The petrostate’s rapid downward spiral

Venezuela is in crisis. Politically and economically, this oil-rich Latin American country has been in a state of turmoil for the past several years, and the situation is only worsening. Venezuela is a petrostate, meaning its economy is critically tied to resources in the petrol sector. Because a petrostate’s economy is linked to revenue earned from oil sold on the global market, the state will experience a positive economic boost if prices for oil increase globally. On the other hand, if prices plummet on the global market, which is expected due to the precarious nature of the oil industry, the country will experience a hit to their revenue and, thus, their economy. This is what happened in Venezuela.

This is what happened in Venezuela.

During the first decade of the 2000s, the world experienced a significant oil boom, and, as a result, Venezuela earned colossal revenues. This money was used to fund a large portion of the government and, in effect, created jobs, funded social welfare initiatives, and paid for anything that then-president Hugo Chavez dreamed of as he strived to create a more equal society. Because oil revenues were so large, Venezuela became almost completely dependent on imports; no infrastructure was created to manufacture basic necessities or grow food because Venezuelans were able to purchase anything they needed from the global market. In fact, imports increased by 287% in Chavez’s first ten years in office. Because they had what seemed like an endless supply of oil and, therefore, revenue, a thriving social economy was built and expanded upon, and the petrostate experienced a period of prosperity.

However, evident in Venezuela’s recent economic crisis, catastrophic consequences can also stem from a petrostate. These negative effects began when the price of oil dropped on the global market. In 2014, Venezuela’s “oil price [dropped] in half over six months,” implying that the government’s income was also cut in half. Because the country was desperately dependent on these revenues, the government no longer had the money to function as it did before. As Buxton explains, “Oil revenues [accounted] for approximately 95 per cent of export earnings, 60 per cent of budget revenues and 12 percent of GDP.” The country no longer had the funds to import basic necessities or keep up with social welfare measures previously put into place. As a result, an extensive black market has developed, inflation has soared, and the country is experiencing an economic disaster.

To make matters worse, Hugo Chavez unexpectedly died in 2013, leaving Nicolás Maduro in charge of the worsening economic situation. The difficulty of Maduro’s role as Chavez’s successor cannot be understated – Chavez was adored by the people for ringing in an era of Venezuelan prosperity, but Maduro was left to pick up the pieces of Chavez’s economic mishandlings. Since taking power, the nation has been split between the Chavistas, those who follow the late Chavez’s socialist policies, and the rest of the country, who believe Maduro and the United Socialist Party (PSUV) must be ousted. Thus, Venezuelans have taken to the streets to protest the government on a wide range of issues such as the government’s lack of aid to the growing number of Venezuelans who are living without basic necessities.

Most recently, on April 19, 2017, Venezuelans participated in what has been nicknamed “the mother of all marches,” in which hundreds of thousands of protesters gathered in Caracas to call for the resignation of Supreme Court Justices and a fair, democratic election in 2017. This was the result of an unprecedented move by the Venezuelan government when, on March 29, 2016, the “Venezuelan Supreme Court seized power from the opposition-led legislature, a move that could essentially allow it to write laws itself.” This move, which can be interpreted as the establishing of a dictatorship, sparked the massive protest that quickly devolved into a grim and violent scene , where “at least two students and a member of the National Guard were killed in the clashes,” with some sources saying that the death count is now at seven.

In response to the violence that took place at the protest, Secretary General of the Organization of American States (OAS) Luis Almagro condemned the Venezuelan government, stating, “I am once again obliged to demand that the Venezuelan government immediately stop violating the rule of law, reestablish democracy, recognize the civil and political liberties of the people, and immediately end this repression.” Countries around the world, including China – one of Venezuela’s largest customers – are reluctant and cautious to grant new loans. It seems the worst is yet to come for Venezuela. South Americans, and indeed people worldwide, will be looking to Nicolás Maduro for his next steps during these critical and trying times.

The crisis in Venezuela is unique. Latin America has seen its fair share of economic and political precarity including past dictatorships, but Venezuela’s role as a petrostate coupled with its unyielding ruler throws the region into uncharted territory. Just recently, Venezuela announced its decision to withdraw from the Organization of American States (OAS), of which the country is a founding member. Latin America, within the last couple decades, has seen a shift to the political left, usually referred to as the “Pink Tide.” After the events that have unfolded in Venezuela, the region may see a shift back to the political and economic right as countries attempt to prove to the world and their citizens that they can lead economically responsible governments.

For more information on the ongoing economic crisis in Venezuela, be sure to check out “How Venezuela Imploded” (podcast #731) on NPR’s Money Planet.

By Janessa Duran

Please note that opinions expressed are the author’s own. They do not necessarily reflect the views and values of The Blank Page.