Muscat, Oman – The Venezuelan economy was incredibly mismanaged. Oil producing countries are suffering but not like the Venezuelans. Not only do they not have money, but even if they did there wouldn’t be anything to buy. The MAIN reason though is that when oil prices were high, the Chavez government borrowed money hand over fist. This allowed everyone in Venezuela to live quite well. So everyone loved Chavez. Now however they have no way to pay for their debt. No one will loan them money or give them any kind of credit because of inflation. Its an old story.
Chavez was a friend of the poor and he diverted the nation’s oil resources towards social programs. He had much to learn from Deng Xiaoping of China who had no illusions about both capitalism and socialism. By his autocratic style he used Venezuela’s oil resources to pull out country’s economy through development. He was ardent spokesperson against capitalism, particularly against the policies of the US, like Fidel Castro in Cuba and Deng Xiaoping in China. He articulated reforms in Venezuela in his own style.
OPEC nations in tandem with Russia will now go for reduction in crude oil production to counter decline in prices. Political turmoil in some oil producing nations like Nigeria, Venezuela , Iraq and Libya may also affect crude oil price.
Brazil (still) exports crude and imports refined products because they don’t have adequate in-house refining capacity. In the heyday of oil prices everything looks fine, but when oil markets fall, their whole economy crashes because refiners still keep their premiums up (this is why value addition gives more stability as opposed to volatility of upstream commodity prices). Venezuela is no different. Venezuela now plans to import oil to refine. It has the largest oil reserves in the world. Despite they having largest reserve, their crude is not as light or sweet as they would like. Hence they have to import sweeter crude or refined products while exporting heavier one.
Venezuelan crude is almost as thick as tar Sands bitumen and for decades the US imported a large portion of its petroleum needs from Venezuela. Now the Kochs have most of only economically viable heavy oil refineries in the US so they want to get their hands on Tar Sands bitumen. In Canada the provincial governments own the natural resources under the ground. They do not sell the “mineral rights” to anyone. They lease them. The Koch’s have leased a lot of land in Alberta but very little of the land they have leased has been developed so very little of it produces bitumen. The Kochs want more bitumen originating in Alberta to make its way to the Gulf coast of Texas where their big refineries are. They want the Keystone XL pipeline to refine bitumen extracted by oil companies that they do not control.
The socialist land reform was a mistake. Small farms cannot compete. Big farming is necessary. Once expropriated, the big farms could have been maintained and stock company shares distributed equitably to the poor, hiring top farm managers. Chavez’s brand of socialism used Venezuela’s rapidly growing oil wealth to set up social programs, known as the Misiones, with the aim of eradicating poverty and reducing inequality. It was, many claimed, a much-needed intervention in the entrenched disparity between Venezuela’s rich and poor, but he did not tax the rich. He borrowed instead and that was manageable with high oil revenues but oil prices fell and now Venezuela has defaulted on its $157 billion in foreign debt and its oil fields are falling into disrepair for want of proper maintenance. He should have financed his Misiones directly from oil revenues as they became available and not borrowed.
Compare this to Norway’s management of oil revenues for its social programs and its wealth fund. No borrowing and virtually no problems with much socialism (still mixed with capitalism). A successful mixed economy. The right wing ideologues are simply wrong in attributing Venezuela’s problems to socialism. No borrowing and taxes on the rich would have carried the day.
The US prefers to use other people’s oil than their own, often in countries that they’ve conquered like Iraq, so taking Venezuela’s oil that is so nearby is clearly a massive temptation for them. There has also been a huge oil discovery made off the northeast coast of Cuba, so that’s why the US is also threatening to “bring democracy” to Cuba lately.
The sanctions are a tragedy for Venezuelans, as it has been during the Chávez and Maduro regimes, but the biggest impact may come if the Maduro regime is toppled. If Guaidó succeeds, it is likely the new government will declare the debt that Russians and Chinese hold to be fraudulent and refuse to pay it. That would immediately more than double Venezuela‘s cash oil income since more than half of the exports go to pay the Chinese and Russian debt. And longer term, Venezuela may see a “restoration of production to pre-Chávez levels.
When it comes to the US’ so-called “shale revolution” Venezuela is not a significant oil producer currently. The economy is completely oil dependent, and while the US accounts for 41 percent of Venezuelan oil exports, Venezuela is not particularly significant for the US, whose own production, shale is booming.