Venezuelans brace for slump in oil prices
The falling oil prices that are providing relief to drivers around the world threaten to bring more misery to the life of Venezuelans, whose country depends almost exclusively on oil revenue.
Venezuela is suddenly a lot less rich.
The country with the world's largest oil reserves was struggling to keep shelves filled even when crude was selling for US$100 a barrel or more. Now prices for benchmark Brent crude have fallen US$28 in the past four months, to US$86, the result of too much supply and weaker global demand.
In Venezuela, where 95 per cent of exports are oil, the decline represents a huge loss of income to pay for everything from imported milk to foreign debt, from social programmes to billions in subsidised oil for allies in the Caribbean and Central America.
Bank of America estimates that for every dollar that oil prices drop, the state loses US$770 million in net revenue over a year. That puts revenue US$12 billion a year below peak levels if current prices hold.
Venezuela already has one of the world's biggest fiscal deficits, estimated at 15 per cent of GDP, and even before the latest slide was considering selling its American subsidiary, Citgo Petroleum Corp, to raise cash.
The government has called for an emergency summit of the Organization of Petroleum Exporting Countries to discuss cutting production to raise prices - a position that could face opposition by other cartel members.
But it has given no hint of how it will make up for the revenue loss in the meantime. President Nicolas Maduro has assured Wall Street that the country won't default on its debt and has told poor Venezuelans that their social benefits are safe.
"There'll be no catastrophe or collapse," Maduro said last week. "Venezuela has guaranteed all the resources it needs to keep prospering."
The oil crisis is partly of the government's making, economists say.
Unlike neighbouring Colombia, which took advantage of the past decade's petroleum windfall to boost production and savings, the late former President Hugo Chavez and now Maduro have relied almost exclusively on the price of oil to fund government spending.
In 2005, state-run petroleum company PDVSA projected it would be pumping almost six million barrels of oil per day by now. Instead, production has steadily declined to around 2.4 million barrels, about the same level as it was in the 1960s.
Even as production stalls, Venezuela has to send more shipments to China to cover payments on billions of dollars in loans.
"It's amazing that despite the highest oil prices in the industry's history, and the hemisphere's biggest reserves, production in Venezuela has declined from its peak in 1997," said Francisco Monaldi, a Harvard University professor who specialises in energy. "It really takes some talent to get into this mess."
Although the situation is dire, the government still has room to manoeuvre, Monaldi said. He said Maduro will likely pursue an array of policies - including a stealth currency devaluation, printing more bolivars and cutting spending - without embracing a pro-market stance.
The government could also raise gas prices that are the world's cheapest, about five cents per gallon at the official exchange rate and practically free at the widely used black market rate.
Each choice, however, entails political risks at a time when the opposition is emboldened by polls showing 80 per cent of Venezuelans believe the country is on the wrong track. Support for Maduro stood at 30 per cent in a poll this month by Caracas-based Datanalisis, a record low in his 18-month administration.