Venezuela's Oil Blessing and Curse

From Venezuela's Collapse: The Long Story of How Things Fell Apart, by Carlos Lizarralde (Codex Novellus, 2024), Kindle pp. 82-85:

It was dawn in the tiny fishing village of Cabimas when the earth started to shake on December 14, 1922. A roaring explosion followed the tremor, and a furious rainstorm of thick oil fell over the straw-roof shacks and dirt roads. The black rain went on for days.

The Barroso II oil field’s spectacular blowout spewed one million barrels of oil in a little over a week. It was then the world’s biggest known oil field, tapped just in time to feed a global economy fast converting from coal to fuel oil. The black rainstorm signaled a new era for one of South America’s poorest countries. Exploration and production would spread throughout the sparsely populated country as American roughnecks turned “béisbol” into a national pastime and pound cake into a local delight, “ponqué.” Everything from the most trivial to the most consequential would be transformed, starting with the economy.

Ever since Barroso II, three numbers have dominated many conversations seeking to explain the country’s destiny: barrels produced per day, their price in the global market, divided by the country’s population.

During the heyday of 1974, oil production reached 3.4 million barrels per day, the global price of crude oil stood at US$48 in 2019 dollars, and the country had thirteen million people. By 2019, the price of crude stood at US$50, production had bottomed out at 877,000 barrels per day, and the population had reached 28 million. By this somewhat arbitrary measure, the per capita production value in 1974 was US$4,582 for every Venezuelan. By 2019, it was US$572.

For many, this simple math tells their country’s story, a kabbala of its miseries and triumphs. The Chavista leadership of the late 2010s prayed the accelerating emigration would tilt the simple formula, or at least its trendline, in their favor. If enough people left the country, there would be fewer mouths to feed and able bodies to revolt, even on declining oil revenue. No one imagined, much less understood, the extent to which millions and millions of Venezuelans walking away from their country would answer the wildest wishes of those in power.

And yet, the long history of social and geographical conflict means that even a positive balance between oil production, international prices, and population cannot always guarantee peace.

The revolt leading to the coup d’état against General Pérez Jiménez in 1958, and Commander Chávez’s attempted coup in 1992, both took place when the global price of oil, and production capabilities, had not suffered significant downward pressures. Chavez’s coup came weeks after the end of 1991 when the economy had clocked the world’s fastest growth at 9.73%.

The dynamics behind the 1958 coup are illuminating. Three decades after Barroso II, the country was experiencing massive urban migration of the rural poor to the cities and unprecedented European and South American immigration. A new professional middle class and rising prosperity in many regional capitals had contributed much complexity to the country’s politics. General Pérez Jiménez never understood that the way he was brokering the oil wealth was out of step with a fast-changing Venezuela. The emerging actors demanded a new accommodation. By January 1958, a broad coalition overthrew the last general to rule the country in the 20th century.

Eleven months later, Acción Democrática’s Rómulo Betancourt set out to build a novel liberal state designed to broaden the oil treasure’s distribution. The new democracy would ensure the old rural poor, in the countryside or the big cities, received a much higher share of the bounty. The far from perfect but more independent unions, courtrooms, congressional chambers, political parties, and professional and trade associations allowed for a deeper and broader distribution of resources across constituencies throughout the country. Betancourt was determined to erase old ethnic and racial fractures but also paid attention to the growing expectations of more assertive regions, a nascent immigrant commercial class, and new industrial and financial interests. A more sophisticated accommodation to manage the oil bounty made sense for a country that had become too complex for the iron hand of a highland general and the machinations and prejudices of his conservative cronies.

While the construction of Betancourt’s gigantic new state would be very visible, a key component underpinning the country’s society since the 1930s would remain unmentioned: the currency’s value.

The bolivar’s high value relative to the dollar had been a political and cultural demand of economic elites and the nascent middle class as far back as the late 1920s. As oil revenues increased in the aftermath of President Franklin Roosevelt’s 1934 dollar devaluation, the bolivar emerged as one of the strongest currencies in the world. The country’s unique history and the realities of an oil economy developed on the back of a poor and virtually empty geography had turned the overvalued currency into a true religion. The generals and their conservative allies, and later Betancourt along with his socialist and liberal supporters, both built societies on the foundation of a strong bolivar. Their very different answers to the social, ethnic, and racial fractures that had torn the country apart for four hundred years had a shared, if silent, premise in the long-running currency consensus.

However, as often happens to societies whose good (and bad) fortunes depend on a single commodity, oil and its ability to prop up the currency became a fixed reference in the nation’s identity and a conveniently forgotten factor in its destiny. The connections tying modern universities, great theater, sophisticated newspapers, vibrant public debate, and transformational strides in nutrition, health, and education to the price of oil and the overvalued bolivar were always fuzzy.