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A graph comparing Venezuela's GDP per capita with the average price of crude oil.
The Graphic Truth: Economic turmoil in Venezuela
Venezuela has the world’s largest oil reserves but a combination of corruption, mismanagement, and tough US sanctions since the Maduro regime came to power in 2013 has meant that the petrostate has failed to benefit from its vast reserves of liquid gold.
While high oil prices under the Chavez regime in the early 2000s gave a boost to Venezuela’s middle class, US sanctions first imposed in 2006 – and significantly ramped up under the Obama and Trump administrations – have cut Caracas off from US financial systems.
Economic hardship is rife, with a staggering 50% of people living in extreme poverty. Pervasive hopelessness has also led to one of the worst migrant crises in the world.
In a bid to offset a global energy crisis in 2022 as a result of Russia’s war in Ukraine, the Biden administration began lifting some sanctions on the Venezuelan oil sector. So how are things faring? We look at GDP per capita and corresponding oil prices since 1999.A woman cooks by a candlelight during one of the frequent power outages in South Africa.
South Africa struggles in the dark
Things are dark in South Africa right now, both metaphorically and literally. Though not new, rolling blackouts have worsened in recent months, disrupting every aspect of daily life. With the situation near breaking point, President Cyril Ramaphosa declared a state of disaster in recent days, which allows the government to bypass bureaucratic hurdles to get stuff done.
Why are things so dire in Africa’s most industrialized country, and what’s the government’s plan – if any – to fix it?
Lights out. The current crisis is centered largely on South Africa’s collapsing state-run electricity grid, which relies on coal for 85% of its generation capacity. Blackouts and load shedding occur when demand outstrips supply, forcing the utility company to cut access – which has been happening regularly for years.
Meanwhile, Eskom, the state-owned energy company, which runs 90% of the country’s electricity, has long been plagued by government corruption, cronyism, and mismanagement – most of which occurred under President Jacob Zuma, who is now facing a host of corruption charges. Consider that since 2007, no fewer than 14 people have been tapped to lead the energy agency, and they have left Eskom in rough shape, with the body now $26 billion in the red.
“Over the last 15 years there’s really been a deterioration in being able to add generation capacity to the national grid – or adding new sources of capacity whether that's nuclear or renewable energy,” says Eurasia Group expert Ziyanda Stuurman.
While the problem spans the African National Congress’ time in power, which has been plagued by corruption scandals, energy access has long been an issue in South Africa. “The problem stretches back to South Africa's history of apartheid,” Stuurman says, adding that “electricity provisions were never made available to the majority of citizens in the country.”
What’s more, as a result of political meddling and cumbersome bureaucratic hurdles to approving new contracts, some South Africans are left in the dark for up to 15 hours a day. Indeed, things have gotten so bad that morgue operators say that bodies are decomposing faster than they can bury them.
There are also growing concerns over food security. Case in point: South African poultry farmers were forced to cull 10 million chickens because abattoirs couldn’t function amid constant power cuts.
Clearly, the failing power grid is having a big impact on domestic productivity. But economic output is also being curtailed by yet more crumbling infrastructure: the railway system.
Road to nowhere. The state-run freight railway system (never a sexy topic) is also in tatters. The system, called Transnet, is in such bad shape due to years of government underinvestment and corruption that companies are having to turn to alternate transport systems – like trucking goods to Mozambique. Indeed, one forensic auditor told a government commission that “Transnet accounted for 72% of all irregularly awarded contracts” during Zuma’s time in power.
This dysfunction of the freight system is a catastrophe for South Africa’s robust mining sector, which is having a rough time getting goods to export terminals on the coast. And as metals, gems, and minerals account for most of South African exports, the state’s failure to fix the transport system is also having a downward effect on the entire economy. According to one South African academic, lost coal exports as a result of transport delays cost South African companies around $4.7 billion last year, while South Africa’s central bank now estimates that the economy will grow by just 0.3% in 2023, down from 2.5% in 2022.
