The Impact of the Decline in Oil Prices on the Economics, Politics and Oil Industry in Venezuela

DESCRIPTION: In a new paper for the Center on Global Energy Policy, author Francisco Monaldi, Baker Institute Fellow in Latin American Energy Policy and Adjunct Professor of Energy Economics at Rice University, provides an examination of the difficulties facing Venezuela in light of its dependence on revenues from oil exports and the issues facing the energy sector, which have become more acute in the lower price environment seen over the past year.

OUTCOMES: Key Findings
• Venezuela’s oil production has declined more than 350,000 barrels per day (b/d) since 2008 to around 2.6 million b/d. Critically, exports have declined even more, because domestic consumption and smuggling have been increasing and thus the exportable surplus has been falling.
• PDVSA was in bad financial shape even before the oil price collapse, and since it began it has become much worse.
• Under these stressful conditions, the government has become much more pragmatic and it is trying hard to create the conditions to boost foreign investment in oil and gas. PDVSA is also pushing for measures to improve its cash flow.
• Overall, attracting investment in a low oil price scenario is going to be difficult due to a variety of above-ground challenges that remain present, including the lack of credibility of the institutional framework, the cash limitations of PDVSA, the macroeconomic and political instability, the widespread crime and corruption issues, and the over-reached capacities of PDVSA’s human resources.
• Venezuela’s macroeconomic crisis will likely get worse for lack of adjustment in an election year. There is even a small probability of hyperinflation and a much higher probability of debt default in 2016. Political instability may increase.