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Venezuela’s Crisis: A Cautionary Tale For Oil Nations | OilPrice.com


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The story of Venezuela’s rise to wealth and its now near collapse is a cautionary tale for countries rich in natural resources. The 1914 discovery of crude oil in the Maracaibo Basin sent the then impoverished agricultural backwater of Venezuela on a tumultuous journey, which at its peak saw the country become one of the world’s largest oil exporters, Latin America’s richest country and then ultimately a failed state. While commentators exclusively blame Hugo Chavez’s socialist Bolivarian revolution and Nicolás Maduro’s malfeasance for the destruction of South America’s wealthiest and most vibrant economy, the reality is far more complex. Arguably, it is Venezuela’s tremendous oil wealth which is truly responsible. The oil curse is a complex economic dysfunction that triggers considerable political, economic and societal fallout that can destroy nations. It emerges when a country, like Venezuela, becomes overly dependent on crude oil to create wealth and drive economic growth. It is this curse which precipitated the massive humanitarian, economic and environmental disaster now being played out. The post-World War Two economic boom spurred on an insatiable global demand for fossil fuels which caused the Latin American country’s oil exports to soar, fueling further investment in exploration and production. By 1950, Venezuela was pumping on average around 1.5 million barrels of crude oil daily generating immense wealth and external income for the petroleum rich country. During the early 1950s, at a time when many countries were still recovering from the devastation of the Second World War, Venezuela emerged as the world’s fourth richest country by GDP per capita. By the end of that decade the Latin American country had democratized, and its oil output had almost doubled with it pumping on average just under 3 million barrels daily. Petroleum production was still growing, ultimately peaking at 3.8 million barrels daily during 1970. The massive wealth and export income generated by crude oil drove a massive economic expansion, funded government nationwide social programs focused on health and education and sparked a colossal building boom. By the mid-1970s, when many Latin American nations were caught in paroxysms of violence and in the thrall of military democracies, Venezuela was christened as the region’s most stable democracy.  Between 1950 and 1979, Venezuela’s GDP had grown more than fivefold finishing the decade at over $287 billion. This saw the South American country rapidly develop and urbanize, a hallmark of economic and social development. The capital, Caracas, became a thriving business and cultural hub where oil fueled the architectural development of a city once described as the jewel of South America. Caracas’ glamourous tree lined streets were filled with architecturally imposing apartment buildings, museums, theatres and galleries. 

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