The Fall of Venezuela: Socialism, Hyperinflation, and Oil

At the turn of the twenty-first century, Venezuela was a prosperous petrostate that boasted sweeping social programs and a growing population. However, just a decade later, the country’s economic downfall has ushered in political unrest as citizens desperately tried to recover their old way of life. Today, the future for millions of Venezuelans remains unstable, as economic peril and political deadlock show no signs of dissipating. This Regional Focus series will seek to dissect Venezuela’s downfall—and conclude with an installment that explains where the nation could go.

One of the reasons Venezuela is in the midst of a humanitarian disaster is the nation’s failing economy. Venezuela is classified as a petrostate, or a country whose economic success is heavily based on exports of natural gas and oil. Indeed, its title is fitting—Venezuela has more oil reserves than any other country on the planet and makes up 18 percent of the global supply. When the COVID-19 pandemic began in March 2020, the global population began to lock down indoors. The transportation industry, which is responsible for 25 percent of global oil consumption, began to consume drastically less crude oil as cars, planes, and trains ceased normal activity. As a result of transportation and other industries taking a pandemic-induced hit, demand reached an all time low; crude oil prices tumbled to the lowest ever recorded. The Venezuelan economy, being so closely tied to the export of crude oil, took a large hit. 

Hyperinflation was another blow to the Venezuelan economy. At the end of 2019, inflation in Venezuela was estimated to have reached 10 million percent. This astounding figure is attributed to excessive money printing and heavy government spending that began in 2014, Venezuelan President Nicolás Maduro’s first year in office. Hyperinflation led to the hoarding of basic goods as they became more expensive by the day, shuttered the country’s economy by making people’s life savings worthless, and tanked consumer spending. As medicine, food, and shelter became increasingly inaccessible to the general public, angry Venezuelans turned to their government for assistance—and received little from the Maduro administration.

Riding a lucrative oil market early in his administration, Maduro began to overspend on Chavez-era social programs to provide Venezuelans with affordable food and quality medical care, among other benefits. When the price of oil crashed in late-2014, however, Maduro began printing increasing volumes of the national currency, Bolivares, using deficit funds to keep these programs afloat. This overspending, combined with weak oil prices, led to the economy’s collapse. When the Venezuelan populace could no longer afford basic goods and services, civilian protests seemed an inevitability.

The first significant demonstrations came in 2014, when tens of thousands of people took to the streets to beg the government for an end to food shortages and hyperinflation. These protests grew as extreme desperation continued through 2015. In 2016, a referendum to recall Maduro put forward by the opposition-dominated National Electoral Council (CNE) was supported by 88 percent of Venezuelan voters. However, allegations of fraud, arrests of CNE members, and a lack of voting machines prevented the referendum from passing. The failed referendum led to a demonstration with 1.2 million participants, or over three percent of the country’s population, the largest in all of Venezuelan history. The year after the failed referendum, a pro-government, 32-member court—the Supreme Tribunal of Justice—took over the duties of the opposition-led National Assembly. This usurpation of power greatly upset the general public, and ensuing protests in early 2017 garnered between 2.5 and six million participants. In 2018, after a year of historic protests, a presidential election was held between incumbent Maduro and opposition candidate Henri Falcón. Maduro was declared the winner with 67 percent of the vote, handily triumphing over Falcon’s 21 percent. 

Maduro’s voting numbers hardly tell the whole story, however—voter turnout was estimated at below 46 percent due to widespread opposition boycotts. The election was marred by reports of fraud, and the National Assembly President Juan Guaido declared himself president of Venezuela, citing the Venezuelan constitution. In the wake of his declaration, Guaido was endorsed by the U.S., U.K., Brazil, and numerous other influential global powers. However, Maduro maintained that the election was legitimate and remains in control of the Venezuelan armed forces. However, even as his militaristic power remains, Maduro’s popularity has all but nosedived. Economic and political turmoil have soured popular opinion towards the scandal-ridden Venezuelan president.

Today, the economic and political situation in Venezuela remains largely the same as when Guaido attempted to take power in 2018. Almost 77 percent of Venezuelans still live in poverty as a result of government failures amid weak demand for the country’s vital oil exports. The national situation is dire—and this regional focus series hopes to explore potential avenues for improvement.