Venezuela, home to the world’s largest oil reserves, is a case study in the perils of becoming a petrostate. Since it was discovered in the country in the 1920s, oil has taken Venezuela on an exhilarating but dangerous boom-and-bust ride that offers lessons for other resource-rich states. Decades of poor governance have driven what was once one of Latin America’s most prosperous countries to economic and political ruin. If Venezuela is able to emerge from its tailspin, experts say that the government must establish mechanisms that will encourage a productive investment of the country’s vast oil revenues.
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Venezuela is the archetype of a failed petrostate, experts say. Oil continues to play the dominant role in the country’s fortunes more than a century after it was discovered there. Oil prices plunged from more than $100 per barrel in 2014 to under $30 per barrel in early 2016, sucking Venezuela into an economic and political spiral. Conditions have only worsened since then.
A number of grim indicators tell the story:
--Oil dependence. Oil sales make up 99 percent of export earnings and roughly one-quarter of gross domestic product (GDP).
--Falling production. Starved of adequate investment and maintenance, oil output declined to its lowest level in decades in 2020, though output is slowly beginning to increase again.
--Spiraling economy. GDP shrank by roughly two-thirds [PDF] between 2014 and 2020, and experts forecast that, as global demand for oil continues to be depressed amid the coronavirus pandemic, it would decline by another 5 percent in 2022. (Conversely, some analysts predict that Venezuela’s economy will grow modestly in 2022.)
--Soaring debt. Venezuela has an estimated debt burden of $150 billion or higher.
--Hyperinflation. Annual inflation is running at 1,946 percent.
--Growing autocracy. President Nicolas Maduro and his allies have violated basic tenets of democracy to maintain power...
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