But why is the government so hesitant to give up any control of these state-owned enterprises and let the markets do their thing? “Given the history of apartheid and particularly the neglect of poor Black and working-class communities in South Africa,” Stuurman says, “there’s a fear that inequality would be exacerbated if and when privatization of electricity generation and supply comes into force.”
So what’s the plan? The government says that dealing with the energy crisis is priority number one and has set out steps to reduce load shedding. This includes cutting red tape to attract more private investment by reducing the timeframe for authorization of new contracts to 57 days, down from more than 100. However, the problem is, as Stuurman points out, that there are now at least four different ministries charged with overseeing power grid reform, which hardly consolidates the process.
The geopolitics of it all. Given that Africa is a frontier in the ongoing rivalry between the US and its rivals – Russia and China – Washington is vying to play fixer in South Africa, having previously committed, along with European allies, $8.5 billion to help South Africa's green transition. Still, Pretoria needs much more than that to get itself out of its deep hole.
Russian President Vladimir Putin shakes hands with Pakistani PM Shehbaz Sharif during a meeting on the sidelines of the Shanghai Cooperation Organization summit in Samarkand, Uzbekistan.
Russia and Pakistan might cut unprecedented oil deal
Cold War rivals Russia and Pakistan are negotiating an agreement for the Russians to start selling cheap oil to energy-starved Pakistan in March.
This will make Islamabad yet another Asian customer of Russian crude at a time when Moscow’s cash inflows are limited by a G7/EU oil cap and sanctions. Also, considering Pakistan is dead broke, payments might be made through a “friendly” country, presumably China – a power play for Beijing, whose yuan will be used for the transactions, giving the currency more sway as an alternative to the US dollar.
How is this deal going to affect American interests in the region? And why is Pakistan, which wants to balance its ties with Washington, giving business to the Russians perhaps through China?
First, some history. Although the agreement isn’t finalized, it’ll be geopolitically novel when it is because Pakistan is an unlikely destination for Russian business. Unlike India, Islamabad and Moscow have had no commercial ties for decades.
Considering Pakistan spent the Cold War spying on the USSR and/or attacking its troops in Afghanistan (the Soviet Union paid back in kind by arming India, Pakistan’s arch-rival), the two sides haven’t exactly behaved like partner-material.
Enter China. Pakistan and China have been “Iron Brothers” for decades. Even though Islamabad was a non-treaty US ally until not too long ago, the Pakistanis and the Chinese have always remained “all-weather friends.”
However, as India settled into the role of becoming America’s strategic partner in the region, displacing Pakistan as the preferred South Asian ally over the last two decades, the Chinese encouraged Pakistan to open up to the Russians, and vice versa. Now, a once hesitant Islamabad doesn’t just want Russian oil, but also natural gas, weapons and more. Still, Islamabad wants to stay aligned with the American camp.
Why is Pakistan doing this? Islamabad’s energy bills make the biggest chunk of its imports. Cheaper oil from Russia will obviously help its escalating balance of payments crisis and ballooning trade deficit.
But the biggest issue is with dwindling foreign exchange reserves. A year ago, Pakistan had $17 billion in the bank. Today, foreign reserves have dwindled to $4.3 billion, which will pay for less than a month of imports.
To manage the dollar crunch, Pakistan could use the Chinese yuan in a swap with China to pay Russia once the oil flows in (it expects to get 35% of its annual crude oil imports from 70 million barrels of Russian crude), putting its import-regime firmly in the China-Russia camp.
Pakistan thus finds itself between a rock and a hard place: It needs the cheap Russian oil but also wants to avoid antagonizing the US and its friends in the Gulf, Pakistan’s main energy suppliers — especially considering that Islamabad has been negotiating bailouts with the Washington-backed IMF and deferred oil payments from the Saudis and the Emiratis.
