Venezuela has regularly dominated headlines since the onset of the country’s presidential crisis in January 2019, splitting domestic and international support into the opposing camps of Nicolas Maduro and Juan Guaido as both politicians fight over Venezuela’s presidential status. Maduro’s established leadership is challenged by Guaido, who disputed Maduro’s second term in office as invalid. In an attempt to reestablish democratic rule and halt Venezuela’s socio-economic crisis, Guaido declared himself president in January 2019. As the state tumbles deeper into political conflict, its economy plunges with it. Highly dependent on its oil industry, Venezuela’s economy is increasingly corroded by a weak state infrastructure and international sanctions affecting oil exports.
As home of the largest oil reserves in the world, Venezuela capitalizes on its crude oil. Its economy used to flourish in the 1970s, but the fact that 98% of the country’s export revenue and roughly 50% of its gross domestic product (GDP) comes from oil emphasizes the country’s current dependency and economic vulnerability. Analysis of data shows that Venezuela’s economic volatility was caused by political disruptions. Venezuela’s total exports plunged by 40% after U.S. sanctions were imposed in January 2019, following the start of the presidential crisis. In addition, Venezuelan crude oil production fell by 13% in February 2019. After the first shock, oil exports remained relatively stable, but may face another trial after deals between U.S. companies and the state-owned Petroleos de Venezuela, S.A. (PDVSA), the country’s largest oil and gas company, expired in late April 2019.
The United States first imposed sanctions on the Maduro administration in 2015 under President Barack Obama. President Donald Trump continued this policy, implementing the most tenacious sanctions yet in January 2019 when he sided with Juan Guaido. These punitive measures freeze the assets of Venezuela’s PDVSA in the U.S. and ban oil trade between U.S. companies and the PDVSA. Furthermore, the United States limited Venezuela’s access to chemicals that are necessary to dilute its heavy crude oil and prepare it for export.
Battling a staggering debt, Venezuela strives to compensate these developments by seeking out India as its biggest oil export partner. With roughly 10 million barrels of oil waiting for shipment after sanctions limited deliveries to the U.S., Venezuela’s government announced that it aims to double exports to India. Deliveries to the South Asian country, however, have not increased to the extent that they can balance out losses from restricted oil trade with the United States. Moreover, the distance between India and Venezuela will lead to higher transport costs for the oil-rich country.
The dilemma of a petrostate like Venezuela can be explained with the phenomenon of the resource curse, also known as the paradox of plenty. This term describes countries that possess an abundance of natural resources such as oil and gas but tend to focus too much on this type of resource while neglecting other industries. This can eventually result in a faltering economic development alongside less pronounced democratic characteristics and corruption. Based on its heavy reliance on oil, Venezuela has dealt with an increased state debt, a decreased GDP, and hyperinflation. The fall of oil prices from 100 USD per barrel in 2014 to less than 30 USD per barrel in early 2016 only aggravated Venezuela’s economic calamity. While President Maduro consolidated power and displayed autocratic behavior after assuming his position in 2013, the country spiraled into poverty. Backing effects of the humanitarian crisis with numbers, an internal United Nations report from March 2019 estimated that 94% of Venezuela’s 32 million-large population lives in poverty.
Venezuela would require sweeping structural reforms to navigate itself away from its resource curse. Stable and independent political institutions, transparency, accountability, economic reforms, a diversification of its industries, and a renegotiation of foreign debts are sustainable solutions that would help the country out of its economic crisis. If Maduro remains president, chances are high that he will maintain the status quo. In the case that the military seizes control of the country while ousting Maduro, significant structural reforms also appear unlikely. International organizations and governments hoping for change in Venezuela are placing their bets on Guaido, who might be able to rekindle the economy through reforms. Reaching this goal, however, would require long-term commitment.
