Once one of the richest nations in Latin America due to its large oil reserves, Venezuela is now marked by economic disaster and massive emigration. Its economy has been defined by decades of hyperinflation, currency devaluation, and human misery caused by political incompetence and a decline in the oil sector.
The discovery and use of oil in Venezuela began in the early 1900s and altered the economic orientation of the country by the end of the century. Eventually, Venezuela became one of Latin America’s most important oil producers. The country’s oil production is estimated to be around 281 billion barrels as of 2014, with a production of 761,000 oil barrels per day, contributing to 90% of its export revenues. In addition to oil, Venezuela is also rich in natural gas. In 2021, more than 5.6 trillion cubic meters of natural gas reserves were proven to make up part of Venezuela’s many natural resources.
As previously stated, Venezuela experienced a period of immense wealth driven by oil exports. The 1970s oil boom enabled the expansion of a welfare state. However, rather than diversifying the economy, successive governments became increasingly dependent on oil revenues.
A defining anchor of the Venezuelan crisis is the collapse of the oil sector. Venezuela’s oil industry is often described as coming “to a near halt.” That collapse has devastated the country. Most notably power and water infrastructure has driven the collapse of daily life. Protracted blackouts have been linked with internal corruption and maintenance deficits at power facilities, rather than external sabotage.
This profound political, economic, and social crisis has severely deteriorated the quality of life of Venezuelan citizens. The Council on Foreign Relations reported the extreme poverty in the country. 91% of the country’s citizens live in poverty, and over seven million people have emigrated since 2014. Inflation in the country has reached alarming levels of over 190%. On top of this, Venezuela is experiencing a chronic food shortage, which has led to an unchecked black market and the hopelessness of millions of Venezuelans who struggle daily to access basic goods. State-controlled stores are unable to adequately supply themselves, and instead of solving the problems, the government responds with repression and misinformation.
Gisela Salim-Peyer had to flee the country in 2014. She recounts in The Atlantic how when a classmate had died in a protest she herself had attended, she knew she had to escape. It wasn’t fear, but the feeling that protests would get Venezuelans nowhere that pushed her to leave. Supermarket shelves were emptying. ‘Resourceful Venezuelans’ were creating social media groups to tell each other where to find essentials, such as medicine and toilet paper. This meant that through the crisis, Venezuelans were responding with integrity and ingenuity, and were left behind by the government. Peyer described the situation as violent to the point where “everybody knew somebody who had been abducted.”
While thinking of the Venezuela of her childhood, she remembered experts’ warnings regarding Venezuela’s overreliance on its oil production and how the nation’s economy would fluctuate with the price of oil. This fear became reality in 2014 and added onto the economic crisis.
In the 1980s, Venezuela entered a debt crisis, bringing social unrest and the eventual rise of authoritarian leader Hugo Chávez, in 1998. Hugo Chávez established himself as dictator, and he eventually led the country into chaos with his economic mismanagement. Chávez removed oil companies of managers and engineers who weren’t politically aligned with him. Political mismanagement did not allow the country to recuperate its oil production, and this led to its decline. In 2013, after the death of Hugo Chaves, Venezuela began to be acknowledged as a failed state by non-governmental organizations.
Venezuelans coped by exchanging bolivars — Venezuelan currency — for dollars, leading to even higher inflation rates. Chávez banned currency exchange, but this only allowed for an opaque and poorly managed foreign exchange system that allowed importers to manipulate product values, present false shipments, and even not import anything at all, just to obtain preferential dollars from the state. These dollars were then sold on the black market at exorbitant prices, and generated millions in profits for a few and left the nation without the resources to import essential goods. It was estimated that billions of dollars were drained from the national treasury through these fraudulent practices. This loss was particularly painful at a time when every dollar was, and still is, vital to the country’s survival.
At the center of this situation is President Nicolás Maduro, who took power after Chavez, and has constantly resorted to all sorts of strategies to divert attention from the critical reality facing the country. Alongside Venezuela’s internal crisis, Maduro has been the subject of international accusations. In the United States, he is facing criminal charges related to narcoterrorism and international cocaine trafficking. According to the administration of President Donald Trump, Maduro allegedly led a violent drug cartel known as the Cartel of the Suns during his rise to power. This organization does not operate like a traditional cartel, but rather is a patronage network in which Venezuelan military and political elites benefit from drug smuggling and other illicit businesses. The current president allegedly used his influence to facilitate drug trafficking.
Furthermore, the United States has stopped recognizing Maduro as Venezuela’s legitimate president, considering his mandate to be lacking in transparency and legality. Senior officials in the Trump administration ave openly stated that their goal is to end Maduro’s regime, which they consider a cartel pretending to be a government. Marco Rubio, the U.S. Secretary of Defense, stated that, “We will not allow a cartel masquerading as a government to operate in our hemisphere.’ Although some experts point to these sentiments as politically motivated, they also acknowledge that Venezuela has become a key point for international drug trafficking, especially cocaine, according to State Department reports.
Several reporters with The New York Times wrote how “the socialist model … has given way to brutal capitalism, economists say, with a small state-connected minority holding much of the nation’s wealth.” This presentation has stirred up some criticism from experts who argue that Venezuela remains heavily central rather than a pure free‑market economy and that “brutal capitalism” says less than it hides. Another controversy is the manner in which newspapers editorialize the situation, as they report the “gross mismanagement” and other grounds, but refrain from directly mentioning “socialism” or political economy changes under Chávez and Maduro.
In recent years, Venezuela has attempted to overcome the crisis through reforms. Limited economic liberty under Maduro, such as allowing the U.S. dollar to circulate, has led to small business growth. At first, this might seem advantageous. However, not everyone has access to dollars. Places where the dollar is easier to obtain have greatly benefited from this reform. This isn’t the case for poor people, who have little to no access to dollars. Due to this, overall economic inequality has grown deeper, and the rich became richer.
Venezuela’s collapse stands as a cautionary tale about the dangers of economic over-reliance on a single resource, and mismanagement. While the country still holds great natural wealth, it won’t recover unless both economic reforms and political transitions are made.
Venezuela’s collapse stands as a cautionary tale about the dangers of economic over-reliance on a single resource, and mismanagement. While the country still holds great natural wealth, it won’t recover unless both economic reforms and political transitions are made.