A Petro-State in a Cheap Oil Age
Why is dependence on imports a big problem? Because to buy those consumer goods, Venezuela needs to sell oil, and the oil price isn’t what it used to be. Venezuela sits on 298 billion barrels of proven oil reserves, tops in the world (Saudi Arabia is second at 268 billion, Canada third at 173 billion). Oil makes up 96 percent of the country’s export earnings and 25 percent of its GDP.
That was once a strength, but no longer—since June 2014, the price of oil has plummeted from $111 per barrel to around $40, taking with it the Venezuelan economy. Each $1 drop in oil price costs Caracas $700 million in government revenues. Oil has kept the country’s experimentation with Chavismo alive for nearly two decades—between 2005 to 2012, Venezuela averaged annual GDP growth of roughly 5 percent on the back of high oil prices. To balance its budget, Caracas would need the price of oil to jump back up to $125 per barrel. That’s not happening any time soon.