Venezuela in the world oil market

Abstract

In 2017 oil production in Venezuela, a country with very large if not the world largest recoverable oil reserves, declined by 12-13%. In the authors view, the main cause of the decline is subordination of the oil and gas sector to serving the irrational macroeconomic course. The economic and foreign debt policies pursued in the last two decades did not allow Venezuela to take advantage of the opportunities opened by the ongoing transformation of the world oil market. Sanctions imposed by the US in August 2017 against Venezuela's government and the central bank as well as state national oil company PDVSA heavily increased the risk of the nation's bankruptcy. From the position of independent and active player in the world oil market Venezuela is rapidly descending into a passive object of global oil policy. According to some estimates, cumulative foreign obligations of Venezuelan authorities and PDVSA already exceed 190 billion dollars. The bankruptcy of Venezuela seems unavoidable, even though it could be delayed by the current rise in oil prices and benevolent attitudes of the largest creditors. In the situation of deep economic and political crisis the government purged the top management in the oil sector. In order to prevent further production decline the new management announced seemingly relevant policies, including renewed stimulus to foreign investors in oil extraction. However, the overall irrationalism of the current economic policy prevents realization of relevant sectoral measures. Being in the latent default the government announced plans to issue a cryptocurrency petro supported by oil reserves. Petro is seen as a tool to abort widely spread financial speculations and to achieve de-dollarization of national economy. Political opposition qualified the cryptocurrency as a new fraud scheme of selling oil by using prepaid contracts. The US Treasury considers the digital currency emission plans as an extension of credit to the Venezuela's government what may be exposed to US sanctions' risk.