In 1976, Venezuela’s economy was booming amid an oil crisis, and Caracas (its capital) was one of only four destinations to which Concorde, the fastest and most expensive aircraft of its time, alighted. However, the Venezuela of 1976 is a world away from the Venezuela that is currently under the dictatorship of President Nicolas Maduro. In fact, from the 1950s to the early 1980s, Venezuela experienced very strong economic growth and had the highest standard of living in Latin America.  Today, its population has extremely limited access to food and water, and with little to no healthcare available, child mortality is at an all-time high. Indeed, the lack of food has led to the average Venezuelan losing over 8.7kg in 2022. These catastrophes, combined with a rate of inflation that exceeds 1,000,000% since 2018, which had rendered the Bolívar valueless, can be rooted in the country’s almost sole dependence on oil. 

Venezuela is an example of a petrostate, a country whose economy is heavily dependent on the exportation of oil and natural gas. As a result, they typically have volatile economic growth which is tied to fossil fuel prices. In most cases, they are led by autocratic governments who are supported by an “elite” business and political class. These states are also usually subject to the “Dutch disease” where the increased dependence of an economy on the natural resources sector leads to the decline of other economic sectors. Conversely, countries like the United States and Norway would not be considered petrostates due to them having diversified economies as well as being major oil producers. 

Venezuela’s descent into becoming a petrostate commenced in January 1976, when President Carlos Perez nationalised the oil industry. He created Petroleos de Venezuela (PDVSA) which was to control all extraction and exportation of crude oil in Venezuela. The company would be allowed to partner up with other private companies only if it retained 60% equity on any exploration and extraction project. Venezuela’s oil production and economy subsequently experienced rapid growth (an average of 5% between 1974 and 1978).

Perez still managed to be re-elected in 1989 even though the International Monetary Fund forced him to launch a fiscal austerity package. This bailout of the Venezuelan economy and subsequent economic contraction led to violent riots around the country. During the period of these violent protests, Colonel Hugo Chavez rose to national fame when he and his supporters made two attempts to usurp Perez in confrontations which led to the deaths of 120 people. Despite these failures, Chavez was elected in 1998 as president. 

Chavez’s presidency can be viewed from two very distinct perspectives. On the one hand, he expanded social services by providing free healthcare and schooling for all Venezuelans, while reducing poverty rates by 20%. On the other hand, his actions directly led to the decline of oil production in the nation, consequently leading to the collapse of the Venezuelan economy.  During his presidency, government debt doubled, and as of 2022, government debt stands at 157% of GDP, the fourth highest level in the world.  Meanwhile, he nationalised hundreds of companies and expropriated projects such as those of ExxonMobil. Moreover, his decision to fire thousands of PDVSA workers after union strikes in 2002-2003 led to a large decline in production and gutted the company of important technical expertise.

Chavez’s death then paved the way for Maduro’s de-facto dictatorship regime, which took over in 2013.  Within one-year of his rule, Venezuela received the biggest blow to its economy yet. This was as a result of the oil crisis of 2014 where oil prices plummeted by 44%. When a country’s crude petroleum exports represent 83.1% of its exports, the effects of a fall in oil prices have a devastating impact on the economy. By late 2014, Venezuela’s economy was in a recession, and by 2016, it had an inflation rate of 800%, the highest in South America. 

These economic troubles have led to an acute socioeconomic crisis in Venezuela. Crime rates are at an all-time high; it is estimated that a murder occurs every 21 minutes, but one does not know for certain since murder rates are so high that the government no longer reports this data. The nation has seen a mass exodus of 7.1m people as many can no longer even afford to buy a loaf of bread. Throughout the streets, vendors make sculptures out of the useless pieces of paper that used to make up the money supply, while Maduro and his inner circle continue to live lives of luxury. This mass exodus has also decreased the size of the workforce, which has multiplied the effects of the oil sector collapse; output in the country has decreased by 75% since then.

Venezuela has been subject to the ‘oil curse” because its economy was built around the discovery of it in the 1920s. If a country strikes oil before its state infrastructure has been built up, then it is more likely to succumb to the curse. The fact that it is bubbling out of the ground in some areas of the country has meant that its extraction is incredibly easy and inexpensive compared to gas reserves in other countries, which are deep underground. 

A further challenge is that petrostates will also have to diversify their economies as the world intensifies its fight against climate change. But an obvious step that Venezuela must take is to control its inflation rate, which may be done either via redenomination or dollarisation. Several other countries have done this; for example, dollarisation has begun to occur in Argentina to curb high inflation. Maduro does seem to realise this, as he has labelled dollarisation as the ‘escape valve’ for the Venezuelan economy.

Despite the numerous challenges faced by the Venezuelan economy and its peoples, it remain a country of great beauty and natural wealth; Venezuela even has larger proven oil reserves than Saudi Arabia.  With little to no investment and the prior nationalisation of oil assets, the government does not have money to invest in modern production infrastructure and foreign oil companies are not likely to invest into the country in its current decrepit state. Once the government of Maduro is ousted, there may be the possibility that the weakened economy can be improved to make it once again the prosperous South American nation that it used to be.