Venezuela is the forgotten loser of 2018
Given its resources, the country should be one of the richest in Latin America
There have been many unfulfilled expectations and disappointments in the energy market during 2018. At the beginning of the year I listed four issues for readers to watch
There have been many unfulfilled expectations and disappointments in the energy market during 2018. At the beginning of the year I listed four issues for readers to watch.
• Renewables, despite continuing price
falls, have failed to break through. Hydrocarbons remain entrenched as the dominant source of energy supply.
• China’s shift to a lower carbon
economy has slowed down. Coal use has increased again after two years of decline and, as a result, emissions have grown.
• The political situation in Saudi Arabia
has not been stabilised and the killing of journalist Jamal Khashoggi in Turkey has only served to remind the world of the dangers of the concentration of power in the hands of Crown Prince Mohammed bin Salman.
• Perhaps the only true success story
has been the continuing expansion of shale production in the US — lifting total US oil production by 2m barrels a day year on year, according to the latest official figures. That surge in output has contributed to the persistence of low prices — at just over $60 a barrel for Brent it is slightly lower than 12 months ago.
But another development deserves note. Nearly 20 years after Hugo Chávez came to power, Venezuela has continued to decline. Oil output is down from over 2.2m b/d in January to some 1.1m b/d in November. That represents a fall of over 68 per cent from the country’s peak production of almost 3.5m b/d in 1998.
The economy is shrinking but the country has so far refused to produce economic data on gross domestic product or inflation despite repeated requests and potentially a major default on Venezuela’s sovereign debt. The country’s inability to pay bondholders could lead to it losing over the next few months of one its main assets — the international trading company Citgo.
What should be one of the richest countries in Latin America, given its extensive oil and mineral resources from gold to bauxite and diamonds, is now one of the poorest. Basic supplies and food are scarce and, as well as an exodus of talent, there is a growing refugee crisis as people try to escape to neighbouring countries such as Colombia and Brazil. According to a recent paper from Brookings, there are already more than 3m Venezuelans living outside the country, including a million in Colombia.
The exodus includes the desperately poor but also skilled workers and technicians on whom the economy depends. Within that group are many of those who built the state oil company PDVSA but are fleeing the corruption and mismanagement that now dominates the company.
What is left of the economy only keeps going as a result of loans from Russia, in return for which Moscow is being allowed to establish a military base in the country and cash-for-oil deals with the Chinese.
But there has been no regime change. Nicolás Maduro remains in power. One reason for that is repression led by the president’s allies in the military. The other is the fact that Venezuela has ceased to matter very much to the global oil market. The US no longer depends on Venezuelan oil imports. International companies would love to return but will make no serious investments while the current government remains in power.
If oil were scarce, the pressure for intervention — especially in Washington — would be intense. But the market has dealt with the loss of Venezuelan exports and a significant cut back in Iranian supplies because of US sanctions without blinking.
For much of the year I thought events in Venezuela would shape the market and push prices up. I was wrong. The global surplus of oil supply is profound even though demand continues to grow.
It is hard to see this balance changing in 2019. The oil market has learnt to manage without Venezuela. That means the country’s political problems are unlikely to be altered by external intervention. The next “Bolivarian revolution” will have to come from within, driven perhaps by desperation as oil production declines further and possibly by a growing reluctance on the part of the Chinese to invest further in a bankrupt regime. Until that happens the already tragic situation in Venezuela can only deteriorate further.
I wish Venezuela a happier New Year and all readers the compliments of the season.
If oil were scarce, the pressure for intervention especially — in Washington would — be intense
Venezuela’s economic crisis has led to a growing refugee crisis and an exodus of talent © AP