For years, Venezuela has been mired in one of the world’s worst humanitarian crises. More than 4.5 million Venezuelans have left the country since 2014, and an average of 5,000 more leave each day. Hyperinflation in Venezuela is so bad that the price of a cup of coffee in Caracas, the capital city, has soared to over 2.5 million Bolivars – a 3,450 percent increase in the last year alone.
At the root of this crisis is a political system consumed by the struggle of President Nicolás Maduro to stay in power despite a significant and growing opposition and an economy in freefall. The collapse of Venezuela’s oil industry after decades of mismanagement, and hastened by international sanctions, has largely led to the country’s economic ruin and humanitarian crisis.
Hoping to reverse this trend and revive an oil-reliant economy, Maduro has recently instituted reforms to the industry that, in theory, could help alleviate the acute suffering felt by so many Venezuelans. The government’s proposals for their implementation, however, have been decried by many as more likely to worsen the crisis and significantly damage the environment.
When the Oil Stops Flowing
Oil and its outsized role in the Venezuelan economy can be traced back to the outset of the crisis in 2014. Venezuela is a petrostate, meaning that the government (and by extension the economy as a whole) is highly dependent on income from exports of oil and other fossil fuels. While Venezuela has one of the largest proven oil reserves in the world and has enjoyed tremendous levels of economic success in the past by producing and selling it, its current production levels and revenues have bottomed out.
Such reliance on oil revenues has essentially tied Venezuela’s fortunes to the price of oil. Maduro’s predecessor, Hugo Chávez, took advantage of high oil prices to fund a wide array of social programs. When Maduro took the reins in 2013, oil prices began to dip, and the funding for these social programs dried up. Throughout this crisis, Venezuelans who had to rely on the state to provide for their wellbeing through social programs have experienced incredible hardships as a result of these oil price fluctuations.
For its part, the Maduro government has been largely unwilling to budge on any economic reforms. Instead, Maduro became increasingly authoritarian to crush any dissent, and the U.S. responded with sanctions that have effectively crippled the oil industry and hastened the collapse of the country into utter despair.
Proposed Reforms & Precedent
However, the Venezuelan government has recently shown interest in reforming its oil industry. Maduro and the state-owned oil company, PDVSA, have essentially proposed a limited “opening-up” of Venezuela’s oil fields to private and foreign investment in the hopes of increasing oil production and subsequent revenues.
Although the country’s oil fields have been nationalized since 1975, there is a precedent for this kind of opening. The apertura era (1994-1999) saw PDVSA respond to a weak economy and competitive global oil market by allowing joint ventures with foreign oil companies, and it largely worked to help revive the economy. However, the apertura occurred under a neoliberal, elite-dominated government that essentially allowed PDVSA to act as a “state within a state” – claiming power over national oil policy and becoming more opaque about where oil revenues were going.
Its many problems aside, the example of the apertura era demonstrates that the Maduro government’s proposed reforms could benefit the Venezuelan people because increasing oil production would likely help the national economy. With its national oil company crippled and its access to capital wiped out by sanctions, the country’s oil production has reached previously unimaginable lows. Producing oil in Venezuela’s Orinoco Belt region is uniquely difficult, so bringing in foreign capital and expertise is a good way to restart that revenue stream and maybe begin to revive the economy.
Goals vs. Expectations
By reforming the oil industry to allow for some foreign involvement in production, Maduro likely hopes to start the process of rebuilding Venezuela’s economy without acceding to demands from the U.S. and around the world for him to step down for his government’s authoritarian actions. If he succeeds in this, it would certainly have a positive effect on the daily realities of the country’s citizens, many of whom currently struggle to find or afford basic products like food, medicine, or fuel.
However, the Maduro government’s proposal for implementing these reforms could have profoundly negative impacts on the Venezuelan people and the environment. The recently passed Anti-Blockade Law, Venezuelan legislation meant to subvert U.S. sanctions, will enable the Maduro government to make deals with foreign oil companies in secret. The rationale for this is to protect the Venezuelan oil industry, rightly identified as critical to the national interest, by keeping its operations secret like a branch of the military.
In practice, keeping oil deals secret enables the same types of bad behavior exhibited by PDVSA during the apertura era – obscuring where revenues from oil production are going, for example. Thus, it is likely that increased oil production will strengthen Maduro’s authoritarian grip on the country and enrich his allies rather than improving the conditions for millions of Venezuelans.
Secondly, increasing production in the Orinoco Belt would be disastrous for the local environment. Extracting this kind of heavy crude oil has already wrought staggering environmental damage over the last few years, and ramping this production back up would only worsen the situation in the ecologically sensitive region. Crumbling oil infrastructure frequently leads to spills and leaks that have polluted waterways, farmland, and aquifers.
As of 2016, the last year PDVSA released data on its spills, the estimated clean-up bill stood at about $2.2 billion, and the national oil company has only deteriorated more rapidly since then. As of 2018, it was believed that the cost for Venezuela to rebuild this infrastructure and produce oil in the Orinoco Belt would exceed $22 billion – more than the country’s total oil export revenue in 2017 and far more than the paltry $2.3 billion it made last year.
For years, Maduro’s opposition has advocated for a similar “opening-up” of Venezuela’s oil industry as the solution to the petrostate’s economic woes – most famously in the Plan País proposed by self-declared president Juan Guaidó. However, Maduro’s reforms barely resemble the opposition proposals, even at surface level. Rather than increasing oil production to kickstart a downtrodden economy, these oil industry reforms are likely to worsen Venezuela’s political and environmental problems.
Refugees & Those Who Remain
In all of this, the ones who will continue to bear the brunt of the turmoil in Venezuela are its poorest, most vulnerable citizens. The number of people who have left the country already is staggering (around 12 percent of the total population) and comparable to the refugee crisis in Syria. Much attention has been paid to the many struggles faced by those who have left, and rightly so, but this crisis is just as onerous for the 88 percent who remain in Venezuela. Paying attention to actions taken by the Maduro government, such as the recent oil reforms, still matters because these policies will have a profound impact on the current and future living conditions of Venezuelans who either choose to remain or are unable to leave.
For those of us on the outside looking in at the humanitarian crisis in Venezuela, it may seem like there isn’t much we can do to help. Yet, particularly in the U.S., it is important to be informed about what is happening and how our country’s sanctions impact the situation. This article cannot possibly provide a comprehensive discussion of the humanitarian crisis occurring in Venezuela, but I do hope that it inspires you to go out and learn more about the Maduro government, the role of oil in Venezuela, the legacy of Chávismo, or the reasons for U.S. sanctions and their impacts.
Further Reading
- Maduro’s Brown New Deal for Venezuela
- Venezuela: The Rise and Fall of a Petrostate
- Why Venezuela’s Chavistas are fiercely loyal to Maduro, despite economic crisis
- The Impact of Financial and Oil Sanctions on the Venezuelan Economy
