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Opposition win sets stage for Venezuelan power struggle

Change is coming to Caracas after the National Assembly elections, but it will be a messy and difficult process

A coalition of Venezuelan opposition parties won a sweeping victory in the Opec country's National Assembly elections on 6 December, winning a majority for the first time since Hugo Chavez rose to power in 1998 and launched his socialist Bolivarian revolution.

The opposition victory is a stark repudiation of left-wing president Nicolas Maduro's management of the country since winning the presidency in 2013. But it won't soon result in a major right turn in economic or oil policy. Instead, it sets the stage for a deeply uncertain and likely contentious period for Venezuelan politics with the opposition-led Assembly doing battle with the Maduro presidency over the difficult economic and political reforms the country badly needs.

A somber Maduro accepted defeat, and backed down from earlier promises to take to the streets if his side lost, but he showed no signs of wanting to reconcile with his political opponents. He blamed his party's loss on an "economic war" being waged from the US, and on an 'international conspiracy' to keep oil prices low. "The opposition has not won," Maduro said. "A counterrevolution that is at out doorstep has won."

That heated ideological rhetoric, once such a potent weapon for the Chavismo movement, however, has lost much of its potency in the face of the country's economic crisis. Everyday concerns over surging inflation, shortages of basic goods and chronic insecurity have pushed aside political purity, and undermined the socialist government's core promise that only it would act to improve the lives of the country's poor.

The opposition Democratic Unity (MUD) alliance, long left out in the political cold, is also likely to adopt a combative stance to right what it sees as more than a decade of wrongs. Henry Ramos, an opposition leader, said he doubted that Maduro would see out the rest of his term, which is scheduled to run to 2019, indicating the opposition could mount a recall election in 2016, similar to the failed attempt to oust Chavez in 2004.

The opposition won a two-thirds majority, giving it wide scope to govern. The opposition's ability to act, though, will be hemmed in by Chavismo's tight grip on Venezuela's governing institutions, including the Supreme Court, which could veto many National Assembly actions.

The large victory, though, risks opposition overreach that could alienate segments of the population that had previously supported Chavez but don't have faith in Maduro, warns Alejandro Velasco, a professor of Latin American Studies at New York University. The margin of victory could see more radical elements of the opposition, who advocate shock therapy for Venezuela, rise to prominence. That, argued Velasco at a recent Columbia University conference, would be a mistake after an election that was at least as much a protest against Maduro's handling of the economic and security crisis as it was an embrace of the opposition's ideas.

The opposition's own divisions, long papered over in the interest of the overriding goal to unseat Chavismo, could also be exposed as they are forced to set governing priorities.

In the wake of its victory, the MUD said that its priorities would be to address the economic crisis, overhaul the central bank, which has fuelled triple-digit inflation, free political prisoners and roll back some of the Chavez government's nationalisations, many of which targeted the oil industry. But details were scarce in the lead up to the election.

In addition to setting the stage for a protracted fight between the government and opposition, the election result could set off a fierce battle for control over the Chavismo movement, which is now in full-blown crisis. Chavez handed Maduro the reigns just before his death in 2013, but the broad rejection of his two years in power could embolden his opponents within the government.

Most notably Diosdado Cabello, who was head of the national assembly and has long been rumoured to be in an internal power struggle with Maduro, He is now out of a job as head of the National Assembly and could move to push a severely weakened Maduro aside, especially if Maduro faces the threat of a recall.

Uncertain future

Taken together, Venezuela is entering uncharted territory and things could get much worse, and more chaotic, before they get better.

What it means for the oil industry, the sputtering engine of the economy, is not totally clear. The opposition has never laid out a coherent oil policy, though many of the opposition's oil advisors, such as Harvard professor Francisco Monaldi, advocate a far more liberal, less statist, approach to the sector.

In an extreme scenario, the opposition could seek to rewrite the statist oil legislations put in place by Chavez over the past 15 years. It could be replaced by a more investor-friendly framework similar to what existed during the Apertura Petrolera (oil opening) era in the late 1990s, the last time the country was able to increase oil production. The oil nationalisation, however, is a cornerstone of the Chavez era, and Chavismo will do what they can to oppose oil liberalisation.

More likely over the short run, are a series of measures aimed at stabilising the economy, and thus PdV's financial situation, that would have broader benefits for the oil sector. Stabilising the currency and simplifying the chaotic exchange rate system, which currently requires PdV to access dollars at an artificially inflated rate, would be an important first step. Reining in inflation would be another positive step and help reduce costs in the industry.

There is also broad agreement that subsidised domestic gasoline prices, now the lowest in the world, need to be increased, which would help provide PdV with more cash to invest in boosting oil output. The opposition could also try to limit heavily subsidised oil exports to Cuba and the Caribbean, which would free up hundreds of thousands of barrels of oil a day for export at market prices.

The opposition would also do well, argues Barclays' Alejandro Grisanti, to reach out to international oil companies to start the long process of restoring Venezuela's image as an investment destination. There is little doubt about Venezuela's vast crude reserves, and more recent pragmatic policy adjustments have helped to encourage more foreign investments, but the oil industry continues to see Venezuela as a toxic investment environment. The opposition could help to turn that view around. "With the legal framework that exists now, it is possible to attract the investment that is needed in the oil sector. But you need to change the perception of the country," says Grisanti.

The challenge of turning around the oil industry, and broader oil-dependent economy, will be made even more difficult as the oil price rout continues. The election wasn't the only disaster for Maduro on the weekend of 6 December. The election came days after the Venezuelan delegation to the December Opec meeting, led by del Pino, failed spectacularly to broker a deal to cut the cartel's output. Del Pino warned that failing to stem the flow of Opec crude could lead oil prices to fall below $30 a barrel, and pushed a 5% production cut to bolster prices, but his plan fell on deaf ears in Vienna.<

Throughout Venezuela's history, governments have risen and fallen with the oil price, Chavismo may be the latest victim.

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