Opinion – Latinoamérica21: Venezuela: the country that did not sow oil

Closing the long cycle of the dictatorship of Juan Vicente Gómez, who held power in Venezuela from 1908 to 1935 (when he died), a young Venezuelan intellectual coined the phrase-idea that the country should “sow the oil”.

This became a kind of mantra that emerged from time to time, when Venezuela was an oil power and was struggling with the need to invest those large incomes in other areas of economic life, in order to guarantee national development not dependent on crude oil.

It was Arturo Uslar Pietri, one of Venezuela’s most important intellectual figures of the 20th century, who in 1936 wrote for the first time about the sowing of oil.

This South American country, in 2022, is the raw image of a nation that we could categorize as post-oil without an industrial or agricultural leap having actually taken place.

At the end of 2021, the largest study on poverty carried out in the country, which has been carried out for several years by the Andrés Bello Catholic University, showed that poverty stood at 94.5% and extreme poverty reached 76.6% . They are images of a devastated country, without a military conflict or a large-scale natural disaster.

As in every crisis, there are multiple variables that have intervened to bring Venezuela to this point.

Given the historic dependence of the Venezuelan economy on oil, a central aspect of this generalized crisis is undoubtedly explained by the disaster of the state-owned Petróleos de Venezuela (PDVSA).

The official speech of the government of Nicolás Maduro insists on blaming US sanctions for the catastrophic situation that the local oil industry is experiencing.

There are, however, a series of decisions that preceded the arrival of Maduro to power, in fact, that took place while Hugo Chávez was governing and that, in my view, explain the disaster.

The current president had the responsibility of not reversing what Chavismo decided at the time with Chávez in power.

In 2003, after overcoming a strike in the oil industry that had spurred opposition leaders, Chávez, in a single administrative act, fired 18,000 PDVSA workers, ranging from senior managers, administrative employees and petroleum engineers to skilled workers.

The reason was that all of them, according to the thesis presented by the government at the time, were involved “in activities of sabotage and betrayal of the homeland”.

In 2007, the then all-powerful president of PDVSA, Rafael Ramirez, called for an ideological purge within the industry, asking that the traitors who sabotaged the operations be denounced.

This was sealed with the phrase “PDVSA is red, red”, referring to the emblematic color of the United Socialist Party of Venezuela (PSUV).

A year later, Chávez and Ramírez announced with great fanfare that PDVSA would focus on importing and distributing food, as part of what the government called an “economic war.”

The massive wave of expropriations of lands and factories, together with an exchange control that already reached five years, put the historically weak national production in a critical situation.

All of this took place long before the sanctions.

In terms of human capital, the company abruptly decapitalized itself, in terms of the work environment, denunciations were imposed and resources and efforts were devoted to a completely unknown area, such as the food topic.

Here are some keys to understanding the cruel paradox that today burdens Venezuelans.

Standing over a territory that has the largest oil reserves in the world, over 300 billion barrels, and one of the largest natural gas reserves, around 200 billion cubic feet, Venezuelans suffer recurrent failures in the distribution of gasoline and an absence chronic domestic gas.

It can take up to six months in certain municipalities to get a gas cylinder for cooking, according to the citizen observatory “La gente propone”.

In January 2022, three years have passed since the establishment of US sanctions against PDVSA, and, after a year and a half of the worst moment for crude oil production, Chavismo managed to return to the levels prior to Washington’s restrictions, thanks to the synergy with Iran in terms of exports to China.

In January, in an interview with journalist Ignacio Ramonet, broadcast on Venezuelan government television, Maduro said he had reached – again, after the impact of US sanctions – 1 million barrels of oil a day.

The figure, which represents only a third of Venezuela’s production before Chavismo came to power in 1999, nevertheless represents an economic and symbolic victory for the Maduro regime.

The worst seems to have passed for the Venezuelan ruler, at least in terms of international pressure and the application of US sanctions.

Francisco Monaldi, director of the Latin American energy program at Rice University in Houston, when questioning whether the figure of 1 million barrels per day was reached by PDVSA, recognizes that in 2021 Chavismo managed to reverse the negative impact that sanctions had. .

June 2020 was the worst time for oil production and exports in Venezuela, when the trade siege imposed in January 2019 by the Donald Trump administration was heightened.

A year and a half ago, the then US president managed, after direct pressure, to prevent Russian Rosneft from transporting and marketing Venezuelan crude oil and derivatives.

According to PDVSA data, in June 2020 production was only 392,000 barrels per day. A number that has put Venezuela back at its production levels of eight decades ago.

The precipitous fall of 2020 was not due to a decrease in production potential or capacity, but the inability to sell crude oil at prices (which had fallen) and avoid sanctions.

The increase is due to the fact that the price rose significantly and PDVSA was able, with Iran’s help, to create a sanctions avoidance framework replacing Rosneft. In addition, Iran has started to supply the thinners that the Russians had previously brought, Monaldi says.

High prices, and an undeclared policy of easing sanctions by the United States, allowed Chavismo to trade its oil with a little more comfort.

“Almost all Venezuelan oil ends up on China’s dark roads, at a discount, and a smaller portion goes to Cuba. In essence, there was no increase in production potential at the end of 2021, but the production they had to shut down because sell was recovered”, says Monaldi.

Rafael Quiroz, an economist specializing in the field and a postgraduate professor at the Universidad Central de Venezuela, says that in December, 800,000 barrels were produced per day, not the million that Maduro announced.

Iran has also played a role in normalizing gasoline supplies, after long months of intermittent shortages in several regions, especially outside Caracas and major Venezuelan cities.

Since mid-2020 there has been no drilling rig in operation, so no new wells have been drilled, experts say, making it difficult to raise production above the million barrels a day that the Maduro government supports.

According to Quiroz, the recovery of the Venezuelan oil industry requires investments in the order of US$ 40 billion to US$ 50 billion, with an injection of resources that are sustainable over time.

This seems unfeasible under the current economic and political framework in Venezuela.

At the end of 2021, the company Sustainalytics, which analyzes the energy sector globally, ranked PDVSA as the worst-positioned company among 253 oil producers due to its lack of environmental, social and governance strategy.

It’s a stark contrast when compared to the recent past.

In the late 1990s, before Chávez came to power in February 1999, PDVSA was ranked the fourth most important oil company in the world, according to a ranking by the American Petroleum Institute.

Venezuela not only cannot sow oil to diversify its economy, it cannot even maintain its status as an oil country.