While the Pakistanis defend their position by citing neighboring India as an example of a country that buys Russian oil even as it tilts towards the US and deals with the Gulf states, Islamabad is in a very different position compared to New Delhi because Pakistan is crawling toward default.
But that’s exactly how Washington and Beijing might find confluence to stop Pakistan from failing. “The US view on this is that countries like Pakistan may at times be strategically important, but in the great power competition between China and US, it doesn’t matter a whole lot,” says Uzair Younus, director of the Pakistan Initiative at the Atlantic Council.
Beyond Pakistan’s limited importance as a partner for counterterrorism in Afghanistan, he assesses that the view from Washington is that if others want to share the burden of propping up Pakistan and stabilizing its economy, so be it.
“The US remains a strategic market for Pakistan and that is not going away any time soon. So there will be a relationship there,” says Younus, with the caveat that Washington is likely to prioritize its strategic interests elsewhere for the time being.
Or maybe the Russia-Pakistan oil deal won’t matter that much to the US and its Gulf buddies. For Tamanna Salikuddin, director of South Asia programs at the US Institute of Peace, although the deal will be watched with much interest in Washington, it is going to reinforce the views of American policymakers who already believe that Pakistan is on the Chinese side versus the US camp.
“That Pakistan is now on the ‘China-Russia side’ versus the ‘US-India side’ will be further evident,” she explains. “Even if we're not trying to create political blocs, they emerge sometimes without any effort on our part.”
Ukraine's President Zelenskiy visits Ukrainian service members in Bakhmut, Ukraine.
Three hundred days of war in Ukraine
Tuesday marked 300 days since the start of Russia’s attempted obliteration of Ukraine. For almost a year now, war has tormented the Ukrainian people, though their resolve remains unshaken.
The spectacular failings of Russia’s military endeavors over the past 11 months have been well documented. Still, the winter months will bring unprecedented challenges for Ukraine as temperatures and morale plunge.
In a sign that Kyiv is doubling down on efforts to secure more support ahead of a grueling winter, Ukrainian President Volodymyr Zelensky will reportedly arrive on Wednesday in Washington, DC – his first time leaving Ukraine since the war began. The Ukrainian president will meet President Joe Biden at the White House and address a joint session of Congress, where he'll likely thank them for the US' ongoing support and request that the funds keep on coming.
Here are three of the biggest challenges facing Ukraine in the months ahead.
Energy onslaught. The Kremlin’s strategy of targeting Ukraine’s energy infrastructure has proven painfully effective.
Recent Russian missile strikes have left millions of Ukrainians without electricity, while around half of Ukraine's energy infrastructure has been taken offline in recent months. That this presents a major catastrophe for a population grappling with frigid temperatures and an uptick in war injuries is no surprise – a message reiterated by the World Health Organization, which recently issued a warning that “cold weather can kill.”
Here’s a sign of how bad things are – and how much worse they could get: The head of Ukraine’s largest private energy company has urged Ukrainians to leave the country for up to three months if possible to help the state preserve energy.
Moreover, while Ukrainian authorities have so far done a solid job repairing damaged infrastructure, that’s becoming more difficult due to deteriorating weather conditions. After a recent Russian drone attack on Odessa's electrical grid left 1.5 million Ukrainians without power, regional officials said that repairs could take up to three months.
Military escalation. Are Russian forces preparing for a fresh attack on Ukraine? It’s hard to know, but satellite imagery shows a mild buildup of Russian troops and equipment in southwest Belarus near the Polish border – and reports suggest that these troops will soon begin conducting tactical exercises.
Some analysts have dismissed claims that Belarus’ strongman President Alexander Lukashenko will send his own soldiers into battle to help his longtime pal Vladimir Putin. But Kyiv, for its part, has expressed fears that Russia could join forces with Belarusian battalions to open a new northern front.
Though Ukraine’s military has shown exceptional skill and resilience, Zelensky’s army is still the ultimate underdog. If Putin has learned lessons from his botched autumn mobilization effort – and if the Kremlin is indeed planning a new ground offensive – then Ukrainians are right to be worried.
