Crude Nation: How oil riches ruined Venezuela - book by Raul Gallegos
This book narrates the tragic story of how the oil-rich Venezuela (has the largest oil reserves in the world, even more than that of Saudi Arabia) has become a country of misery, poverty and instability because of mismanagement and corrupt culture of the Venezuelans.
Critics blame President Chavez and his successor President Maduro for the Venezuelan crisis. But according to this book, the problems of Venezuela did not start with Chavez in 1998 but from 1914 when oil was discovered. Since then, the Venezuelans have been infected incurably by the Dutch disease and resource curse. Oil has spoiled both the rulers and the ruled. The politicians stole and misspent the petrodollars during the high oil prices and let the economy slide into crisis when the prices went down. The businessmen gave up productive industries and went into imports and quick ways of making fast buck. Farmers neglected agriculture and moved into cities to share the luxury life style spawned by the oil boom.
The country has so much of fertile land, mineral resources, hydroelectric potential, beautiful beaches and pleasant climate. These resources are sufficient to be a prosperous nation, even without oil. But when the easy money from oil started coming, the Venezuelans abandoned all the other resources and started living exclusively on oil income.
The ordinary Venezuelans developed a wrong culture and mindset that they do not have to work hard since money was flowing out of the oil wells. They have become addicted to consumption and imported luxuries. They spend more than they earn without caring for saving or preparing for the cyclical lower oil price. During high oil prices, middle class Venezuelans used to go for shopping to Miami and freak out on purchase of luxury goods. At the same time, the government also went on a spending spree and borrowed money recklessly from international capital market. The corrupt politicians cleaned up the treasury and took them abroad in collusion with business people. When the oil prices went down, the governments struggled to pay foreign debt, cut down developmental and welfare budgets and imposed austerity. At these times, people rose in protests leading to change of governments through elections or coups.
Venezuela became a different country when it discovered oil in 1914. In just a decade, the country had undergone a rapid transformation from an obscure agricultural backwater somewhere in the Andes to the world’s largest oil exporter and the second-largest oil producer after the United States. The agricultural nation became a petrostate. In 1920s, oil revenue supplied two-thirds of the state’s income and made up more than 90 percent of the country’s exports.
By 1930, while the world struggled with the Great Depression, Venezuelans began to enjoy enormous riches. Venezuela became a key supplier of the oil that fueled the Allied effort during World War II. The flood of oil revenue caused their currency bolivar to appreciate against the dollar. The strong currency was a boon for Venezuelan consumers, who could suddenly afford to import what they used, wore, and ate every day. Caracas became expensive. A US diplomat earning 2000 dollars in Washington DC needed 5000 dollars to live in Caracas.
Venezuela’s days of economic plenty did not last. World War II disrupted global trade and pushed the import-dependent nation into economic disarray, plagued by product shortages. Venezuela quickly went from a nation with enough purchasing power to import fine wines to a place where people struggled to find car tires.
Venezuela had increased its oil revenue thanks to a smart Venezuelan, Pérez Alfonzo, the Minister of Development appointed by the military rulers after the 1945 coup. He changed the game of negotiations with the foreign oil companies. He pushed them for fifty-fifty share in the profits the multinational oil companies derived from the sale of crude oil as well as refining, transportation, and sale of fuel. He educated the sheikhs in the Middle East and helped them to get a similar arrangement with the foreign oil firms and also create their own national oil companies. When in 1960 oil companies decided to steeply reduce the prices paid for crude, Pérez Alfonzo flew to Baghdad, where he met representatives from Saudi Arabia, Kuwait, Iraq, and Iran and signed the agreement to create the Organization of the Petroleum Exporting Countries, OPEC. From that point on, oil companies would have to consult with exporter countries before setting oil prices.
In the period 1950-57 Venezuela accumulated huge foreign exchange reserves, caused by the hike in oil prices after the coup in Iran and closure of Suez Canal. In 1963, the country churned out 3.5 million barrels of oil a day. The country’s per capita income was the highest in Latin America, and the bolivar remained one of the world’s strongest currencies. Sears Roebuck had opened eleven stores in Venezuela.
