Why Venezuela Is Poor Despite Having The World's Largest Oil Reserves
Instead of using oil income to build a diversified economy, Venezuela allowed petroleum revenue to crowd out other sectors, leaving growth tied almost entirely to crude prices.
The broader economic collapse is tied to this governance failure. According to an analysis of Venezuela's crisis by The Borgen Project, extreme dependence on oil hurt resilience when oil prices fell sharply in the 2010s, leaving the government with massive deficits and few alternatives.
Inflation accelerated, eroding incomes and savings, and by the late 2010s, Venezuela experienced one of the worst hyperinflations in modern history.
Sanctions, Isolation, And External Pressures
Overlapping with longstanding domestic challenges are international sanctions and geopolitical pressures. U.S. sanctions targeting Venezuelan oil exports and financial transactions have restricted the country's access to global markets and financing, reducing exports and investment.
These measures, intensified under successive U.S. administrations, including renewed pressure in the 2020s, have contributed to lower export volumes and logistical obstacles.
For example, tightening U.S. enforcement has dramatically limited PDVSA's ability to sell oil globally, leading to situations where storage tanks fill with unsold petroleum because tankers won't risk sanctions-related repercussions, according to a report by Reuters.
While a few sanctioned and unsanctioned tankers still arrive, overall exports remain well below potential.
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Saudi Arabia: Oil Managed As Capital
Saudi Arabia demonstrates that oil dependence need not lead to collapse. Like Venezuela, it nationalized its oil sector, but unlike the Latin American nation, Riyadh has insulated oil operations from day-to-day politics and encouraged professional management under a long-term economic reform plan known as Vision 2030.
Under this strategy, oil surpluses are not just spent but saved and invested through the Public Investment Fund — one of the world's largest sovereign wealth funds — which is aligned with the country's diversification goals and has expanded its asset base through transfers of state oil company shares.
As a result, the contribution of non-oil economic activity has risen to nearly half, according to data from the Ministry of Economy and Planning's analysis of data issued by the General Authority for Statistics (GASTAT).
A Sharp Contrast: Norway
In contrast to the Venezuelan model, Norway avoided the resource curse by treating oil as an inheritance rather than income.
Petroleum revenues flow into the Government Pension Fund Global, now the world's largest sovereign wealth fund, while a strict fiscal rule limits government spending to roughly 3% of the fund's expected return.
At the same time, the state-majority oil producer, Equinor, is run commercially under a transparent, rules-based system.
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This article Why Venezuela Is Poor Despite Having The World's Largest Oil Reserves originally appeared on Benzinga.com
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