At the turn of the century, Venezuela was the richest country in Latin America. How then, has it converted into the poverty-stricken country it is today, with unemployment rates above 40% and inflation of over 1,000,000%? Since 2015, 3 million Venezuelans have left the country they love in search of better opportunities elsewhere, and millions more are expected to leave by the end of 2019.
The answer to why this has happened to Venezuela is complicated, but a major factor, perhaps the most crucial, is oil. Venezuela has been a leading global exporter of oil for a century now, and especially in recent years, it has been the backbone of the Venezuelan economy. It is Venezuela’s dependence on oil, and a corrupt government regime, that have led to the suffering of millions of people.
Throughout the 20th century, the Venezuelan government took steps to take more and more to regulate the industry, leading up the eventual nationalization of the industry in 1976 and the establishment of the state-owned Petróleos de Venezuela S.A., the leading exporter of Venezuelan oil. The plot thickened in 1998 with the election of Hugo Chávez.
When Chávez was elected President, the price per barrel of oil was US$11. After the invasion of Iraq, another world oil leader, in 2003, Chávez saw the opportunity to invest more in the industry and did. With the rising oil prices Venezuela saw prosperity. Apart from the global financial crisis of 2008, the prices fluctuated between $84 and $104 per barrel until Chávez’s death in 2013. Amidst this prosperity under “Chavismo”, Chávez stacked the country’s courts with political allies, passed laws restricting the ability for the press to criticize the government, and implemented many new social programs.
Chávez’s hand-picked successor Nicolás Maduro took over in 2013, but when oil prices crashed in 2014, Venezuela was not prepared. After spending more than a decade investing in its oil reserves, which are the largest in the world today, Venezuela failed to focus its funds anywhere else and did not diversify its economy. When the prices dropped in 2014, Venezuela’s economy crashed and has not recovered since.
Petróleos de Venezuela S.A, or PdVSA, has been the center of attention lately due to the sanctions placed on it by the United States on January 28. The latest sanctions are the result of a two-year pressure campaign attempting to stop income going towards Maduro and his government. The campaign escalated in early 2019 after US President Donald Trump recognized opposition leader Juan Guaidó as the true President of Venezuela, a move echoed by other countries around the world such as Brazil, Argentina, Britain, and France.
What has ensued since is a showdown between the US and Venezuela, with Maduro’s regime doubling down on its power amidst widespread protests across the country, and with the US attempting to suffocate Maduro. President Trump’s former national security advisor, John Bolton, said the sanctions will block $7 billion in assets and deprive Caracas, Venezuela’s capital, of $11 billion in funds from exports during this year if maintained. According to former Venezuelan officials, Maduro has transferred billions of dollars from oil coffers into personal accounts, to secure loyalty from top military and other government officials. The sanctions, which are also placed on PdVSA subsidiaries such as Citgo, will only be removed after the transfer of control from Maduro to Guaidó.
Despite the sanctions imposed in February, Maduro’s regime remains in power in Venezuela, largely due to his military support. Also supporting Maduro is Russia, as Moscow company Rosneft is the largest buyer of Venezuelan oil.
In August, President Trump issued an executive order extending the sanctions, in an effort designed to stop third-party countries from doing business with Venezuela. The US has also recently criticized the European Union for not imposing tougher sanctions on Venezuela. Currently, the EU has limited sanctions on 18 individuals linked to the Maduro regime and an arms embargo aimed at preventing Venezuela from purchasing weapons. US lawyer and special envoy for Venezuela Elliott Abrams said, “The Europeans are making a real miscalculation here,” adding that additional sanctions could pressure Maduro’s regime into making a compromise with the opposition party.
Despite pressure from Washington, some EU diplomats think the criticism is unproductive, especially when both have the same assessment of the situation, also adding, “You can’t impose sanctions by Twitter.” The EU has, however, warned the Maduro regime that increased sanctions will be imposed if no progress is made in the talks between Maduro and the opposition.
For now, the world continues to watch as a tense chess match between Venezuela and its detractors ensues, while Venezuelan citizens continue to protest, or in many cases, flee from the country they love. With the sanctions on PdVSA still in place, and Nicolás Maduro still in charge, the next few months will be intriguing to watch.