Fear and Loathing in Venezuela

By: Daniel Guttman / August 8, 2018

MaduroThe bad news flowing out of Venezuela this year rivals even that of the mighty surges of the Orinoco River as news came out over the weekend of an assassination attempt against Venezuelan President Nicolás Maduro.  During a televised speech to soldiers, a drone carrying explosives detonated in the skies of Caracas, forcing President Maduro and his retinue to flee for safety.  Although he escaped without injury to his person, his reputation and government took a considerable hit.  This latest attempt comes amidst widespread economic collapse and cataclysmic inflation levels.

               Venezuela’s economy has traditionally been carried by the performance of state-owned company PDVSA (Petróleos de Venezuela, S.A.).  Production of crude has been declining over the past two years and as of April, Colombia has taken over as a larger net exporter of product to the United States.  In the late 90’s, under former president Hugo Chavez, production was nearly double that of current day levels.  “PDVSA is broken for lack of investment, lack of maintenance in all its processes, for years.  Now, the crisis is deepening every day,” said PDVSA union leader José Bodas.  With mechanical parts breaking down with no repairs and oil wells exhausting their output with no new wells being drilled to replace them, the dire situation slips closer to the edge of what seems to be inevitable collapse.

The reports coming out of Venezuela paint a grim picture of workers fleeing operations and oil rigs being shut down.  Some reports out of Venezuela show monthly crude production dropped below 1.3 mb/d, which represents the lowest monthly level in 69 years (excluding a two-month oil strike from December 2002 to January 2003).  OPEC’s secondary sources report levels around 1.34 mb/d, while the government reported 1.531 mb/d, the same as May’s numbers.  The disparity in statistics coming out of the country was explained by one energy ministry official as “cooking the official data sent to OPEC to hide the truth about {PDVSA} from President Maduro and from the public.”  The brutal reality is that inflation is set to top 13,000 percent, GDP will continue to shrink with end of year numbers looking to be almost 50 percent of the GDP in 2013.

Venezuelan Spiral-1

As Maduro and Venezuela continue down the path of economic collapse, some see China as a viable savior who could throw the embattled country a lifeline.  While optimists see China as Gandalf arriving at the Battle of Helm’s Deep just in time to save humanity, realists see the act as putting a Band-Aid on a stab wound.  The China development bank is reported to be investing $250 million to fend off the decline of oil production with the possibility of a larger $5 billion investment to help right the ship.

China’s vested interest in Venezuela is because they have been receiving hundreds of thousands of barrels per day as payment for previous loans.  If China wants payment for their billions of dollars in previous loans, then they have to do what they can to prop up the PDVSA.  There is a very real danger of Venezuela not being able to meet all of their contractual obligations, thus interrupting delivery to long distance customers like China and India.  The Center for Strategic and International Studies reported in April that the loans coming out of China is keeping Venezuela dependent on oil and is eroding any other positive economic forces.  The previous loans have not shown an improvement for the Venezuelan economy and experts do not see how the possibility of future loans from China will show a different result. 

Amidst all the chaos sits President Maduro.  What the future holds for his regime is unknown to all and the future lies in a blanket of fog and haze.  Some outlets are predicting a precipitous drop to 1.0 mb/d by the end of 2018 even with China’s help.  What will Maduro do?













Categories: Venezuela

Daniel Guttman

Written by

Daniel Guttman

With a background in wholesale and commercial sales as well as pipeline scheduling, Daniel is currently the Manager, Business Development in the Card Access Fuels department. He is tasked to find new and innovative solutions to increase sales opportunities for the sales team while managing and evaluating internal department processes. He assists with day to day personnel management, customer data analysis, as well as the daily Pacific Pride inventory and pricing direction.

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