The M̶o̶n̶r̶o̶e̶ Trump Doctrine
Key Takeaways
- A more interventionist U.S. foreign policy is reshaping geopolitics: The U.S. action in Venezuela signals a willingness to directly confront adversarial regimes, with ripple effects extending well beyond Latin America.
- Energy security and regime stability are increasingly intertwined: Venezuela’s potential political shift threatens energy-dependent regimes like Cuba and Iran while forcing China to reassess its strategic reliance on fragile oil suppliers.
- Global markets could benefit from lower oil prices and renewed investment: A post-Maduro transition in Venezuela may unlock significant capital inflows, pressure oil prices lower, and influence inflation and monetary policy worldwide.
A Turning Point in U.S. Foreign Policy
The capture of Nicholas Maduro by U.S. military forces represents a dramatic change in our foreign policies. We have engaged in interventionist policies before, but this one feels different and it has many geopolitical and economic consequences.
It is now evident that the U.S. under President Trump is no longer willing to passively allow avowed enemies of the U.S. to engage in activities that harm us. Venezuela was a dictatorship that financed itself from the sale of oil and drugs to promote terrorism and far left movements across Latin America, aside from enriching its leaders. These activities were supported by other nations and movements wishing to harm us, including Russia, Cuba, China, Iran and Islamists, who were actively collaborating with the Maduro regime. They thought they had a safe base of operations in Venezuela. It is too soon to reach a definitive conclusion, but it appears that base is gone, most certainly if Venezuela is able to hold real elections. But the implications go far beyond that one country.
Regional Domino Effects: Cuba, Iran, and the Middle East
The next obvious domino is Cuba, which is utterly dependent on cheap Venezuelan crude oil to compensate for the domestic economic devastation of its brand of socialism. Cuba has been sponsoring or supporting left wing and terrorist movements across Latin America, even as it impoverished itself. Food and electricity are scarce. Without cheap Venezuelan crude oil, and with limited support from Russia, which is bogged down by its war with Ukraine, the dictatorship in Cuba could also fall, either with or without U.S. intervention. Will China now step in to provide financial support to build its own “secure” base in Latin America? They might. Supporting Cuba now presents what would certainly be an enticing prospect for China of offering to trade Cuba for Taiwan. But without such support, the current regime in Cuba will be unable to stand economically on its own.
Another important focal point should be Iran. Unlike recent Administrations, President Trump has stated publicly that we could intervene if the Mullahs in Iran kill protesters. It seems implausible to me that we would put boots on the ground in Iran. But such statements might provide considerable support for the public to take down the highly unpopular religious dictatorship. Will the military in Iran commit mass murder to suppress the demonstrations, as it has in the past? Iran is another Axis of Evil player that has supported terrorism and jihadism around the world. It is the key financial and military supporter of Hamas, Hezbollah, and the Houthis at the expense of its own economy, where inflation is running rampant and living standards are collapsing. Trump can tighten the financial screws on Iran even further by focusing on its oil exports. This Iranian government’s behavior is simply unsustainable in the face of an educated, informed and increasingly hostile and resentful population. It seems that its fall is inevitable, and might occur soon if the current spreading demonstrations gather steam. And a change in the regime in Iran has vast consequences across the Middle East.
China, Energy Security, and Taiwan
The largest geopolitical questions arise with respect to China, which is badly dependent on energy imports from Russia, Iran and Venezuela. Russia remains a highly reliable source for oil for China, since Russia is so highly dependent on military and other supplies from China. These erstwhile competitors are now highly interdependent. But if Venezuela establishes a closer relationship with the U.S., China becomes more energy dependent on what are becoming less reliable nations for energy. Would China risk a cutoff of oil from all nations other than Russia by attempting to take over Taiwan? That simply must be a consideration in their thinking about how to proceed with their quest to take Taiwan.
Investment, Oil Prices, and the Return of the Monroe Doctrine
The investment implications are also widespread. If there is a quick transition to a new interim government headed by Maria Machado, exiled Venezuelans and capital investment will likely surge into the country. But that is far from assured. Allies of Maduro will surely try to gain power to take his place. How will the U.S. “run the country” as Trump mentioned in his press conference? Secretary of State Marco Rubio spoke to Maduro’s Vice President, who seemingly agreed to work with the U.S. Will she follow through? How will the military, which was complicit with the Maduro regime, respond? If a Machado government emerges, Venezuela could become investable very quickly. American might be able to retake control over nationalized business operations and energy companies would quickly invest billions in repairing Venezuela’s energy infrastructure.
Oil prices are likely decline further, with positive economic consequences globally, most notably boosting real household income, which should lead to more consumption spending. Lower oil prices will also help reduce inflation measures, at least temporarily, enabling the Fed to move a bit closer to its 2% target. Advocates for more policy rate reductions will use the decline in inflation to push harder for such an outcome. A decline in oil prices would also hurt Iran and Russia financially, perhaps forcing change in both places, or perhaps just a reduction in hostilities.
Other nations in Latin America have recently taken a tilt away from socialism and towards more capitalist and democratic systems, notably Argentina and Bolivia. Venezuela will now serve as a litmus test for continuing in this direction. If successful, Venezuela can offer an alternative to more statist models of government. Welcome to the revival of the Monroe Doctrine on steroids.
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