Venezuela’s Oil Paradox

The current economic crisis in Venezuela has led many news sources to call the country’s economy the worst in the world today. With its extensive oil reserves, Venezuela was once the richest country in South America, but the nation has always lacked an independent and dynamic private sector. T socialist government of President Nicholas Maduro has recently led Venezuela through a series of disastrous policies that have led to pro-democracy riots, food and medicine shortages, civilian deaths at the hands of state police, and an informal wartime-like economy dominated by narco-trafficking and organized violence. As of this month, the Venezuelan bolívar is seeing 800% inflation, and consumer prices are expected to rise by 2,200% this year. The economic downturn has complex origins and has been developing for decades, beginning with new social policies and extensive government protectionism during the administration of former President Hugo Chavez. Maduro’s policies, inherited from Chavez, are marked by generous social welfare programs funded by an increasingly volatile oil market. This has weakened the private sector and increased the dangerous dependence on the state’s homogenous, oil-based market. People have become disillusioned with this type of Chavismo governance, which sees a frustrating combination of social welfare rollouts and simultaneous cutbacks to the state work schedule and nationwide electricity rationing. Venezuela is now, paradoxically, both the most resource-rich country in Latin America and the worst off economically.

The most recent crisis the country is seeing is due to a vicious cycle that will prove tough for the intransigent regime to solve. Venezuela’s government is now unable to profit off of its own oil because it is too poor to fix its tankers, which are now lying mid-route in disrepair throughout the Caribbean Sea. The only way to generate revenue to fix these ships is through selling oil, and the only way to sell oil is by sea with these tankers. Such profit stagnation is representative of the economic crisis as a whole. Instead of letting Venezuela’s burgeoning middle class prosper, which would most likely lead to economy recovery, Maduro is pressing his socialist policies even harder to retain an iron fist over an unstable nation.

Like many dictatorial leaders, Maduro’s response to this crisis has been inflexible, denying the true causes of unrest and economic downturn and placing blame on imaginary “mafias.” The Venezuelan Supreme Court is stuffed with government loyalists who recently blocked a referendum to take him out of office. The National Assembly, with its diverse coalition of opposition parties elected by the Venezuelan people, is the sole exception to this corruption. An electoral coalition in opposition to Maduro, la Mesa de la Unidad Democrática, now holds a three-fifths majority in the National Assembly, and has the manpower to move the nation away from the extreme leftist policies and culture of denial now endemic to Venezuelan politics. However, Maduro recently declared a 60-day state of emergency, allowing him to effectively invalidate any decisions made by the National Assembly. The decree also frighteningly expands the military’s role in maintaining public order. If history is any lesson, the politicization of the use of force tends to lead to increased authoritarianism and a blurring of the crucial distinction between military and police forces. Military personnel are trained to use lethal force to fight and win wars. Police are trained to use the minimum force necessary to maintain public stability. With less safeguards in place regarding the use of violence, the unelected military cannot replace traditional security forces without easily slipping into an overreach of their mandate for the purpose of Maduro’s desperate power grab.

Maduro’s ideology and priorities for distribution of resources are clear. In January he announced that Venezuela had completed its most recent welfare goal of building 1,400,000 houses for the poor at either low or no cost, hoping to prove that his government is still committed to social welfare despite economic turbulence. Even with its extensive social welfare programs and populist rhetoric, the Venezuelan government runs into the same problems that some resource-wealthy but developing states have encountered. The state is independently wealthy and therefore has less of an incentive to create a diverse, productive private sector. State monopoly on wealth also leads to desperate and sometimes violent contention for political office and control, as the state is the only route to personal wealth. With oil revenue dominating the economy, the need for a tax base has virtually been eliminated, so the government has no strong method for tax collection, which it could now desperately use to repair its oil tankers.

Venezuela is a nation with incredible promise, both in its natural resources and its recent, vibrant civil society action, but this potential is being repressed by a government administration exceptionally afraid that it could be seeing its last days in power. International aid targeting the reinvigoration of the Venezuelan oil trade may be the only way to divert the nation of 30 million people from an impending humanitarian crisis; however, continued monetary support of the government-run oil industry could do more harm than good in the long run. A renewed oil market could make Venezuela wealthy again, but may also raise Maduro’s approval ratings and increase his staying power in the presidential office. Economic collapse is more likely to push Maduro out. From the U.S. perspective, the international community would ideally steer the country towards a middle ground––neither political collapse and revolution nor tighter control by Maduro’s administration for the sake of economic stability. This could be executed within the framework of the Organization of American States (OAS), which could invoke a democratic charter and suspend Venezuela from the body if Maduro’s administration does not end its extraconstitutional actions. The United States should also work with its regional partners in the area, namely Argentina and Brazil, to urge Maduro towards the negotiating table. Any dramatic actions like a call for a referendum to remove Maduro from office may be seen as U.S. meddling and lead to the tightening of authoritarian control in Venezuela. The best option may be to actually aid the Venezuelan oil market––whose mismanagement created all of these issues in the first place––by getting its tankers up and running again in the short term, on the condition that top officials must attend multiparty negotiations, creating more political space for the opposition and incremental, bloodless change.

Rachael Hughen

Author: Rachael Hughen

Rachael is a sophomore in the Elliott School studying International Affairs with a concentration in Conflict Resolution and a minor in Geology. She is also a member of the Varsity Cross Country and Track teams at GW. Rachael has a special interest in the region of Southeast Asia and hopes to work in the field of conflict resolution in this region after college. She is currently working for a human rights NGO in DC and has studied abroad in Finland. Other interests include running, hang gliding, and painting.