Venezuela’s fortuitous natural oil reserves have long provided the financial resources to fund the Bolivarian revolution led by the PSUV. However, with a steep economic crisis already crippling the nation, lowering oil prices are eroding the last profitable pillar in Venezuela’s economy.
Venezuela’s finance minister affirmed yesterday that their US-based petroleum company Citgo will not be sold to the United States in order to raise much-needed revenue.
The Andean nation has an inflation rate that reached 63% in the third quarter, which has caused vast food shortages and blackouts in many states.
This failure to accommodate the basic needs of the Venezuela population has weakened Nicolas Maduro’s popularity rating down to as little as 30%, according to polls released this week.
Despite Nicolas Maduro categorically denying that his administration had planned to sell Citgo – which has three oil refineries in the United States, all owned by Venezuelan petroleum giant Petroleos de Venezuela SA – many had speculated that this move was still under consideration given the growing need to address cash shortages in Venezuela.
It is estimated that Venezuela relies on its oil reserves for 96% of its hard cash revenues. To lose this source of income would spark fears across the Latin American markets of a second default on external debt in the region this year, after Argentina.
Citgo’s operations – with its base in Houston – produce an estimated 750,000 barrels of oil a day. Reports suggested that Venezuela were holding out for a $10 billion sale, provoking further concern over the future of Venezuela’s state and international oil setups.
Citgo provides petroleum to almost 150,000 families in the United States. Maduro rejected claims he was negotiating a sale of the firm and asserted the contrary. In September, Maduro stated he would ‘fortify this investment’, a defiant assurance of its manufacturing capabilities.
Its parent firm, PDVSA, is no alien to this economic crisis. Last week, Venezuela faced a watershed moment in its economic history, as the first Algerian oil reserves arrived in the Bolivarian republic this past Saturday.
Venezuela conceded that they require imported crude oil to revitalise their dwindling oil capacities. The imported stock will be combined with reserves from the Orinoco belt in Venezuela, one of the most lucrative oil deposits on Earth.
The decision to import crude oil serves as an admission from Nicolas Maduro of the dire condition in which his most profitable sector lies.
In 2001, Hugo Chavez fired almost 10,000 PDVSA workers who took part in a protest against the politicisation of the state run oil company. At the heart of those dismissals were the managers and technicians, those that made their oil industry tick.
Critics point to a clear economic mismanagement of the petroleum sector. Over the past decade global demand for oil has soared. During a period where many countries are still wholly reliant on imported reserves, Venezuela failed to capitalise to its full potential.
PDVSA cited the move to import crude oil as a more cost efficient method than the current process of using naphtha. Furthermore, it argued maintenance at their heavy crude upgrader Petrocedeno, triggered the need to import foreign reserves. President Maduro blamed media outlets for scaremongering over a potential default.
Friday 24th October saw Venezuela’s oil price fall to $75.90, the lowest since 2010. While their oil prices continue to decrease it will, in turn, reduce the profit margins of the Maduro administration. This will only further restrict the necessary cash flow to address growing domestic issues.
The decision to shelve plans to sell Citgo to their main client deprives Venezuela of a short term cash fix but it reveals a degree of optimism amid an economic storm. Finance Minister Rodolfo Marco predicts their oil reserves will be worth $4 billion by December.