Barring Major Reforms, Venezuela’s Oil Industry Is Finished

Unless major reforms are enacted in Venezuela, its time as a major oil producer is over.

_{A Bolivarian National Guard member hitting a Venezuelan opposition demonstrator with his bike during a protest against President Nicolas Maduro in Caracas in July. (Photo by FEDERICO PARRA/AFP/Getty Images).}

The Wall Street Journal reported last week that Venezuela’s oil output in December fell by 11%, to 1.62 million barrels per day (BPD). That capped a decline of 29% in 2017 and represents an overall decline of 53% since the late Hugo Chávez was first elected president in 1998.

To put this in perspective, the proved reserves of the U.S. are 48 billion barrels, versus 301 billion barrels for Venezuela. (I explain here why Venezuela’s reserves are overstated, but without a doubt, they are much larger than those of the U.S.)

Yet U.S. oil production is just short of 10 million BPD — six times Venezuela’s production. And unlike Venezuela, the U.S. has seen its production increase by nearly 60% since 1998.

I have covered the ongoing demise of Venezuela’s oil industry for over a decade. I warned back in 2007 that the actions of the late Hugo Chávez would ultimately ruin the country’s oil industry:

So can Chávez under-invest in the industry while diverting money to his pet causes? He can for a while, but you can see the results. Despite having enormous oil reserves, he and his cronies are running Venezuela’s oil industry right into the ground. His generosity to the poor has only been possible because he had a goose that laid golden eggs because they constantly reinvested money back into the business. Once he kills the goose, where is he going to get the money to continue his programs?

To recap, a significant fraction of the funds Chávez spent on social programs was a result of billions of dollars of Western oil company investments in Venezuela. Once those investments started to pay off, Chávez forced companies to forgo most of the profits — or leave the country and forgo all the profits.