📊 Venezuela's Oil Potential and its History
Venezuela has the world's largest oil reserves but produces as little as Ecuador, which has 3% of its reserves.
October 25, 2023 | Read Online
We’re trying something a bit different today, and focusing on a single, relevant topic: Venezuela and its oil. Good news to light readers — less words! Please let us know what you think of this format.
The United States recently announced a broad easing of oil sanctions against Venezuela, which is home to the largest petroleum reserves in the world. The move came shortly after the country’s autocratic leader, President Nicolás Maduro, agreed to a deal with the opposition to hold internationally moderated free and fair elections next year. This could mean an end to Venezuela’s decade-long political crisis…and a rekindling of the once-booming Venezuelan economy.
Venezuela owns 18% of all of the world’s oil. At its peak this century, the country produced 3M+ barrels daily. Nowadays, it outputs about as much oil as Ecuador, which has roughly 3% of the reserves of its Andean peer.
In 1922, Venezuela’s oil reserves — the largest globally — were discovered, setting the country on an enormously prosperous path. Foreign companies were required to pay 50% of their profits to the government in 1943. By 1950, Venezuela was the world’s 4th-wealthiest nation per capita. It continued being considered Latin America’s crown jewel for decades later thanks to favorable oil prices in the postwar period. In turn, the government spent lots on social programs like healthcare, education, and food subsidies. Workers enjoyed the highest wages in Latin America. Amid this boom, President Carlos Andres Perez nationalized the oil industry and created Petróleos de Venezuela (PDVSA), a state-run petroleum producer.
Venezuela’s fortunes started to shift in the 1980s when oil prices dropped steadily. The drop was a consequence of an oversupply of oil following Iraq’s invasion of Iran. PDVSA went on a shopping spree of foreign oil refineries during this period, most notably Texas-born Citgo. The acquisitions amassed extensive debts for the country that it then struggled to pay, and in 1989 the IMF provided a $4.6B rescue package. Over-reliance on oil and divided political institutions caused the economy to continue in a downward spiral.
Hugo Chávez first entered the country’s spotlight through a failed attempted coup in 1992. Not one to accept defeat, the revolutionary was then elected on a populist platform in the 1998 presidential election. By this point, 66% of Venezuelans lived in poverty, and his socialist, anti-establishment agenda appealed to much of the population.
The country’s fate plummeted shortly after the death of its populist president. Oil prices tumbled (and so did the economy), while Vice President (and handpicked successor) Nicolás Maduro took office. Since Maduro’s term started, dozens of countries have enacted sanctions to oppose his authoritarian regime. Millions of Venezuelans have since fled a country in both economic and political crisis.
It’s unlikely that an ease of sanctions will result in a saved Venezuela, since the country’s corruption, autocracy, and overreliance on oil are deeply-rooted problems. But the assurance of fair elections, and an economic opportunity at times of tight commodity markets, is not the worst news for this country in crisis. Perhaps last week’s deal can be a first step in beginning to fix Venezuela’s nightmare.