President Donald Trump believes US companies can revive Venezuela’s beleaguered oil industry, benefiting both that nation and America. But even if that happens, it would be a fraction of changes needed to get the destitute country back on its feet.
Turbulent oil markets, government corruption and years of crippling sanctions have decimated Venezuela’s economy, despite the country sitting on one of the largest oil reserves in the world. It all poses a massive challenge to whoever runs the country going forward.
Hyperinflation nearly a decade ago sent prices skyrocketing daily. Inflation rates soaring as high as 65,000% helped lead to a scarcity of goods like food and medicine and the collapse of Venezuela’s local currency, the bolívar. Residents have to use either American dollars or a backpack worth of bolívars to make basic purchases.
Inflation is currently in the triple digits, leaving most of the population living in poverty. As much as 40% of the nation faces food insecurity, according to the World Food Programme. That scarcity, coupled with political repression, has forced up to a third of the population to flee the country.
“It’s an economic devastation that is only similar to countries that have been through a war,” said Luisa Palacios, who was born and raised in Venezuela and is former chairwoman of Venezuela-owned petroleum company Citgo. “This is a country that needs to reestablish the rule of law. The basic rules of a functioning economy need to be put in place.”
But there will be no quick fix. That’s because its struggling oil industry, which is still under sanctions, represents more than 90% of Venezuela’s exports and a significant share of the government’s fiscal revenue, according to Palacios, now an adjunct senior research scholar at Columbia University.
“It’s too soon to be having any visibility to how long it will take,” she said. “We’re in the first inning of a very, very, long game.”
Oil companies reluctant to return
Who leads Venezuela is still to be determined. It could be the remnants of ousted dictator Nicolás Maduro’s government, or the opposition leader who many believe won last year’s election, or the Trump administration itself, as President Trump suggested on Saturday.
Trump at the time also dismissed the cost of fixing Venezuela’s economy.
“It won’t cost us anything, because the money coming out of the ground is very substantial,” he said, referring to the nation’s oil wealth, adding that he would recruit US companies to help.
Venezuela sits on 303 billion barrels worth of crude — about a fifth of the world’s global reserves, according to the US Energy Information Administration (EIA). But the country’s oil infrastructure has fallen into disrepair following years of insufficient investment and sanctions. The industry produces a fraction of its former output – just over 1 million barrels of oil per day, or less than a third of what it produced at the end of the last century.
“All of our oil companies are ready and willing to make big investments in Venezuela,” White House spokeswoman Taylor Rogers said in a statement to CNN.
But US oil industry sources told CNN that companies won’t seriously consider reinvesting in Venezuela until a stable government is in place.
“The appetite for jumping into Venezuela right now is pretty low. We have no idea what the government there will look like,” one well-placed industry source told CNN on Monday. “The president’s desire is different than the industry’s.”
Administration officials, including Trump, are due to meet this week with oil industry executives.
‘Oil is the devil’s excrement’
Oil was first discovered in Venezuela in 1922 and transformed the economy from a diversified agricultural economy to one almost completely dependent on oil.
Maduro’s predecessor, Hugo Chavez, nationalized the nation’s oil industry in 2007 under the government controlled oil company, PDVSA, and seized the assets of foreign oil companies before driving most of them from the country.
States that base their economies on the extraction of natural resources often suffer from great wealth disparity, with leaders using oil wealth to create systems of corruption and political repression to stay in power. It also ties a nation’s entire economy to the volatile boom and bust of oil prices.
A fact Venezuelans have known for decades. Former oil minister and co-founder of oil cartel the Organization of the Petroleum Exporting Countries, Juan Pablo Pérez Alfonzo, once told Stanford University professor emeritus Terry Lynn Karl that rather than study OPEC she should look at what oil is doing to oil rich countries, which she termed “petrostates,” and to their people.
“Ten years from now, twenty years from now, you will see, oil will bring us ruin,” he told her. “Oil is the devil’s excrement.”
The line became the centerpiece of her 1997 book, “The Paradox of Plenty.”
“When I wrote that a long time ago, I knew Venezuela was going to go down,” she said. “But I had no idea it was going to go down this far.”
Needs beyond oil investment
Reviving the oil industry will cost tens of billions of dollars, but that still won’t be enough to fix the entire economy, experts say.
There needs to be a restructuring of the nation’s crippling debt, said Roxanna Vigil, an international affairs fellow at the Council on Foreign Relations. The US also needs to lift sanctions against Venezuela, she said, and open the door to foreign businesses.
An administration source told CNN the oil sanctions would remain in place for now. The White House did not answer CNN’s question about restructuring Venezuelan debt.
The US has imposed sanctions on Venezuela since 2006, but the first Trump administration blocked all crude exports to the United States from PDVSA in 2017. That sparked the current economic crisis.
There is also a desperate need for humanitarian assistance for those who are living in poverty, as well as investment in parts of the economy that won’t necessarily produce a financial return, said Alejandro Velasco, a New York University professor and expert on Venezuela.
“The infrastructure is also dilapidated,” said Velasco, also a native of Venezuela. “There are blackouts, there are water problems all the time. And beyond that, you need a change in the legal structure, wringing out the corruption.”
The White House did not answer CNN’s question about humanitarian or other economic aid to Venezuela, stating that, “both the American and Venezuelan people will benefit from greater economic cooperation.”
US Energy Secretary Chris Wright said that the US would take Venezuelan oil that had been subject to sanctions and sell it on the world market for the “benefit of Venezuelan people.”
“What we need to do with the revenue from those oil sales is stabilize the economy in Venezuela…prevent Venezuela from becoming a failed state,” he told CNBC Wednesday. “Conditions have gotten pretty brutal in Venezuela.”
However, the problems in Venezuela will not be nearly as easy to fix, Karl said.
She compared Trump’s press conference on Saturday to President George W. Bush standing in front of a “Mission Accomplished” banner in the early days of the Iraq War.
“And $2 trillion later, and 11 years later, we not only had none of their oil, they paid for nothing, and it’s still a country that is not a democracy, not very governable,” she said. “And I think Venezuela is Iraq on steroids.”