Jorge Silva / Reuters Men rest at a construction site in Caracas, February 2014.

Venezuela on the Brink

How the State Wrecked the Oil Sector—and How to Save It

Venezuela is in the throes of its most tumultuous political and economic period in decades. The collapse of global energy prices has wreaked havoc on the country’s economy. Estimates vary, but oil production has fallen from a peak of around 3.2 million barrels per day in 1997 to somewhere between 2.2 million and 2.5 million barrels per day today. Oil and gas account for more than 95 percent of Venezuela’s revenues from exports, and the country produces few other goods. Without the money it makes from exporting energy products, Venezuela has struggled to import everything else its people need. As a result, Venezuelans are facing widespread shortages of food, medicine, and other basic supplies. Citizens wait in line for hours at supermarkets to buy staples such as rice; many have resorted to sifting through trash to find food. Military forces have been dispatched to oversee food production and distribution. Last year, a group of Venezuelan researchers estimated that, in contrast to relatively rosy official statistics, more than three-quarters of Venezuelans are living in poverty. And there is no relief in sight: by the end of the year, the economy will probably have contracted by eight percent and the inflation rate will likely reach 720 percent, according to the International Monetary Fund.

For a country that boasts the world’s largest proven oil reserves, this is an extraordinary state of affairs. Venezuela’s leaders desperately need to take action to save the country’s sole economic engine. But political instability, bordering on chaos, has stood in the way. The president, Nicolás Maduro, took office in 2013 as the handpicked successor of Hugo Chávez. Maduro is now the head of the United Socialist Party of Venezuela and the standard-bearer of “Chavismo,” which is the term Venezuelans use to describe Chávez’s mix of populism, socialism, and cult-of-personality strongman leadership. But Maduro does not enjoy the fierce loyalty that Chávez inspired among working-class and lower-middle-class voters, and he is now fighting for his political survival.

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