For decades, the global economy was a space governed by rules, markets and central banks. The intervention in Venezuela reminds us, however, that political and military power once again enters directly into the economic equation, altering prices, risks and economic alliances. The fight against inflation in advanced economies has traditionally been fought using interest rates. However, the Venezuelan episode seems to show a change in focus to control one of the most inflationary components, energy. And specifically, secure the oil supply through direct intervention. Although Venezuela today is not one of those that contributes the most to the world oil market, its potential—if it is reactivated—has anticipatory effects. The expectation that its crude oil can be reincorporated into Western circuits puts downward pressure on prices and acts as an indirect stabilizer, favoring the control of inflation. It is not so much the actual barrel as the one expected in a few months that influences the markets. Geopolitics thus forcibly begins to complement, and in some cases replace, monetary policy. It will be necessary to see if this strategy affects the fracking—a model that the American administration has also supported—that requires high oil prices to be profitable.
Military intervention also redefines the classic concept of country risk. Until now, markets evaluated fiscal sustainability, balance of payments or institutional stability. Now an uncomfortable variable is added, such as geopolitical vulnerability. If oil revenues or any other natural resource can be intervened or managed externally, the notion of economic sovereignty is weakened. This does not only affect Venezuela. Other countries rich in natural resources, with fragile institutions, will see their financing become more expensive. Capital is especially sensitive to precedent, and this one is.
The acceleration of global financial fragmentation is also accelerating. The reaction of China and other non-Western actors points to a deepening of the world by blocs. Venezuela was a minor, but symbolic, piece on the board of energy and financial alliances. Its forced departure from the Chinese orbit reinforces the logic of parallel systems with financing, trade and energy increasingly segmented. For emerging markets, this means less room for maneuver and greater reliance on explicit political alignments. Economic neutrality becomes a rare luxury. And the problems of global inequality may become more acute. Europe seems to be spared for now as shown by the favorable evolution of the stock markets and the record placement of public and private bonds in recent days. The future, on the other hand, with Europe sitting on the couch, seems very uncertain.
In short, Venezuela is not the center of the world economy, but it is a distorting mirror of where it is heading. The great economic lesson is not in Caracas, but in Washington, Beijing and the financial markets. The global economy is entering a phase where the border between politics, finance and power is increasingly blurred. And that, for better or worse, is here to stay.
