By Kalista Kuemmerle
Even after shifts in oil control and the removal of Nicolas Maduro, Venezuela’s economy remains trapped by decades of institutional corruption and dependence on oil revenue.
Venezuela should be one of the richest countries in the world. The country holds the largest proven oil reserves on Earth, much of it concentrated in the Orinoco Belt, and for decades petroleum exports supplied the overwhelming majority of government revenue and foreign currency. Yet this apparent advantage has become a vulnerability. Political instability and sanctions slowed production, and the economy collapsed alongside these factors. Even as control over oil shifts and Nicolás Maduro has been removed from power, Venezuela’s economy remains constrained by deeper structural failures. The crisis reveals how resource wealth when fused with weak institutions can trap an economy rather than sustain it.
Historically, government dominance over Venezuela’s oil industry has been an economic asset and a political tool. In 1976, the state nationalized the oil sector and created the state-owned company PDVSA. This move gave the government full control over exports and revenue. Over time, oil came to account for roughly 90% to 95% of export earnings, allowing the state to finance itself largely through petroleum rents rather than taxes. Under this system, political leaders could fund social programs and public spending directly from oil income, strengthening their authority and reducing the incentive to diversify the economy. Especially in the late twentieth and early twenty-first centuries, PDVSA’s revenues were increasingly directed toward political priorities instead of reinvestment in infrastructure. This meant that oil was not simply sold to generate profit, but used as a mechanism through which the government could maintain power, funding public spending without building long-term economic capacity.
This allowed for oil to present the economy’s vulnerability to shocks. When oil prices fell or production declined, foreign currency inflow dried up almost immediately. For example, when global oil prices fell from more than $100 per barrel in 2014 to under $30 by early 2016, Venezuela lost the majority of the foreign currency it relied on to fund imports and government spending, triggering a political spiral that intensified unrest and concentrated power. Imports fell as inflation accelerated. By the 2010s, years of underinvestment and political interference had lowered PDVSA’s operational capacity, contributing to a dramatic drop in output from more than three million barrels per day in the early 2000s to well under one million by 2020. Because oil dominated exports and government revenue, the decline was felt in every sector of the economy.
The capture and removal of Nicolás Maduro exposed just how tightly Venezuela’s economy had been tied to political authority. Maduro presided over a system in which decision-making over PDVSA leadership was directed towards the top of the ladder. His sudden removal did not bring immediate stability. Instead, the bolívar fell sharply on informal exchange markets as uncertainty surged over who controlled oil revenues and economic policy. Businesses and investors faced confusion over legal authority and who could control contracts or reserve access. In response, the U.S. moved to oversee and redirect Venezuelan oil flows, effectively shifting partial control of the country’s primary economic asset outside its border. This transfer of control has reinstated Venezuelan oil into global markets, but it has also meant that decisions about revenue distribution now occur largely outside of Venezuela, reducing the immediate benefits for Venezuelan citizens and limiting how much oil income reaches the domestic economy.
Even with oil control changing and Maduro removed from power, Venezuela’s economy remains constrained by the collapse of its institutions. The country experienced one of its worst economic contractions, with GDP shrinking by 75%, between 2013 and 2021, a period that coincides with Nicolás Maduro’s presidency and reflects the cumulative effect of his policy decisions. Hyperinflation peaked in 2018 at levels exceeding 1 million percent, destroying confidence in the currency. The central bank lost credibility after financing government deficits. Dollarization emerged as a survival strategy in the absence of a trusted store of value. Simultaneously, the non-oil economy operates far below capacity, affected by price controls and infrastructure declines. Millions of Venezuelans emigrated during the crisis, draining labor and weakening domestic demand.
Some argue that renewed oil production and external oversight could be enough to restart growth. In this view, even modest increases in output would generate badly needed foreign currency and stabilize Venezuela’s economy. Others say that Maduro’s removal itself forgoes the main obstacle to recovery, opening doors to investment. But Venezuela’s history suggests otherwise. Past oil booms failed to produce lasting development precisely because institutions were too weak to manage revenue productively. Without stable and dependable infrastructure, new oil income risks reinforcing dependence rather than building a diversified economy.
Looking ahead, projections remain cautious. Analysts estimate that restoring oil capacity would require tens of billions of dollars and many years of reinvestment. Short-term gains may be possible if production rises and exports increase, but a long-term recovery that supports Venezuelan citizens depends on institutional rebuilding. Restoring credibility and enforcing contracts are essential to stimulate sustained growth. Without these reforms, the same cycle risks being repeated. Since the military capture of Nicolás Maduro, the U.S. has positioned itself as a key influencer in Venezuela’s oil sector, seizing Venezuelan resources and planning to oversee future production to benefit American interests. U.S. control over Venezuelan oil revenue gives it leverage over the country’s policy direction as well. This approach can risk dependency on foreign power rather than leading the way for autonomous development. Venezuela’s experience provides insight into a more expansive lesson about resource wealth. Oil can generate immense revenue, but without strong institutions to manage it, wealth can increase dependence rather than produce sustainable growth. The extent to which U.S. power shapes Venezuela’s economic future will therefore be a defining part in whether recovery leads to long term stability or simply replaces one form of dependence with another.
Leave a Reply