Article – Venezuela’s Oil Saga: From Boom to Bust

Luca Santucci

Financial Markets

Pedro Santos

Financial Markets

Venezuela gained independence from Spanish rule in 1819 as part of Gran Colombia but seceded in 1830 to establish itself as a sovereign nation. Since then, it has faced persistent instability, including periods of dictatorship, civil strife, and governmental upheavals. This tumultuous history has deeply influenced Venezuela’s political, economic, and social development. In the early 1900s, under Juan Vicente Gómez’s dictatorship, Venezuela began oil production, leading to a significant economic transformation. By 1928, it had become the world’s leading oil exporter and the second-largest producer, establishing itself as a major player in the global energy market.

Oil’s transformative impact on Venezuela 

The discovery of oil in Venezuela in the early 20th century spurred its transition from an agrarian to an industrialized society, with significant economic and social ramifications.

Economically, oil wealth drove modernization efforts, facilitating the development of sophisticated refineries, transport networks, and ports. Foreign investment flooded in, bringing capital, technology, and expertise, accelerating industry growth and overall economic expansion.

This economic growth fuelled urbanization, with people flocking to cities for employment and better living standards, transforming them into economic hubs.

By strategically deploying oil revenues, the government significantly bolstered public services and social welfare initiatives, particularly in healthcare, education, and housing, which markedly enhanced the quality of life for numerous Venezuelans. This transformation is evident in the more than tripling of GDP per capita from the early 1930s to the mid-1950s.

These investments helped cultivate a burgeoning middle class, improved access to education and job opportunities, and fostered economic stability and prosperity.

The growing middle class became pivotal in driving a consumer culture, stimulating economic activity and supporting the development of small and medium enterprises, diversifying the economy away from oil dependency.

In 1960, Venezuela joined OPEC, the leading organization of oil-producing nations, aiming to regulate prices and strengthen national control over their oil industries. At the same time, Venezuela established its state-owned oil entity, the Venezuelan Petroleum Corporation.

The pivotal year of 1973 saw a significant event: a five-month OPEC embargo on nations supporting Israel during the Yom Kippur War. This led to a fourfold increase in oil prices, propelling Venezuela to the top spot for per-capita income in Latin America within two years. While this brought a $10 billion windfall to the nation’s treasury, it also marked a period of increased corruption, with estimates suggesting embezzlement reached a value as high as $100 billion between 1972 and 1997.

Buoyed by soaring oil prices, Venezuela’s economy increasingly relied on its oil industry. In 1976, President Carlos Andrés Pérez nationalized the oil sector, establishing the state-owned Petróleos de Venezuela, S.A. (PDVSA), which took charge of all oil-related operations.

However, the early 1980s saw a downturn as oil prices crashed, leading to economic contraction and high inflation. To address this, the government imposed unpopular austerity measures and halted payments on its foreign debt.

In the following years, Venezuela faced turmoil with rampant corruption, protests, and strikes. Once regarded as South America’s wealthiest nation, Venezuela saw its economic status decline while neighbouring countries like Argentina, Uruguay, Chile, and Brazil surged ahead. Opposition movements grew, culminating in Hugo Chávez’s election in 1998.

The Chávez Era

In his first year as president, Hugo Chávez’s popularity surged to 80 percent, buoyed by his anti-corruption agenda, social welfare initiatives, and promises of equitable oil wealth distribution. Consolidating power, he oversaw the drafting of a new constitution and won re-election in the 2000 “mega-election,” strengthening his control over government branches.

Inspired by Cuba, Chávez tightened his grip on Venezuela, curbing press freedom and forging alliances with non-Western nations. However, his policies led to a decline in oil production, worsened by dismissing experienced PDVSA workers during the 2002–2003 strike and replacing them with individuals chosen for their political allegiance rather than technical expertise. By 2003, Chávez controlled PDVSA but struggled with expertise and investment shortages.

Chávez’s tenure in Venezuela brought significant changes, consolidating power and forming alliances while facing criticism for neglecting long-term economic stability, particularly in the oil sector. The dismissal of skilled workers and insufficient investment worsened economic challenges.

Despite considerable oil revenue, Chávez directed funds towards social programs rather than reinvesting in the capital-intensive oil industry, exacerbating economic issues.

Capitalizing on support from the working class, Chávez expanded presidential authority, moving towards authoritarianism by eliminating term limits, undermining the judiciary, censoring the media, and nationalizing various private enterprises and foreign assets, including oil projects previously operated by ExxonMobil and Conoco Phillips.

In December 2006, Chávez secured his third presidential term with 63 percent of the vote, furthering his vision of “21st-century socialism” by nationalizing key industries and intensifying anti-American rhetoric. While some initiatives, like a maximum six-hour workday, gained public support, others aimed to consolidate executive power, including enabling indefinite presidential re-election.

Despite extensive sanctions from Washington, Venezuela maintained trade partnerships in oil with countries like China, Cuba, Iran, Russia, and Turkey, circumventing obstacles to access the U.S. financial system.

Critics highlighted Chávez’s authoritarian tendencies, a sharp rise in homicide rates, shortages of essential goods, high inflation, and elevated infant mortality rates, signaling a failure to prioritize vulnerable demographics with oil revenues.

Chávez’s death in 2013 led to Nicolás Maduro assuming the interim presidency and subsequently winning the special election on April 14 to complete the remainder of Chávez’s term.

The Maduro Era

After Maduro took power, Venezuela continued following Chavez’s ideology. However, the economy faced challenges, marked by declining industrial production and falling non-oil exports. Observers attribute these issues to inadequate investment in the industrial sector and ideologically driven nationalization of industries like electricity and steel. Inflation surged to among the highest levels globally, leading to widespread shortages of essential goods such as toilet paper, milk, flour, and medicines due to shrinking import capabilities.

The country continued to grapple with authoritarianism, characterized by the incarceration of political opponents, strict media control, and the use of force against protestors. The middle to late 2010s represented a particularly dire period for Venezuela, marked by extreme levels of inflation, poverty, hunger, and violence. In late 2016, Venezuela faced indefinite suspension from Mercosur due to its failure to uphold democratic principles.

The controversial election of Maduro in 2018 further intensified internal and international scrutiny. As the country heads towards the 2024 presidential election, the future trajectory of Venezuela remains uncertain amidst ongoing socio-political and economic challenges.


In conclusion, Venezuela’s Oil saga, from its boom to its present day challenges, shows the double-edged sword that comes from the discovery of plenty of natural resources. The country’s journey from economic prosperity to economic turmoil illustrates the critical importance of prudent resource management and the importance of having a government with non-egotistical goals. With that said, the story of Venezuela, serves as a reminder of the complexities of profiting from the exploration of natural resources for national and social development and should also be studied to learn valuable lessons for developing forward-thinking strategies for other resource-rich countries navigating a similar path. 

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Rapier, R. (2017, May 7). How Venezuela Ruined Its Oil Industry. Forbes.

Gallegos, R. (2016). Crude Nation: How Oil Riches Ruined Venezuela. Potomac Books.

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