One of the biggest issues currently faced by the international economy is the recent and sudden crash in oil prices. Although many countries have taken this as an opportunity to buy barrels of oil for less, there is a significant underlying issue with the drop in oil prices, specifically for oil exporting countries such as Venezuela.
In 2014, Venezuela’s oil revenue accounted for approximately 95% of their export earnings. They have been members of the Organization of the Petroleum Exporting Countries (OPEC) since 1960 and are listed in the top ten countries for highest production of oil. Since becoming a producer of oil in 1914, they have become a large exporting nation of a resource with fluctuating prices.
Along with the success of their production of oil came wealth to the citizens through subsidies and employment. Forty-five percent of the population is employed through the government due to their large monopoly on Venezuela’s oil. The majority of this success is due to former President Hugo Chavez. When this controversial president came into power in 1999, strengthening their membership in OPEC was of paramount importance to his regime. The previous President Rafael Caldera had ignored quotas and demands from OPEC. Thus, when Chavez came into power he and the Ministry of Energy and Mines (MEM), which oversees the Petroleos de Venezuela, S.A (PDVSA) successfully accomplished their goal of increasing oil production and policy.
Even though this developing country has established themselves as a vital player in global oil production and distribution, the nation has taken a major hit due to the recent drop in prices. With prices falling from $100 per barrel to $70 (and decreasing still), oil-exporting nations are facing difficulties in regards to their respective oil-driven economies. Unlike oil producing nations like Saudi Arabia and Kuwait, Venezuela does not have significant reserves- ergo their reliance on the export, and the intensity of the negative consequences this crisis has brought about. Although Venezuela is just one of many nations that are suffering, their collapse has been reaching unforeseen levels of desperation, leading outside nations to question the government’s competency in handling the crisis further than before.
Due to this collapse in oil prices, shortages in this South American country have provoked a new level of interference by the government. Their exports fell from $100.64/barrel to $39.2/barrel, which is directly affecting citizen’s lives. Current President Nicolas Maduro refuses to substantially cut social programs following this fall in trade revenue. The extent of his leadership during the crisis, or lack there of, has been to travel to other oil-producing nations to encourage a movement of collective measures to ameliorate some of the poor conditions experienced by the petroleum markets. Additionally, he is attempting to borrow money from nations across the globe in order to maintain the many popular subsidies his regime offers. While he has been scampering for solutions to the crisis, Venezuela’s market is pushing citizens to the brink of poverty because access to basic products has been revoked and/or unsustainably scarce. Products such as soap, toilet paper and flour are all in short supply given the inadequate level of imports that Venezuela has been able to afford
As a result of this shortage, strict currency controls have been implemented as well as new constraints on consumers’ purchasing decisions. To ensure citizens are not hoarding and/or reselling these products for a higher price, the government is implementing some questionable preventative measures. New ID cards for citizens and registration processes are being established at markets and grocers. According to Venezuela’s Food Minister Felix Osorio, these methods will track suspicious purchasing patterns. Even though they are facing a drop in exports and currency, how the government is handling this financial oil crisis in a very controversial matter.
During the Chavez regime, the government sold cheap, subsidized products in the state run markets. This was done to galvanize support among the poor for his presidency. With social programs benefiting the poor and revenue from the oil being provided to the citizens, the Venezuelan population was largely in favour of the Chavez government. It has been through payments of Venezuelan oil that their currency and consumerism has flourished. These price controls have been essential to protect the economy from inflation and to allow consumers the ability to access basic goods. Under Maduro’s regime, there has yet to be a successful solution to the effects of the petroleum crisis. If citizens are not provided their basic needs and are forced to continue waiting outside a store for hours simply to buy cooking oil, then perhaps the Maduro government will not last
Image License: Some rights reserved by Glenn Euloth