 bpd in 2017—a 29-percent annual plunge—and probably the worst loss of oil production in a single year in recent history.

The International Energy Agency (IEA) said in its monthly Oil Market Report last week that “Declines are accelerating in Venezuela, which posted the world’s biggest unplanned output fall in 2017.”

By Zainab Calcuttawala for Oilprice.com

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