Editorial: Socialism drained Venezeula of its vast oil wealth

Published on Thursday, 18 May 2017 17:49 - Written by

As Venezuela continues to implode, with riots and looting and increasing reports of starvation, let’s take a moment to note that it was once the richest nation in Latin America, with vast oil reserves and an educated, productive workforce.

So what happened?

“Venezuela is a country in crisis. Protesters that are opposed to the socialist government are being killed, and Venezuelan citizens are starving to death,” reports Forbes magazine. “A humanitarian disaster is unfolding that has been in the making for years. The current crisis can be traced to the historical management of the country's oil industry.”

It’s all about how the oil wealth has been managed.

“Venezuela’s highest-ever oil production occurred in 1998 at 3.5 million barrels per day (BPD),” the magazine explains. “That also happened to be the year that Hugo Chávez was elected president of Venezuela. During the Venezuelan general strike of 2002–2003, Chávez fired 19,000 employees of the state oil company Petróleos de Venezuela, S.A. (PDVSA) and replaced them with employees loyal to his government.”

That gutted his most experienced and effective workers. This exacerbated a problem Venezuela already faced - its oil was a particularly heavy variety, which required special refining techniques.

“Because this oil is particularly challenging to produce, Venezuela invited international oil companies into the country to participate in the development of these reserves,” Forbes says. “Companies like ExxonMobil, BP, Chevron, Total and ConocoPhillips invested billions of dollars in technology and infrastructure to turn the extra-heavy oil into crude oil exports.”

Perhaps they should have read up a little on the history of socialism.

“In 2007 oil prices were on the rise, and the Chávez government sought more revenue as the investments made by the international oil companies began to pay off,” Forbes recounts. “Venezuela demanded changes to the agreements made by the international oil companies that would give PDVSA majority control of the projects. Total, Chevron, Statoil and BP agreed and retained minority interests in their Venezuelan projects. ExxonMobil and ConocoPhillips refused, and as a result, their assets were expropriated.”

And let’s not discount the cost of the social programs Chávez promised to his citizens.

“When oil prices were high, Chávez saw billions of dollars that could be siphoned to fund the country's social programs, and that’s exactly what he did,” Forbes adds. “But he failed to reinvest adequately in this capital-intensive industry.”

The result has been that while oil production has soared everywhere else (particularly in the U.S., due to the fracking revolution), it has declined in Venezuela.

“Since 2007 oil production there has been on a steep decline, despite oil prices that were regularly above $100 per barrel,” Forbes says. “In 2015 Venezuela’s oil production had fallen to 2.6 million barrels per day, a decrease of more than 20 percent below 2006 levels. By comparison, the U.S. has oil reserves of less than 20 percent of Venezuela’s, yet U.S. oil production rose by 86 percent from 2006 to 2015.”

It’s clear why Venezuela is starving. Socialism fails - everywhere it is tried, every time.