Introduction
The political turmoil that affected Venezuela after the last highly contested presidential elections that bestowed on Nicolas Maduro another six-years term as undisputed leader represents just the tip of the iceberg of a longstanding political and economic crisis which is rooted in the so-called “Bolivarian Revolution” and its huge impact on the political economy of the country which hosts the world’s largest oil reserves.
This article will analyze the ongoing crisis in Venezuela through the lens of the oil curse, the hypothesis framed by the American political scientist Michael L. Ross who claimed that countries rich in petroleum and gas are more likely to experiment political and economic instability, along with a crescent pattern toward authoritarianism and corruption (Ross, 2012). Venezuela is often examined as a case study in the perils of becoming a petrostate: once considered the most prosperous country in Latin America, it rapidly drifted to chronic instability, hyperinflation and mass migrations.
How could this happen? The following analysis will try to give an answer to this question briefly retracing the events that had been at the roots of the slow but inexorable descent of Venezuela into chaos.
Authored by Lorenzo Ruffi, Junior Researcher, Defense&Security, Mondo Internazionale G.E.O.
Oil: a God’s blessing or a wicked resource for developing nations?
Throughout the 20th century, oil played a pivotal role in shaping the economic wealth of the most powerful states in the world. Many countries had built their empire through the exploitation of the black gold, and wars were fought to conquer the invaluable raw material. However, starting from the Seventies, most of the oil producing countries began to face growing internal instability, poor economic performances and brutal civil wars.
Michael Ross tried to explain this unexpected shift toward instability through his landmark theory of the “Oil Curse”. According to him, the entire oil-game changed when governments across the developing world seized control of their countries’ oil industries. This decision, caused by the sudden increase in oil prices during the 70s, convinced the Third World leaders to nationalize their resources: through this choice, they rapidly accumulated the entire revenues generated by the sale of petroleum, breaking the longstanding agreements with private western companies that regulated the entire oil market for decades. Nevertheless, this new flow of money turned out to be a double-edged sword for these countries: the nationalization provided initially widespread wealth and higher standards of living for the local population, along with new political and economic power, but, on the other hand, increased a “rentier” type of governance that slowly started to reduce people’s accountability.
Countries like Venezuela, Libya, Nigeria or Iran presented the same economic and political patterns starting from the late 70s: weak political institutions, widespread corruption, authoritarian governments characterized by an indiscriminate use of coercion and repression. Ross analyzes how these countries, whose income is deeply reliant on oil and natural gas, failed to properly redistribute the economic wealth generated by their natural resources, developing, instead, a kleptocratic and corrupt style of governance. Furthermore, in these countries the oil industry started to absorb the other sectors of economy, such as agriculture and manufacturing, leading to high unemployment rates and political instability. In addition to that, their dependence on oil exportation made these governments extremely vulnerable to unpredictable swings in global energy prices and capital flights.
Most of the nations that fit this category have recently experienced economic stagnation, political turmoil, revolutions and civil wars. Now it’s time to delve into the most famous and tragic case of oil curse-affected countries: Venezuela.
Venezuela on the rise: from the golden age to Chávez
Oil was discovered in Venezuela in 1922, when Royal Dutch Shell geologists drilled a well in the Maracaibo basin. The Venezuelan deposit turned out to be one of the richest of the entire world, producing more than one hundred thousand barrels each day. In a few years, Venezuela rapidly became the epicenter for the global black gold race between the leading oil firms: during the 1930s, the Gulf Company, Standard Oil and Royal Dutch controlled about 98% of Caracas’ oil market (Roy & Cheataman, 2024). The first attempt to reduce the power of foreign companies was the approval of the Hydrocarbons Law in 1943, that required the western firms to give half of their oil profits to the state.
The turning point in Venezuela oil’s history arrived in the late 1950s, when the Middle Eastern oil began to be pumped into the European and American markets. Due to its higher prices, the Venezuelan oil started to lose competitivity in front of the cheaper arab product. To combat this problem, the Venezuelan diplomat Juan Pablo Pérez Alfonso decided to gather all the oil exporting countries in a new political and economic association with the aim of controlling in the future the entire energy market: the born of OPEC (Organization of Petroleum Exporting Countries) was officially declared in Baghdad in 1960 (Wilpert 2003).
As a result of the oil crises in 1973, the revenues of Venezuela’s government quadrupled between 1972-1974, leading to general increase in salary and living conditions; the country became the most prosperous in Latin America, with the highest per capita income in the continent. The oil boom convinced President Carlos Andres Pérez to nationalize the national reserves, founding the state-owned company Petroleos de Venezuela, S.A. (PDVSA), which though maintained capital sharing with private western companies (Roy & Cheataman, 2024).
After the steady decline in oil prices during the 1980s, Venezuela’s economy contracted, and inflation soared up. To contrast the economic crisis, Pérez adopted severe austerity measures, cutting the welfare state budget and retirement funds. These unpopular measures provoked widespread protests and riots against the government, paving the way for the advent of left-wing populist ideologies.
Hugo Chávez, a military officer who tried without success to obtain the power through a failed military coup in 1992, won the presidential elections in 1998 with a socialist program, with the aim of tackling the rampant corruption and reducing poverty and inequality.
