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Reshuffle in Caracas

New appointments show Maduro plans to hold his course

Venezuela's epic economic distortions and political entanglement have long delayed oil and gas industry investment. Yet over the past two years, oil minister and PdV president Eulogio del Pino have begun to revive enthusiasm in the country's Orinoco Oil Belt, some marginal oilfields and, especially, in Venezuela's offshore natural gas sector.

But del Pino and his team have faced an uphill battle coordinating with President Nicolás Maduro's patchwork cabinet. Oil-policy adjustments and commercial negotiations with investors must be accompanied by both macroeconomic and other reforms. Big deals require a big picture government buy-in. To date, with marginal political clout, the oil ministry has acted alone in its effort to move investment in oil and gas projects forward.

So what to make of Maduro's January cabinet shakeup? While investors may view the oil ministry changes as positive, the new cabinet is certainly not stacked with reformers.

Maduro appointed a new vice president of the republic, four sectoral vice presidents, and eleven new ministers. Three of the new players should directly impact the oil industry: Nelson Martínez is the new oil minister; Tareck el Aissami, the new vice president of the republic; and Ramón Lobo, becomes vice president of economy and finance.

At first glance, Martínez's appointment seems positive for investors. With almost 40 years of industry experience under his belt, he is probably the only new cabinet appointee with extensive, applicable credentials. He holds a doctorate in chemistry from the UK's University of Reading and a master's degree in technology management from the Massachusetts Institute of Technology. He has worked in the UK, Argentina, Ecuador, and the US, and been chief executive of Citgo since May 2013. Like many in PdV's upper ranks, Martínez began his career at Intevep, the state firm's research and development arm. He has focused on technology planning, petrochemicals, and refining.

Eulogio del Pino was reconfirmed as head of PdV, but some believe Martínez's appointment is a prelude to del Pino's eventual exit. While Martínez's downstream knowledge complements del Pino's upstream expertise, government policy will probably not veer from the structure of a single, oil czar-type head of the ministry and PdV. Venezuela has not seen consistent bifurcation of the oil ministry and PdV since Rafael Ramírez was appointed minister and PdV president in 2004 by Hugo Chavez. Del Pino's departure would mean several critical changes in PdV's management. With few qualified professionals to replace outgoing executives, PdV would likely suffer.

Martínez may have greater political leverage than del Pino. He has a long-standing relationship with Maduro and his wife, Cilia Flores. But it is not certain that he will have real influence over the president and other cabinet members. In fact, this seems unlikely as Maduro's other cabinet appointments reflect a clear military-ideological tendency (the military sector now heads 11 of 28 ministries). Martínez does not belong to any of the revolutionary intuitions from which his other colleagues hail. For all intents and purposes, he is an outsider.

The new oil minister seems to be taking a deliberate approach to staffing, reportedly maintaining the current ministry team, pending formal confirmation and completion of annual accountability reviews. Consistency here will be vital to recent energy-investment negotiations.

Balancing act

El Aissami, the country's new vice president, will counter-balance Martínez's pragmatic instinct. The former Aragua state governor is one of the strongest hardliners and most loyal players in Maduro's administration. Maduro's choice confirms his intention to entrench his party's ideology, rather than embrace any measure of practicality.

El Aissami's presence will create unique challenges for investors. From 2003 to 2008, he held several government positions, including National Assembly deputy. He was Minister of Internal Affairs and Justice from 2008 to 2012, when he was blamed for exacerbating Venezuela's high crime rates. Press reports also suggest he is one of several senior Venezuelan officials US prosecutors are investigating over alleged drug trafficking and money laundering.

Nonetheless, some analysts credit el Aissami with a reasonable approach to economic policy, basing their assessment on a deal he made with Marriot for the rehabilitation of the state-owned Hotel Maracay. El Aissami also lobbied for-and achieved-better exchange conditions for the tourism industry. But these examples of tinkering around the edges of the economy pale in the face of Venezuela's need for deep reform.

The successful development of Venezuela's energy sector will also depend on the Ministry of Economy and Finance, where Lobo becomes the eighth leader under Maduro. He is expected to tow the party line, rather than push for macroeconomic reform. He has defended the Maduro administration's economic policy, and demanded stronger price controls. Lobo is not well known. He was mayor of a small municipality in the state of Merida for eight years, and a National Assembly deputy for seven. Lobo has known el Aissami since college, and seems closer to the vice president than any of the others in Maduro's new Cabinet.

Venezuela's oil industry cannot be ring-fenced or isolated from the country's overall macroeconomic policy. While Martínez may be a reasonable choice to lead the oil ministry, he will only achieve success if he is able to scale the political wall that has long prevented economic reform and, consequently, impeded development in the oil, gas, and petrochemical sectors.

Patricia Ventura is director and David Voght is managing director of IPD Latin America, a strategic consultancy focused on the region

This article is part of a report series on Opec. Next article: Venezuela on the precipice

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