Another mistake that Venezuela cannot afford to make

María Corina Machado, former member of the National Assembly[1], triumphed in the internal primary of Unitary Platform, an alliance of opposition parties, gaining over 90% of the votes[2]. She was ready to challenge Maduro in the 2024 elections. However, the Venezuelan Supreme Court unexpectedly decided to suspend the result of the recent opposition primary. This verdict of the Venezuelan Supreme Court surprised international analysts, since it came just few days after the U.S decided to lift sanctions on Venezuelan oil (PdVSA, the Venezuelan state-owned oil company) and gas industry, as well as on Minerven, the Venezuelan state-owned gold mining company. 

Four years after the 2019 sanctions, the Biden administration suspended the most important restrictions on Venezuelan exports. This important move came as a “response to the signing of an electoral roadmap agreement between Venezuela’s Unitary Platform and representatives of Maduro”[3] and, as stated by the secretary of State Blinken, the same sanctions would be reinstalled in case of “failure to abide by the terms of this arrangement”[4]. One of the key points of the arrangement is the autonomy given to Unitary Platform to select, according to their internal rules, their candidate for the upcoming 2024 election. The Unitary Platform managed to organize independent primaries, drawing approximately 2.4 million Venezuelan voters1. The US warned that failure to honour the agreement may prompt to a reinstatement of the sanction. 

But why is oil vital for the Venezuelan economy and why the country cannot afford to remain sanctioned by the U.S.?

Why is Venezuela so dependent on oil?

Venezuela is the country with the highest proven oil reserves[5] on the planet, followed by Saudia Arabia. However, unlike Saudia Arabia, Venezuela has experienced an economic collapse in the last decade. The South American country has been governed by the PSUV (Partido Socialista Unido de Venezuela) over the last 25 years. It has only had 2 presidents since 1998: Hugo Chavez and Nicolás Maduro, Maduro becoming president in 2013, after the death of Chavez. The graph below (data taken from Statista[6]) clearly illustrates on the results of his administration.

Source: “Gross domestic product (GDP) in current prices in Venezuela from 2002 to 2024”, Statista6

From 2012 to 2022 the GDP declined by approximately 75%. The decrease the graph shows that the country was better off under Chavez. This was mainly due to the higher oil prices, which facilitated the country’s growth and the funding of costly social programs. While expanding these programs, Chavez also nationalized several enterprises. The loss of competitiveness of the private sector was compensated by the high oil prices. However, the era of skyrocketing oil prices came to an end, and all the weaknesses of the fragile South American economy became evident. During his presidency, Chavez failed both to significantly increase the country’s crude oil production, and to achieve economic independence from oil[7]. The graph below shows the oil production of Venezuela over the years (data sourced from OPEC).

Source: Opec “World crude oil production by country”7

In 2013 Maduro came to power; not assisted by favourable oil prices like his predecessor, the new Venezuelan president was unable to solve the problems (hidden by the high oil prices) left by Chavez. Ongoing corruption, inability to finance proper maintenance to the existing infrastructure, skyrocketing inflation (inflation reached the record level of 65374.08 % in 2019[8]), millions of Venezuelans escaping from the country, and international sanctions have been the highlights of the Maduro administration. 

However, the problems seen under Maduro originated during Chavez’s presidency. As Javier Corrales perfectly describes in a 2013 article published in “Foreign policy”, “Maduro (or whoever else ends up following in Chavez’s wake) will also inherit one of the most dysfunctional economies in the Americas”[9].  In 2012, deficit on GDP was higher in Venezuela than in Spain or Greece, the rate standing at 21.07%. While that inflation rate seems nothing compared to the staggering 65374.08% reached in 2019, it is still more than twice the inflation experienced by the U.S. and the Euro area in recent years. Corrales illustrated what populists usually do when inflation becomes worrying; they impose microeconomic controls. Controls over retail prices, foreign exchange rates and restrictions on firing private employees are the three most typical measures adopted by populists. Chavez introduced all those controls under his presidency; however, those measures ended up decreasing labour productivity and increasing consumer goods scarcity.

This article from 2013 shows us that the country was already, a decade ago, heading towards the disaster we have seen in the last years. Moreover, Venezuela saw significant U.S. sanctions that made it harder for the oil-based economy to recover (part of them have just been temporarily removed by the United States).

The sanctions imposed under the Trump administration heavily targeted PdVSA and their oil production, freezing their assets in the United States; “The E.O freezes all property and interests in property of PdVSA subject to U.S. jurisdiction and prohibits U.S. persons (companies or individuals) from engaging in transactions with the company.”[10]. Those sanctions are the reason why, even with rising oil prices, Venezuela did not manage to increase its oil exports since then.  Moreover, the restrictions were extended to Minerven, the Venezuelan gold mining company, The Central Bank and the National Development Bank.  The graph below (graph taken from Statista)[11] illustrates how much those restrictions affected Venezuelan export. Even with rising oil prices (see the average oil price[12]throughout the years) in 2021 Venezuela did not manage to increase its export, that slumped to less than 4 billion USD in 2021(while in 2012 it was 97,34 billion USD).

Source: “Venezuela: Export of goods from 2012 to 2022”, Statista11

Source: “Average annual Brent crude oil price from 1976 to 2023”, Statista12

Conclusion

Venezuela desperately needs to increase its export; the move of the American administration would allow the South American nation to reinvest in the country the revenues coming from the oil and gold industry. 25 years of PSUV have not led to higher standards of living for Venezuela and Venezuelans realise that. Venezuela has made numerous mistakes over the last two and a half decades, and now the nation necessitates more than ever to export its most crucial natural resource: oil. Therefore, suspending the opposition’s primary result a few days after the US’s sanction lift, is not only undemocratic, but also another economic mistake that Venezuelans cannot afford to pay for.


[1] https://www.nytimes.com/2023/10/31/world/americas/maduro-venezuela-election.html

[2] https://www.ft.com/content/111953ed-d838-4f16-ad71-9f5fc31ef7aa

[3] https://home.treasury.gov/news/press-releases/jy1822

[4]  https://www-economist-com.eu1.proxy.openathens.net/the-americas/2023/10/19/joe-biden-lifts-sanctions-on-venezuela-but-not-without-conditions

[5] https://www.statista.com/statistics/237065/share-of-oil-reserves-of-the-leading-ten-countries/

[6] https://www.statista.com/statistics/1392501/gross-domestic-product-gdp-in-current-prices-venezuela/

[7] https://asb.opec.org/data/ASB_Data.php

[8] https://www.statista.com/statistics/371895/inflation-rate-in-venezuela/

[9] https://foreignpolicy.com/2013/03/07/the-house-that-chavez-built/#cookie_message_anchor

[10]https://crsreports.congress.gov/product/pdf/IF/IF10715#:~:text=Sanctions%20on%20the%20Maduro%20Government,government%20unless%20authorized%20by%20OFAC.

[11] https://www.statista.com/statistics/370930/export-of-goods-from-venezuela/#:~:text=In%202022%2C%20goods%20with%20a,dollars%20were%20exported%20from%20Venezuela.

[12] https://www.statista.com/statistics/262860/uk-brent-crude-oil-price-changes-since-1976/

Luca Maria Favazzo

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