Oil Made Venezuela Rich, And Now It’s Making It Poor

[hack89]

“Venezuela,” New York Times reporter Nicholas Casey wrote this week, “is convulsing from hunger.” Grocery stores are out of food; hospitals are out of medicine; gangs are fighting in the streets over meager supplies. Venezuela’s collapse has many causes: excessive borrowing, political corruption, an official exchange rate that defies economic realities. But the country’s poverty today is due in large part to the same thing that made Venezuela rich just a few years ago: oil.

Venezuela, a charter member of the OPEC cartel, has the world’s largest oil reserves and is a major oil exporter. (The U.S. is its biggest customer.) Most of Venezuela’s oil is of a thick, gooey variety that is expensive to refine and transport. But none of that mattered when oil prices surged in the late 2000s — at $100 a barrel, even the costliest oil was hugely profitable.

But all that spending — and borrowing — left Venezuela dependent on ever-rising oil prices. Instead, prices plunged, dropping from over $100 a barrel in mid-2014 to under $30 a barrel earlier this year. (It has rebounded to about $50 in recent weeks.) The unexpected price slump was bad news for oil-based economies from Riyadh, Saudi Arabia, to Williston, North Dakota. But nowhere was hit as hard as Venezuela, which was left with huge debts and no other meaningful exports to help repay them.

Making matters worse, Chavez’s spending on social programs left little remaining to invest in PDVSA. Old fields were allowed to decline, while new drilling opportunities weren’t adequately explored. As a result, Venezuelan oil production isn’t rising and exports are falling due to rising domestic consumption. Meanwhile, production is falling in Venezuela’s most profitable fields, those that produce a lighter type of oil. That leaves the country more reliant than ever on overseas sales of its gooey, heavy crude — oil that isn’t in much demand when there’s so much better oil to be had amid global glut. Venezuela has been forced to import lighter oil from other countries, including the U.S., to mix with its oil so it can sell the blend.

http://fivethirtyeight.com/features/oil-made-venezuela-rich-and-now-its-making-it-poor/

A good and simple explanation of how Venezuela got to be such a mess.

[forjusticethunders]

1. Unfortunately Chavismo was a very vulgar form of socialism.

The poor and disadvantaged in the country need help for sure, but they need more than social services, they need economic development and diversification, which CAN be done in a socialist country if the political vision is there.

[geek tragedy]

2. This is more of a Venezuela thing than a socialist thing

Rightwing has been every bit as bad at keeping the country dependent on oil exports.

[uponit7771]

3. Sounds like they didn't diversify their economy enough after the money started rolling in

[Igel]

4. Something was left out.

Foreign companies that would have been putting investment into new fields and updating technology were consciously and conscientiously driven out, often at a loss. That made other companies less likely to invest, and will make companies less likely to return.

It was more important to hurt the foreign companies than to help Venezuela. That kind of vindictive thinking happens a lot during revolutions.

"How dare they make money off of us, what, do they think they're special" is also a kind of "thinking" that happens during revolutions. Often the answer is, "Yes, they're special. They're smarter than you. They have more money to invest than you. They are possibly less driven by tomorrow's wants than by next decade's needs." During revolutions, pent up resentment often drives unerring fulfillment of short-term demand.