Venezuela’s oil wealth is declining under socialist cronyism and hyperinflation
Continental Resources chairman Harold Hamm discusses US interest in Venezuela’s vast oil reserves and more on ‘Kudlow.’
At the beginning of the last century, Venezuela was considered the leading economy in South America. At least part of the story is that the country discovered large oil reserves in 1922. Currently, the country has the largest oil reserves of any country, 303 billion barrels. While that sounds good on paper, it doesn’t change the fact that the economy is very poor in South America. The irony is, how come all that oil wealth is so bad waiting to be monetized?
The first major step in the wrong direction was in 1976, when the Venezuelan government decided to nationalize all foreign oil companies in the country. Subsequently, the newly acquired oil businesses were largely incorporated into the previously state-owned oil company Petróleos de Venezuela, SA (PDVSA).
Yet perhaps surprisingly, the economy never took off. “What kept it going was that they were still producing oil,” Robert Wright, a visiting professor of history at the University of Austin, told FOX Business. “It takes a while for a socialist to finish it.”
AFTER MADURO, VENEZUELA IS FACED WITH DIFFICULT DECISIONS TO REBUILD ITS CRASHED ECONOMY.
Venezuela’s then President Nicolás Maduro speaks during a meeting with ministers at the Miraflores Palace in Caracas, Venezuela Dec. 17, 2016. (Miraflores Palace/Handout via Reuters/Reuters)
A full blown socialist
The next change came with the election of Hugo Chavez, in 1998. A year later, he introduced the “Plan Bolivar,” which included “an anti-poverty plan that includes road construction, housing, and mass immunization,” according to the Council on Foreign Relations. The government’s wishes may seem sympathetic, but in reality, Chavez was about to go full socialist.
Crony corner
In 2002, the Chavez government fired PDVSA’s top executives and 18,000 other workers, many of whom were highly skilled oil miners. And a large part of those laid off moved to other countries. The issue now was who would be hired to run the oil business? It turns out that most of the appointments at PDVSA went to political cronies rather than oil experts.
Oil pumps work near Lake Maracaibo in Maracaibo, Zulia province, Venezuela, on July 12, 2024. Decades of mismanagement, underinvestment and sanctions have contributed to the decline of Venezuela’s once-powerful oil industry. (Oil pumps work near Lake Maracaibo in Maracaibo, Zulia province, Venezuela, on July 12, 2024. Decades of mismanagement, underinvestment and sanctions have contributed to the decline of Venezuela’s once-powerful oil industry. / Getty Images)
Without oil industry workers with relevant skills, government business has declined; at first slowly, then very quickly. “They didn’t run it as a business, and they didn’t reinvest in the company to keep it going,” Steven Blitz, chief global strategy officer at GlobalData TSLombard, told FOX Business. Most recently, production was 1.1 million barrels a day compared to 3.7 million in 1970, according to data from Statbase.org.
Hyper Inflation Stresses the Country
Nicolás Maduro took over the presidency of Venezuela in 2013 and made things worse.
US OIL GIANTS MUM AFTER TRUMP SAYS THEY WILL PUT BILLIONS OUT OF VENEZUELA
Former Cuban President Fidel Castro (L) talks with then Venezuelan President Hugo Chavez (R) during their visit to the monument to the unknown soldiers at Campo Carabobo, in Valencia, Venezuela, on Oct. 29, 2000. (Adalberto Roque/AFP via Getty Images/Getty Images)
In order to make the people happy, the government provides the country with the needs. But there was a mistake. “They paid for it by printing money, which led to hyperinflation,” Wright said. It started in 2016 and reached 375,000% in 2019, according to Trading Economics data.
There were other problems. “The government took over the oil industry, thinking it would be a cash cow,” said Blitz. “Finally, the income goes down.” And at that time, there was nothing else the country could depend on; no big banks, no other important sectors except one self-employed salesman. Wright says: “They never developed the economy.”
An oil pumpjack and a tank with the corporate logo of the country’s oil company PDVSA are seen at an oil field in Lagunillas, Venezuela Jan. 29, 2019. (Photos by Isaac Urrutia/Reuters/Reuters)
In the last ten years, Venezuela has been subject to many sanctions from the US. These sanctions are varied but mainly aimed at disrupting the country’s rulers by imposing a number of restrictions, including prohibiting people from entering into financing arrangements with the Venezuelan government.
During the Maduro years (2013 to early 2026), the number of Venezuelans living abroad jumped. In 2015, there were just 700,000, but that had reached nearly 7.9 million last year, according to the International Organization for Migration. It is possible that at least some of those fleeing would be highly skilled workers, which the country needs now.
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“The people running in Venezuela had one idea,” Blitz said. “They thought the event would never end.” But it happened, and now many hope that a new era – ushered in by Maduro’s ouster – is about to begin.
