Why in news ?
- The U.S. has escalated pressure on Venezuela through a naval blockade and oil “quarantine”, tightening sanctions on the country’s petroleum exports.
- This development has revived debate on Venezuela’s “resource curse” — how a nation with the world’s largest proven crude reserves (~303 billion barrels, 2023) ended up with economic collapse, institutional erosion, and declining oil output.
Relevance
- GS-II (International Affairs, Global Economic Developments)
- Sanctions politics, oil geopolitics, humanitarian-economic crises
- GS-III (Economy – Resource Dependence, Fiscal Vulnerability)
- Dutch Disease, SOE governance, diversification failure, debt stress
Basics — what is the “resource curse”?
- A paradox where resource-rich countries experience slower growth, weaker institutions, debt crises, corruption, and economic volatility instead of prosperity.
- Core mechanisms:
- Over-dependence on a single commodity
- Dutch Disease (currency appreciation → industrial decline)
- Rent-seeking & political capture
- Boom-bust cycles linked to global prices
- Under-investment in human capital & diversification
Venezuela’s oil economy — structure & vulnerabilities
- Largest global proven crude reserves: ~303 bn barrels (2023) — but mostly extra-heavy crude needing advanced extraction tech + costly diluents + complex refining.
- Production–capacity gap
- Output in 2024 ≈ 0.92 million barrels/day → ~56% lower than 1980s levels.
- Aging infrastructure, frequent shutdowns, and skills drain.
- State oil firm PDVSA
- Operates five domestic refineries
- Hit by chronic under-investment, mismanagement, politicisation
- Post-2002 strike & purges → bureaucratisation, loss of technical leadership.
From boom to bust — economic trajectory with data
- 1970s boom: Oil price surge during the Yom Kippur War → Venezuela reached Latin America’s highest per-capita income; but growth was unequal and consumption-led.
- Post-2014 downturn + sanctions era
- Oil price collapse + governance failures → GDP per capita fell back to early-1990s levels — a sharper decline than any peer country in the same period.
- Public debt: Highest general-government gross debt among OPEC members despite large reserves — signalling structural, not just price-cycle, distress.
Role of U.S. sanctions — scale & effects
- 2017: Financial-market access restrictions.
- 2019: Direct sanctions on PDVSA — froze U.S. assets, blocked payments for exports, restricted supply of diluents essential for extra-heavy crude.
- 2023: Temporary easing → later reversed; new naval blockade / oil quarantine under Trump’s second presidency.
- Effects:
- Financing collapse, equipment shortages, loss of foreign partners
- Logistics & export bottlenecks, discount pricing, shrinking market access
- Accelerated production decline & fiscal stress.
- However, the crisis cannot be attributed to sanctions alone — internal mismanagement remains central.
Internal drivers of the resource curse
- Over-dependence on oil exports
- Minimal diversification compared to many OPEC peers → non-oil exports stagnated (Chart 4 in article).
- Institutional weakening
- Centralised political control over PDVSA finances → soft budget discipline, rent distribution, corruption risks.
- Human-capital erosion & capital flight
- Skilled engineers exited; maintenance & safety systems deteriorated.
- Macroeconomic instability
- Oil-linked revenue shocks → hyperinflation, currency collapse, poverty spikes.
Trade position collapse — export share evidence
- Venezuela’s share of global crude exports:
- >4% in the 1990s (second only to Saudi Arabia)
- ≈0.35% in 2023 — reflecting capacity loss + sanctions + infrastructure decline (Chart 5).
Why other OPEC states fared better ?
- Greater fiscal buffers & sovereign funds, diversification to petrochemicals / services / logistics, stronger state capacity, and counter-cyclical policies.
- Venezuela lacked: institutional insulation of oil revenues, professionalised SOE management, and long-term capability investment.
Current situation — risks and socio-economic fallout
- Output stagnation, shrinking public revenues
- Debt overhang, limited refinancing options
- Humanitarian strain — migration, unemployment, declining public services
- Geopolitical exposure as energy becomes a sanctions-leveraged asset.
Way forward — structural reforms
- Stabilise PDVSA: Professional management, ring-fenced capex, transparency, JV partnerships with technology transfer.
- Diversify the economy: Agro-industry, light manufacturing, services; build export-competitiveness beyond oil.
- Revenue-management rules: Sovereign wealth fund, counter-cyclical spending, strict audit trails.
- Human-capital & infrastructure revival: Skilled workforce retention, refinery modernisation, safety & maintenance regimes.
- Sanctions diplomacy & phased reintegration to unlock technology and capital while safeguarding institutional reforms.
