A Manageable Fight
Although Colombia is undergoing a major transition with a new peace deal, renewed violence appears unavoidable. The Fuerzas Armadas Revolucionarias de Colombia (FARC) has splintered between a group of roughly 6,000 militants who have chosen to disarm and another collection of several hundred who have remained active as criminal groups. The only other organised militant group in the country, the Ejército de Liberación Nacional (ELN), represents more of a periodic nuisance to the state (instead of an existential threat), although it perennially threatens oil and gas companies and public transport activities in eastern and southwestern Colombia.
Since 2016, smaller criminal groups once held at bay by the FARC's dominance have begun moving into areas that the group vacated when it demobilised in accordance with the peace agreement. Now, the ELN, the Popular Liberation Army, the Clan del Golfo and others are contesting territory, increasing the frequency of violent confrontations. Most of these clashes will occur in remote, rural parts of the country where coca cultivation and mineral extraction occur and criminal groups can operate with impunity.
The government's new policy of forced coca eradication will also contribute to the rise in violence. Under former President Juan Manuel Santos, the government slowed the eradication of illicit coca crops, choosing instead to give local people the option of voluntarily substituting them with legal crops. The government also halted operations to spray defoliants on coca bushes from the air due to the local health risks. But President Ivan Duque intends to reinstate such spraying campaigns and to forcibly eradicate coca due to increases in the crop's production since 2014. The coming operations will inevitably result in clashes between authorities on one side and coca farmers and their criminal patrons on the other, while also spawning other forms of violence as criminal groups seek other forms of revenue, such as extortion. For businesses operating near areas of heavy coca cultivation, the government's campaign could ultimately make them a target of criminals.
The rise in violence will largely affect businesses in oil and gas exploration and production, the agricultural sector, and public and private transportation. The areas of the country that will suffer the most include Choco and Narino along the Pacific coast; Antioquia and Choco's Caribbean coast; Caqueta, Cauca and Meta in the country's center; and places along the Venezuelan border, such as Norte de Santander and Arauca. Foreign business interests are at greatest risk of violence in the oil-producing regions along the Venezuelan border, as well as Meta. In these areas, FARC dissidents and the ELN will be the main threats because both organisations have previously extorted money from foreign and domestic businesses, such as oil and gas companies and their contractors, and could do so again as they unite to redouble their opposition to the government.
Digging in Against US Pressure
The Venezuelan crisis, which is indirectly connected to Colombia's militancy by the cocaine trade, is a more pressing issue for the region. As its crisis worsens, tens of thousands of Venezuelans started to flee for neighbouring states. The influx is forcing governments in the region to consider more stringent measures to stem the flow — but there's little they can do to address the factors that drive the migration. For years, Washington has pressed for regime change, which Venezuelan officials have so far refused to allow. Because of the common understanding among elites that abandoning power could result in their imprisonment in Venezuela or the United States, the government in Caracas has become increasingly obstinate about US pressure. President Nicolas Maduro faces an investigation by US authorities over alleged money laundering, while political ally Diosdado Cabello faced investigation for alleged cocaine trafficking. But even if internal dissent continues to rise amid the threat of far-heavier US sanctions, the ruling party is likely to remain united.
On the outside, the worsening crisis will draw the world's attention for two reasons: mass migration and declining oil production. The drop in output will affect oil markets and foreign stakeholders, such as companies involved in arbitration disputes with Caracas and holders of Venezuelan debt. As its oil production plummets, Caracas will emphasise energy shipments to the United States and other key lenders, such as Russian energy company Rosneft and the Chinese market. The United States remains the primary market for state energy company Petroleos de Venezuela (PDVSA). Between January and August 2018, oil shipments to the United States averaged about 500,000 barrels per day, totalling about half of the country's daily crude oil exports. However, the figure represents an average decline of about 235,000 barrels per day from shipments in 2016 — a development that has steadily raised global oil prices. PDVSA is currently sealing agreements to raise production from existing wells — in part by taking advantage of the improved cash flow from higher oil prices — but that is likely to only slow the rate of its production decline, rather than reverse it.
In such a situation, Caracas will prioritise imports over foreign bondholder or arbitration payments. Accordingly, defaults on bond payments will accelerate, prompting foreign bondholders to consider banding together to legally seize Venezuelan assets and pressure the country to pay up. Against this backdrop, Canadian corporations such as Crystallex International Corp. will pursue the payment of multibillion-dollar arbitration awards from PDVSA. And after Caracas' nationalisation of more than a dozen companies' assets in the mid-2000s, international courts are likely to order the government to compensate foreign companies to the tune of billions of dollars. The government is unlikely to make most of these payments, and that failure could eventually allow creditors to seize PDVSA assets, such as oil shipments and export terminals. In fact, such is the backlog in claims against PDVSA that even Maduro's removal in a coup — or his departure in a negotiated agreement with the United States — is unlikely to end the litany of cases against the company. In Colombia and Venezuela, the role of both countries in the cocaine trade will drive security and political trends, though with vastly different outcomes: Colombia might experience a rise in criminal confrontation. Over the border, however, Caracas' role in facilitating cocaine shipments to the United States will only fix Maduro’s administration to stay in power.
Ties that bind Colombia and Venezuela
Sept. 12, 2018 — Stratfor Worldview
Cocaine: Why the Cartels are Winning. (August 23, 2018)