The Oil Industry Is Affecting Venezuela's Economy

The crux of Venezuela’s economy, and arguably the nation’s identity, is indisputably its oil industry. As one of the world’s largest exporters of oil, oil revenues comprise nearly 95 percent of Venezuela’s total exports, and the oil and gas sector is approximately 25 percent of the country’s GDP. Needless to say, oil is Venezuela’s most profitable activity — a distinction that is both beneficial and detrimental to the nation’s welfare. The paradox exists in how Venezuela, despite possessing an abundance of natural resources, is inextricably marked by extreme levels of poverty, economic turmoil, and political instability. The country is simultaneously indebted and beholden to the oil industry, particularly given that the economic welfare

After all, the oil sector is emblematic of the country’s national identity and sovereignty. While the Compañía Nacional Minera Petrolia del Táchira in 1878 marks the start of oil activity in Venezuela, it was not until after 1908 when dictator Juan Vicente Gomez granted concessions to foreign companies that oil came to dominate the nation’s economy. Doing so necessitated new technology to enter the country to accommodate the exploration, production, and refining of crude oil. Such technology, which was not and could not be produced locally, was crucial to Venezuela’s development. Venezuela is not a country that has undergone an industrial revolution, nor experienced the magnitude of technological innovation or entrepreneurial spirit that such a revolution would entail. Moreover, opening up the industry to foreign oil companies was the impetus behind the country’s transition from an agrarian economy, which relied on exporting cocoa, coffee, and livestock to European markets, to a more industrial one. By 1928, Venezuela’s oil sector had skyrocketed and it was the world’s largest exporter of oil. Finally, it is worth noting that amidst the nation’s various political regimes, many of which have been inefficient and unstable, the country’s oil institution has weathered the tide and remained for the most part an efficient, stabilizing

Venezuela’s oil industry was nationalized in 1976 under the Ley de Nacionalización del Petróleo (Petroleum Nationalization Law), which gave birth to the state-owned Petroleos de Venezuela, S.A. (PDVSA) under former president Carlos Andrés Pérez. Pérez and his administration were well aware of Mexico’s turbulent nationalization of Pemex, and endeavored for Venezuela’s nationalization to be absent of the same politicization. The wide latitude provided to the PDVSA was done so with the assurance that the enterprise would act on behalf of the state as opposed to operating on private interests. Thus, in the pre-Chávez era, it was customary for politicians to not intervene in the affairs of the PDVSA and, the company, albeit state-owned, operated with some degree of autonomy. Chávez’s approach to the oil industry, however, was deeply interventionist. By the time of Chávez, the PDVSA had evolved into a political actor and was targeted by Chávez as a focal point of his political campaign in 1998. Chávez desired control, which is epitomized in his approach to the PDVSA following the controversial 2002 and 2003 strikes. December of 2002 saw the beginning of a nationwide strike that shut down the country’s oil operations. A symbiotic state-PDVSA relationship was pivotal to a well-functioning nation. Yet, the