Will the funds keep flowing? Concern abounds in Kyiv about whether Washington will continue sending military aid to Ukraine at current levels come January when the new US Congress is sworn in. And Ukraine is right to be worried about Uncle Sam cutting back: During the first 11 months of this year, the US sent more than $22.9 billion in security assistance to Ukraine. For context, other major economies, like the UK and Germany, sent $4.1 billion and $2.4 billion, respectively. So far, the US is showing no signs of backing down. The Senate on Tuesday unveiled a $45 billion aid package to Ukraine, exceeding Biden’s original ask of $37 billion. (It's expected to pass before the Friday midnight deadline.) During Zelensky’s visit, Biden also reportedly plans to announce a new $1.85 billion security package for Ukraine.
So where's the concern coming from? A handful of Republicans have called for the US to slash support for Ukraine and while this remains the marginal view within the GOP, there are some indications that the message is resonating. Kevin McCarthy, who leads House Republicans – and will have to cut deals with his unruly caucus members to become House Speaker next month – has said that the US should no longer be signing “blank checks” to Ukraine.
This seems to reflect the views of a growing number of GOP voters – 48% of whom recently said that the US is doing too much to help Ukraine, according to a Wall Street Journal poll. That’s a staggering change from a March poll, when just … 6% of GOP voters agreed.
To be sure, a majority of Americans support current aid levels to Ukraine, and there has been no indication from House Republicans – who will soon control the purse strings of the government – that they plan to cut aid to Kyiv. But if inflation remains high, lawmakers could face increasing pressure from voters to direct those tens of billions of dollars elsewhere.
And it’s clear that Zelensky is concerned about this as well. When asked about the war’s future in a recent interview with US comedy legend David Letterman, Zelensky said: “The US is the main supporter of Ukraine … when the war ends largely depends on that support.” Without it, Zelensky added, this battle “would be very difficult for us.”
A trader works on the trading floor at the New York Stock Exchange in New York City, U.S.
What We’re Watching: Central banks vs. inflation, Peru’s endless crisis, Russian "energy terrorism"
Mixed messages from US, European central banks
In their last meeting of the year, two European central banks – the Bank of England and the European Central Bank – followed the US Fed in raising interest rates by 50 basis points, down from their most recent hikes of three-quarters of a percentage point. While central bank chiefs said that November’s numbers show that inflation has peaked, they also warned that this more mild rate hike should not be taken as a sign that they're taking their feet off the brakes. Facing sky-high energy prices and a tight labor market, the UK is on the brink of recession, economists say, while the EU is not far behind. Indeed, ECB chief Christine Lagarde admits that the eurozone will likely enter a recession next year, although says it will be “relatively short-lived and shallow.” Wishful thinking? Maybe. Lagarde also confirmed that eurozone inflation will remain above its 2% target into at least 2025 and warned of more belt tightening. Meanwhile, the Fed has now raised interest rates to the highest level in 15 years, and markets dipped in response to indications that higher rates would persist well into next year.
Another Peruvian state of emergency
Peru’s band-aid government has declared a national 30-day state of emergency amid fresh protests, some of which have turned violent. First, a recap: After attempting to dissolve Congress and replace it with an emergency government, Peru’s leftist President Pedro Castillo was arrested on Dec. 7 by security forces for attempting a “self-coup.” He remains in custody. Now supporters of the former schoolteacher, who had no political experience before this gig, have taken to the streets calling for Castillo’s release. Other disillusioned Peruvians are also demonstrating, in their case calling for the dissolution of Congress and fresh general elections … now! Meanwhile, Dina Boluarte, Castillo’s running mate in 2021 who is now serving as the country’s sixth president in five years, said she would hold an election in 2024 — two years early — because she needs time to bring the country together. But facing backlash, Boluarte has since floated holding a fresh vote as soon as Dec. 2023. Roads in at least 14 regions across Peru have been blocked by protesters as the situation gets increasingly unstable by the day.
