How Venezuela Lost the Throne
Venezuela, once a rich and vibrant country, is now in shambles and on the brink of a massive economic collapse. How an energy giant, touting output of 3 million barrels of oil per day at its peak and having the largest proven oil reserves in the world, was able to find itself in such a dire situation is truly mind boggling. Mismanagement, greed and corruption all played a key role in the demise of Venezuela’s oil industry. Lack of industrial diversity within the country only made things worse. With the world transitioning toward cleaner energy and Venezuela’s oil industry requiring a crucial investment of capital and human talent, it is unclear whether its oil industry, and thus, the country’s economy, will be able to be revived. One thing is certain, though: time is ticking, and Venezuela’s economy has made no progress.
Oil has been a blessing to many nations in the world. It has allowed them to propel themselves forward ahead of others. Venezuela is no different. In 1943, Venezuela was the third-largest oil producer in the world. In the following decades, Venezuela continued to invest into and grow its oil industry. After the creation of OPEC, an entity of oil-producing countries that agrees on a fixed output of oil, and after the oil embargo of 1973 to nations that supported Israel, Venezuela’s oil profits soared to new records. This surge in profits propelled the nation to report the highest GDP per capita in Latin America throughout the rest of the 1970s. Venezuela’s government planned to reinvest the profits into its economy by nationalizing its oil industries and further developing its infrastructure. The plan was officially named “La Gran Venezuela.” What followed was corruption, embezzlement, and mismanagement. Experts estimate that these factors totalled up to over $100 Billion in excess expenses. Despite this, Venezuela’s PDVSA, the nationalized oil industry, produced a record 3.5 million barrels of oil in 1997 and 1998.
The beginning of the end came about when Socialist politician Hugo Chavez came to power. In 2002, after a failed coup attempt, a large percentage of PDVSA’s workers went on strike in protest of new elections. Production in the industry came to a grinding halt. Chavez didn’t receive this news so well and proceeded to fire around 18,000 employees of PDVSA, nearly half of the company’s employees. Although the vacancies were eventually filled, the talent at the company was nowhere near the same as before. Venezuela’s oil industry would never produce over 3 million barrels of oil a day again. In the subsequent years, Venezuela’s oil output slowly dwindled, while its infrastructure deteriorated through mismanagement, corruption and embezzlement. Further economic troubles followed after Chavez struck controversial trade agreements with China, Russia and Cuba.
Venezuela’s economic troubles were far from over when Chavez, in 2007, went on an expropriation frenzy. Among the things expropriated were $1 Billion worth of assets from Exxon Mobil located in Venezuela. The message it sent the world? No one's capital and investments were safe in Venezuela. Furthermore, although Venezuela’s economy was struggling at the time, Chavez’s regime continued to send Cuba a substantial supply of oil in exchange for doctors and technicians. Why Chavez thought that Venezuela was lacking human capital is a question for a different time. Venezuela’s oil industry continued to decline while the government failed to provide the right policy measures to incentivize investments into its economy.
Venezuela is currently suffering from one of the most prolonged and highest rates of hyperinflation in the world. Its oil industry is producing less than 1,000 barrels per day. Poverty, a crumbling healthcare system and government prosecution, have caused over 5.6 million of its people to cross its borders into neighboring countries. With the world anticipating the transition to clean energy in the coming years, Venezuela’s oil industry needs a desperate makeover, and with a corrupt, authoritarian government still in power, Venezuela’s window to rebuild its oil industry is closing. Once a vibrant country with a flourishing economy and the happiest people in the world, Venezuela is now desolate and crumbling. Will this be the nation’s final sunset? Or will its people reemerge from their exodus and see its sun rise over a reborn Venezuela?
Photo Caption: The sun setting over Caracas, Venezuela
Photo Credit: Pixabay