Petroleum has dominated Venezuela’s economy since the 1920s oil boom, accounting for over 90% of export earnings along with around one-third of GDP. PDVSA grew into one of Latin America’s largest energy firms under nationalization in 1976. Oil also enabled vast public spending which underpinned Venezuela’s democracy until recent decades.
However, Venezuela’s heavy dependence on oil set the stage for prolonged recession once crude prices dropped. Oil income fell over 60% from 2012 peaks as production also declined after years of underinvestment and mismanagement. Venezuela’s expensive heavy crude from the Orinoco Belt also faced discounted prices as global demand shifted toward lighter grades.
With oil accounting for virtually all exports and government revenue, the sudden crash in petrodollars ravaged both public and external accounts. The current regime also appointed loyalists over technical experts to key oil positions, accelerating PDVSA’s demise.
Rebuilding PDVSA and revitalizing Venezuela’s traditional economic engine remain top priorities for any future recovery. The oil sector’s revival would boost government income, export earnings and employment. But diversification into other exports like minerals, chemicals and agriculture is also essential to reduce reliance on crude which has repeatedly destabilized the economy following price swings.
For sustainable recovery—a credible power-sharing agreement seems necessary to restore functioning institutions and policymaking. However, compromise remains unlikely ahead of 2024 presidential elections where incumbent Nicolás Maduro intends retaining control.
In this climate— the economy will remain profoundly suppressed regardless of potential sanctions relief. Some oil and mining activity may expand through foreign partnerships, yet wider business confidence is impossible given the regime’s anti-market stance. Any gains also risk being negated by corruption and misgovernance.
Fundamental political change allowing economic liberalization appears the only route to reverse Venezuela’s economic implosion after years of socialist misrule. But with the authoritarian regime still dominant and the opposition divided, crisis conditions could well persist indefinitely absent a breakthrough.