Kherson goes dark
The entire city of Kherson in southern Ukraine was left in darkness Thursday after a series of Russian missile strikes that left three people dead. Russia has pummeled the port city in recent days, leaving Kherson’s remaining 130,000 residents without power amid brutal winter temperatures. Indeed, Kherson is a sore spot for Moscow, which was forced to withdraw from there last month due to its flailing military campaign. This development comes as Ukrainian President Volodymyr Zelensky appealed this week to EU member states for help to overcome Russian “energy terrorism” — a reference to the Kremlin’s relentless targeting of Ukraine’s energy infrastructure, which has terrorized the Ukrainian population. While many were expecting the war to enter a deep freeze during the winter months, it’s clear that Kyiv has no intention of slowing down: Ukrainian forces on Thursday shelled eastern Donetsk in what’s been described as the biggest attack on the Russian-occupied region since 2014.
Europe’s tough decisions: Russia, China, and EU unity
Winter is coming and for Europe, a bleak winter it may be.
The escalating Russia/Ukraine war has united European support to Kyiv’s cause, but it’s also brought a plethora of economic, political, and social challenges. Inflation, a sinking Euro, and the possibility of an energy crisis brings to question just how long Europe’s support for Ukraine will last?
On GZERO World, Ian Bremmer speaks with German diplomat Christoph Heusgen, who served as his country’s ambassador to the United Nations and is now chairman of the Munich Security Conference.
His take on the war in Ukraine? Vladimir Putin grossly miscalculated Ukrainian resolve and the war is going badly for the Russians. Even so, Putin is determined to see the war through, committing crimes against humanity along the way.
On Germany’s relationship with China, Heusgen questions Olaf Scholz’s meeting with Xi Jinping, voicing concerns about the danger of entering a relationship with a country known to use economic leverage for political gain.
- The Graphic Truth: What do Europeans think of their economy? ›
- War, reforms & bureaucracy will decide Ukraine’s EU bid ›
- German Chancellor Scholz's controversial China trip ›
- Ukraine dominates the dialogue in Munich - GZERO Media ›
- Ukraine dominates the dialogue in Munich - GZERO Media ›
- GZERO World with Ian Bremmer: Season 6 preview - GZERO Media ›
- Who blew up the Nord Stream pipelines? - GZERO Media ›
The state of the global economy is … not good
This year, the annual fall meetings of the World Bank and the IMF were all about global economic doom and gloom.
The IMF has cut its global growth prediction for this year by half compared to 2021. And next year will be the worst since COVID and the 2008 financial crisis.
Meanwhile, inflation is still very high — and efforts by rich countries to tame rising prices are going to hurt poor nations.
And what about climate change? That may be the one silver lining for the IMF, which believes that the present energy crisis may accelerate the green energy transition.
Watch the GZERO World episode: Can the world avoid a global recession?
- Is the world on the brink of another global recession? - GZERO Media ›
- Podcast: Making sense of global inflation, looming recession ... ›
- Can the world avoid a global recession? - GZERO Media ›
- Is global economic inequality getting worse? - GZERO Media ›
- The recovery will be a jagged swoosh, not a V-shape - GZERO Media ›
- Explaining the long history of US debt (& which other countries are saddled with debt) - GZERO Media ›
Political unrest when governments fail struggling citizens
What happens when 1.4 billion people are cut off from the global economy because they don't have a bank account at a time of mounting crises?
"The geopolitical ramifications are potentially huge," Ali Wyne, senior analyst for Global Macro-Geopolitics at Eurasia Group, says during a livestream conversation on closing the global digital gap hosted by GZERO in partnership with Visa.
First, it was COVID. Then came the twin blows of the food and energy crises, aggravated by Russia's war in Ukraine. When people are struggling, Wyne adds, they'll look to their governments for solutions.
"And if they feel that they're not getting satisfactory answers," he warns, "we can't understate the potential for significant political unrest."