Could Venezuela go bust?

Yes, apparently so, despite having all that oil.

The state oil company, PDVSA, produced 3.2 million barrels per day in 1998, the year before Mr Chavez won the presidency. After a decade of rising corruption and inefficiency, daily output has now fallen to 2.4 million barrels, according to OPEC figures. About half of this oil is now delivered at a discount to Mr Chavez\’s friends around Latin America. The 18 nations in his "Petrocaribe" club, founded in 2005, pay Venezuela only 30 per cent of the market price within 90 days, with rest in instalments spread over 25 years.

The other half – 1.2 million barrels per day – goes to America, Venezuela\’s only genuinely paying customer.

Yes, yes, I know, capitalism\’s insitence upon efficiency is disgusitng, but it does also seem to be important.

All this means that Venezuela has missed much of the benefit from the oil boom and, now that prices are falling, Mr Chavez faces huge financial problems. Nobody is sure at what point his government would be unable to pay its bills, but most sources consulted believe this would probably happen if oil falls to $80 a barrel. Yesterday, oil was trading at $79.80.

The thing is, you can still do the redistribution bit without the inefficiency. Crank out the oil in a capitalist manner and then spend the income in a socialist one. You\’d actually get more of what you want that way.


5 thoughts on “Could Venezuela go bust?”

  1. I was reading an article last week that talked about the breakevens for various petro-states; from memory the UAE needs at least $34/bbl, Saudi needs at least $60/bbl just to pay its social security bills, and Iran starts losing money anywhere south of about $90/bbl due to its investment in infrastructure and nuclear (for whatever reason).

  2. I find that hard to believe, for how would it have accumulated the forex reserves it did if it made so little money from the oil? the price has been above $90/bbl only for a six months or so, wasn’t it?

  3. The prescription in the last paragraph is more or less what Venezuela had been doing for many years (post-Rockefeller and pre-Chavez), despite the politicos and the dominant wealthy class being nominally anti-communist.

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