CARACAS, Venezuela — In much of the world, cheap oil is seen as an economic boon. For some countries, however, it’s a recipe for disaster: one that will fall most heavily onto the shoulders of the poor.
Oil prices were kept high for years by huge demand in countries with quick economic growth, such as China. A few oil-rich countries controlled a large amount of production and could set prices accordingly.
That changed, however, when Chinese consumption slowed and the United States and Canada increased production through unconventional extraction methods, such as fracking.
With consumption slowing and oil flowing from new sources, prices quickly plummeted. By 2014, the world fully expected the Organizaton of Petroleum Exporting Countries, or OPEC, to cut production and keep prices stable.
But Saudi Arabia, an influential OPEC member, decided to keep production at normal levels. The country sought to undermine new sources of oil in the United States while maintaining its market share.
That sent prices spiraling even further to rock bottom. Now, countries that relied on oil as a key revenue stream suddenly find themselves in a moment of crisis.
This is the case for the petrostate of Venezuela. A combination of government repression and dependence on oil has left many in poverty in recent months as oil prices have plummeted.
In 2014, Venezuela relied on oil for 95 percent of its export revenue and 45 percent of Venezuela’s total budgeted revenue. As oil prices dropped, the country’s economy entered a recession that has lasted through 2015.
Now, Venezuelans find themselves struggling with a collapsed currency, chronic shortages and economic recession. But according to reports from Foreign Policy, it is not just oil that is to blame.
Venezuela’s problems are compounded by a government that is corrupt and unaccountable. With its economy grinding to a halt, the country has found it difficult to support a social security net.
“Chavismo is now facing a chronic incapacity to effectively deliver social services,” Javier Corrales reports. “This is a terrible handicap during a recession, because it means that the poor are left with almost no protection.”
There is no silver bullet for Venezuela’s woes. The county’s state-centric model hinders innovation and leaves the economy vulnerable to global oil shocks.
As we enjoy low oil prices—and all the included benefits—it is necessary to remember those on the bottom side of the coin.
Sources: Foreign Policy 1, Foreign Policy 2, Vox, Washington Post