After the Arab oil embargo in 1973, Venezuela’s petrodollars tripled. The flow of dollars from oil was too much for Venezuela’s economy causing a form of economic indigestion. The newly elected president Carlos Andrés Pérez asked congress for special powers to issue laws by decree to better handle the avalanche of money. Venezuela was in a state of emergency because it had too much cash.
Venezuelans wasted no time in developing a taste for the finer things in life. The country became known for having the best French and Italian restaurants in Latin America, many of them run by famed chefs. Venezuela became one of the largest importers of premium alcohol, like whiskey and champagne, as well as luxury vehicles, like the Cadillac El Dorado. Caracas became such a chic destination that Air France’s Concorde supersonic jet opened a Paris–Caracas flight in 1976. The per capita income of Venezuelans rivaled that of West Germany.
But in the 1980s, Venezuela faced a crisis after the fall in prices due to a global oil glut and lower demand. Since Venezuelans had grown accustomed to generous governments, politicians continued to spend even in the face of less money coming in. The country’s economy in 1989 went into its worst recession ever, with gross domestic product contracting nearly 9 percent. Venezuela was forced to seek a financial lifeline from the International Monetary Fund and asked the U.S. government’s help to renegotiate and reduce its outstanding debts. People took to the streets by the thousands to protest, riot, and loot for ten days. Protesters set fire to cars and buses, and they clashed with the military. When it was all over, the uprising that became known as El Caracazo had left three hundred people dead and material losses in the millions of dollars. During the eight years ending in 1989, poverty had increased tenfold. Inflation topped 100 percent in 1996. When Chávez was first sworn in as president in 1999, roughly 44 percent of Venezuelan households lived in poverty.
The author has concluded that the Venezuelans have learnt nothing in the last one hundred plus years of oil history. The Venezuelan politics has remained as a roulette of dictators, populists, coups, booms and busts. Since its independence in 1811, the country has had twenty-three different constitutions.
The author of the book Raul Gallegos was the foreign oil correspondent for Dow Jones and the Wall street Journal based in Caracas.
I agree with the author's analysis, based on my first hand experience as India's ambassador in Venezuela during 2000-3.
This book has covered the developments till 2016, when it was published. In the last ten years, the country has worsened with more political instability and economic crisis. The Americans have driven Venezuela to the wall with draconic economic sanctions and announcement of bounties on the heads of the members of the Venezuelan government. The sanctions have crippled the oil production and exports, besides trade, industry and investment. The US has announced a bounty of over 70 million dollars on dozens of Venezuelan government leaders including President Maduro (25 million dollars), Interior Minister Cabello (15 million dollars), Defense Minister Pedrinho (15 million), chiefs of armed forces, police, intelligence agencies and the national oil company PDVSA, as well as judges of Supreme Court and election authorities. The US prosecutors have filed criminal cases in US courts accusing them of all kinds of charges such as drug trafficking, money laundering, possession of arms and human rights violations. This means that the entire ruling regime of Venezuela will be extradited and jailed for life in US, if they are out of power. The Chavista government knows that they will certainly lose in any free and fair election. So why would hundreds of the members of the ruling regime will commit collective suicide by holding elections and letting the pro-American opposition to come to power. The American position on Venezuela has become harsher with President Trump and the Cuban-American Secretary of State Marco Rubio. So the Venezuelans are condemned to more misery in the next four years. Clearly, the US has become the biggest obstacle for restoration of Venezuelan democracy.
Venezuela’s misery has affected India too. Venezuela was the main source of crude oil for India in the Latin American region. Before the US sanctions, India used to import over 10 billion dollars of oil from Venezuela at competitive prices. The Venezuelan government, which was earlier exporting over 80% of its oil to US, was keen to reduce its over dependence. They offered attractive prices and terms to India seeing it as large and growing long term market. But now the Americans have replaced Venezuelans as a large supplier of crude oil to India. In 2014-15, they exported crude worth 14.3 billion dollars. So, the American sanctions are just a political masquerade to shut Venezuelan supply and capture the oil market for American oil producing companies. Venezuela, the crude nation has been trumped by US, the cruder nation.
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