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Venezuela is now more likely to be in the news only because of its increasingly severe, almost desperate economic crisis, even though the country was once Latin America’s largest oil producer and a founding member of OPEC. How is it possible that the power of a commodity market falls so low? We show how Venezuela became a Latin American bezzeg state almost 100 years later.
One of the others
Looking back, it appears that prior to 1920, Venezuela operated as a poor agricultural state, with a host of development problems that could be observed throughout Latin America, writes an analysis by Oil Moderno. At the same time, as it later became an accepted consensus, this country has one, if not the largest known reserves of crude oil in the world.
Entry into the oil market began in 1914, when an oil well called Zumague was inaugurated in the country. It was the first commercial oil well in the country and was also part of the rally that resulted By 1950, Venezuela had become the fourth richest country in the world in terms of per capita income.
In 1970, moreover, the country was considered the most stable democracy in the region, at a time when Latin American countries were ruled mainly by military dictatorships. However, in the eighties, Venezuela also embarked on a process of unfavorable developments, from which much of the current problems can be deduced: with the fall in oil prices and the global recession, the democratic order also It has broken.
Today’s troubles go back decades
These events affected the entire economy of the country and, over time, led Venezuela to a serious debt spiral. By the late 1980s, Caracas had reached the point where it had sought financial help from the International Monetary Fund (IMF).
However, the IMF demanded severe austerity measures in return for aid, including tough budget cuts that negatively affected social programs, health care and the education system. All of this caused serious social unrest, and inflation also soared, further complicating the daily life of the Venezuelan population.
The biggest mistake of the Venezuelan government was its inability to diversify the country’s economy, that is, put it on its feet. In other words, Venezuela was too dependent on oil: oil accounted for roughly 80 percent of export earnings, while oil accounted for nearly a third of total GDP.
Social discontent eventually became so severe that it became sufficiently rooted in the rise to power of Hugo Chávez, who won the 1998 presidential elections. Later, Chávez introduced revolutionary measures, reforming the constitution, implementing extensive social programs, and redistributing land, among other things.
However, like his predecessors, Chávez also relied heavily on oil to rule the country. This, of course, was sustainable as long as oil prices were high. However, after Chávez’s death in 2013, the country’s new leader, Nicolás Maduro, had to face a collapse in oil prices (second half of 2014) when Saudi Arabia accelerated its production to increase its market share while maintaining low the price of hydrocarbons. And all this caused another economic collapse in Venezuela.
And the crisis has not eased since then, what’s more, Venezuelan oil production has almost completely collapsed. In July this year, the country, which has the world’s largest reserve, produced an average of 345,000 barrels of oil per day, the lowest level in nearly a century. And despite Maduro vowing to recover, the daily average rose to just 383,000 barrels in September. And Reuters reports that the country once again posted record oil exports in October.
According to some industry analysis, the crisis is causing a lack of development of the necessary infrastructure, which could lead to a total stoppage of oil production in Venezuela. The dramatic fall is well illustrated by that At peak, Venezuela’s oil export earnings were still close to $ 90 billion, up from $ 22.5 billion in 2019.
And this year, there will almost certainly be a further decline.
Not seeing the end of the Venezuelan crisis
Recently, there have been reports of dramatic events in Venezuela, as the country’s leadership has tried to tame the problems of a country in shambles and a stagnant economy. Venezuela, which had previously been enriched by its oil revenues, is experiencing one of the worst political and economic crises in its history in recent years, exacerbated by sanctions. In addition to food and medicine shortages, one of the countries in the world with the largest oil reserves regularly faces fuel shortages.
Origo has also regularly reported on developments in Venezuela, like the fact that inflation has recently been measured in Venezuela at 10 million percent, in addition to shortages of basic products and severe unemployment. Clarity is also hampered by the fact that Venezuela has failed to provide credible macroeconomic data on its own economic and social condition for years.
The country has repeatedly attracted attention this fall. On the one hand, Caracas announced at the end of October that Venezuelan researchers had developed a “one hundred percent effective agent” against the coronavirus, which would later be available for study by the World Health Organization (WHO).
The other is that in October, the Venezuelan Constituent Assembly (ANC) approved a law that allows President Nicolás Maduro to have a voice in the ownership of joint ventures of the state oil company PDVSA. A law designed to offset the effects of US economic sanctions was passed on Thursday. The legislation allows Maduro to enter into confidential oil trade agreements with private companies and states.
Maduro thanked a panel dominated by his followers for accepting his proposal to “overcome the illegal economic blockade.”
ANC President Diosdado Cabello said in early September that Venezuela has had no “formal” income from the oil industry since October 2019. Cabello blamed US sanctions for the weakening of the oil industry, however, some experts say mismanagement and lack of funds can also be blamed.
The example of Venezuela is certainly evident among the (former) oil powers, but it highlights a serious problem. TO
It is extremely important that states that depend on oil exports can adequately diversify their economies. It is no coincidence that Saudi Arabia has also embarked on this path. If this is not the case, a possible future collapse in oil prices will threaten other giants, as they may suffer the fate of Venezuela.
More than five million people have fled the country in recent years due to the severe economic crisis in Venezuela.
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