The Bolivarian Revolution and the ongoing crisis
The triumph of Chávez in 1998 had been a watershed in Venezuela’s history. The new president launched soon after his election a new massive plan of social reforms with the declared aim of curbing poverty and social inequalities. The so-called “Bolivarian Revolution”, named after Simón Bolivar, the 19th century national hero who led various Latin American countries to independence from the Spanish Empire, consisted in the implementation of social services and tax reforms, along with campaigns of housing constructions, mass vaccinations and food distributions. Besides having a huge internal impact, the Chávez’s revolution drastically changed the geopolitical landscape of the region: Venezuela started to align itself with other socialist regimes in the region like Cuba and Nicaragua, and to become a unvaluable ally of Russia and China due to its new anti-imperialistic and anti-American posture.
However, the most drastic reform carried out by Chávez targeted the oil sector. The new leader fully nationalized the PDVSA, firing the high-skilled managers in top positions to appoint political allies at their place. The loss of know-how in such a vital sector led to a slow bleeding of Venezuela’s economy that caused, along with the rising social expenditures necessary to sustain his “revolution”, an unprecedent debt crisis and rising inflation (Council on Foreign Relations, 2024). In the meantime, Chávez began to dismantle the liberal state: taking advantage of his widespread support among the lower classes, he expanded his power, appointing political allies in key positions, gaining total control of the army and the Supreme Court.
These reforms paved the way for the establishment of brutal and corrupt dictatorship after the leader’s death. When Chávez passed away in 2013, Nicolas Maduro was appointed new president of Venezuela. Former bus driver, Maduro build a stellar career during the Chavismo, gaining the presidency after being the right-hand man of the dead leader for many years. Under his reign, the political and economic crisis got worse: in mid-2014 the oil prices tumbled down, while the US sanctions increased, targeting the oil sector. The social crisis erupted in 2017 when the Supreme Tribunal of Justice dissolved the opposition-led National Assembly, whose president, Juan Guaidó, was seriously challenging Maduro’s grip on the country. The political arm-wrestling between the opposition and the regime gave the opportunity to the latter to crack down on the Nation Assembly, by arresting its principal deputies. The brutal repression of people’s manifestations in Caracas boosted Venezuela’s isolation, worsening its economic crisis, with the inflation rate that reached a dreadful peak of 190% (Nair, 20219).
The Russian invasion of Ukraine in 2022 provided Maduro with an unexpected occasion to end his isolation: due to the energy crisis provoked by the war in Europe, US president Joe Biden allowed some American companies to purchase Venezuelan oil, in exchange of the resumptions of dialogue between the regime and the opposition. When Maduro finally accepted to host fair elections scheduled for July 2024, Washington further eased its stifling sanctions against Venezuela’s economy (Mondal, Bahl, 2023).
The 2024 rigged elections: what’s next for Venezuela?
In spite of its commitment to host regular elections, Venezuela failed to meet the conditions for a fair vote. The charismatic and popular leader of the opposition, Maria Corina Machado, was forced to step aside; the less known former diplomat Edmundo González Urrutia took her place. Besides these irregularities throughout the electoral campaign, Maduro tried to distract the world’s public opinion attention from the upcoming elections by threating a large-scale military invasion against the oil-rich land of Essequibo, a neighboring region part of Guyana; in response to this provocation, Washington reimposed severe oil sanctions against Caracas in April 2024 ( Salim-Peyer, 2024).
Despite an electoral campaign marked by many restrictions and interdictions, the Venezuelan opposition compactly supported González Urrutia, whose popularity skyrocketed in a few months. When the long-awaited day finally came, an atmosphere of hope and dread surrounded the country. Maduro claimed the victory, but the opposition immediately denounced irregularities and electoral frauds occurred during the scrutiny of the votes. When the Supreme Tribunal of Justice officially ratified Maduro’s victory, Venezuela plunged again into chaos, with riots and massive protests brutally repressed by the army and the police.
Venezuela’s future appears extremely shaky and unstable: the longstanding economic, social and political stalemate caused the largest refugee crisis in 21st century, with nearly 8 million people who have fled the country looking for a better future. Massive inflation rates and food and medical shortages have hampered the access for most of the population to everyday items, whereas the rampant corruption, gangs’ violence and widespread violations of human rights are forcing Venezuelans to abandon their homes. Maduro’s grip on the country remains steady because of his total control on the army and on the judiciary apparatus through a complex system of political and economic favoritism. The Venezuelan army played an important role in facilitating the smuggling of cocaine from Colombia to Central America: many international analysts believe that the ill-famed Cartel of the Suns, the biggest drug cartel in Venezuela, is headed by several high-ranking members of Maduro’s Armed Forces, furthermore suspected of arms trafficking into neighboring Colombia.
The electoral crisis in Venezuela have had profound repercussions on the regional level: even countries run by leftist presidents like Lula’s Brazil, Chile and Mexico accused Maduro of electoral frauds, inviting Caracas to publicly share the official numbers. Even if regionally isolated, Maduro’s regime was granted by the support of its historic allies, like Russia, Iran and China, that immediately recognized his victory.
In conclusion, Venezuela’s downward spiral appears to be irreversible in the short term: the paradox of one of the most oil-rich countries in the world destined to be one of the poorest clearly explains how natural resources abundance could be sometimes a curse rather than a blessing. Venezuela’s oil history stood out as a perfect example of mismanagement and lack of strategic vision in this sector. Nevertheless, the oil curse is not destined to affect all the countries on the same level: robust political institutions, people’s accountability, economic transparence and diversification are the best antidotes against it, as the virtuous Norwegian case has showed after the discovery of unexplored oil and gas deposits in the North Sea starting from the 60s that led to economic growth and great political stability.
References:
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A.Venezuelan, “The devastating Venezuela crisis”, 2019. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6744797/ A-1
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